2018-19 Federal Budget – Planning for a stronger economy
10 May 2018
On Tuesday the 8th May, the Federal Treasurer, the Hon, Scott Morrison handed down the Coalition Government's national budget for the 2018-19 Financial Year. Overall the stated focus of this budget is "sticking to our plan for a stronger economy". This is a budget preceding an election so a number of measures within this budget are designed to improve the Turnbull Government standing with voters. Most notably, there has been a key focus on delivering wins for voters in the form of tax cuts and more money in pockets. The budget will result in a forecast cash deficit of $14.5million for the 2018-19 financial year.
Key budget announcements
- Individuals – tax relief to reward working Australians, delivered in three stages over seven years.
- Business – extending the date for the small business instant asset write-off of purchases up to $20,000 for businesses with turnover up to $10milion, and overhaul of R&D tax incentives.
- Superannuation – new rules for superannuation funds to improve efficiency including the banning of exit fees.
- Measures to crackdown on the black economy – a limit of $10,000 cash payments to businesses to be imposed.
Personal Income Tax Plan
The Government will introduce a seven-year Personal Income Tax Plan. The first step will provide permanent tax relief to low and middle income earners to help with cost of living pressures. The second step will provide relief from bracket creep by increasing the threshold of the 32.5 per cent personal income tax bracket and the third step will simplify and flatten the system by removing the 37 per cent tax personal income tax bracket.
Changes to the Medicare levy
For the 2017-18 income year the threshold for singles will be increased from $21,655 to $21,980. The family threshold will be increased from $36,541 to $37,089. For single seniors and pensioners, the threshold will be increased from $34,244 to $34,758. The family threshold for seniors and pensioners will be increased from $47,670 to $48,385. For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.
The Government will not increase the Medicare levy rate from 2.0 to 2.5 per cent as had previously been flagged. The consequential changes to other tax rates that are associated with the top marginal tax rate, such as the Fringe Benefits Tax rate, will also not proceed.
$20,000 instant asset write-off
The Government will extend the 2015-16 Budget measure Growing Jobs and Small Business — expanding accelerated depreciation for small businesses by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
Denied deductions for vacant land
The Government will deny deductions for expenses associated with holding vacant land. This is an integrity measure to address concerns that deductions are being improperly claimed for expenses, such as interest costs, where the land is not genuinely held for the purpose of earning assessable income. It will also reduce tax incentives for land banking, which deny the use of land for housing or other development. This measure will take effect from 1 July 2019.
Increasing the integrity of the Commonwealth procurement process
Under the new arrangements, from 1 July 2019, businesses seeking to tender for Australian Government procurement contracts over $4 million (including GST) will be required to provide a statement from the ATO indicating that they are generally compliant with their tax obligations.
Increasing the maximum member number
The Government will increase the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds from four to six, from 1 July 2019.
Work test exemption for recent retirees
For people aged 65-74 with superannuation balances below $300,000, the Government will introduce an exemption from the work test for voluntary contributions to superannuation, in the first year that they do not meet the work test requirements. This measure will take effect from 1 July 2019.
Preventing inadvertent concessional cap breaches by certain employees
The Government will allow individuals whose income exceeds $263,157, and have multiple employers to nominate, that their wages from certain employers are not subject to the superannuation guarantee from 1 July 2018.
Three-yearly audit cycle for some self-managed superannuation funds
The Government will change the annual audit requirement to a three-yearly requirement for self-managed superannuation funds (SMSFs) with a history of good record-keeping and compliance. This measure is proposed to start on 1 July 2019.
Comprehensive income products in retirement
The Government will amend the Superannuation Industry (Supervision) Act 1993 to introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members.
Capping passive fees, banning exit fees and reuniting small and inactive superannuation accounts
The Government will introduce a three per cent annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000 and will ban exit fees on all superannuation accounts. The Government will also strengthen the ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts where the balances are below $6,000 to the ATO. These changes to take effect from 1 July 2019.
Changes to insurance in superannuation
The Government proposes to change the insurance arrangements for certain cohorts of superannuation members.
Insurance within superannuation will move from a default framework to be offered on an opt-in basis for:
- members with low balances of less than $6,000
- members under the age of 25 years
- members whose accounts have not received a contribution in 13 months and are inactive.
Further crackdown on the ‘black economy’
Further expansion of taxable payments reporting
The Government will further expand the taxable payments reporting system to the following industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
This measure will take effect from 1 July 2019.
Introduction of an economy-wide cash payment limit
The Government proposes to introduce a limit of $10,000 for cash payments made to businesses for goods and services from 1 July 2019.
Removing tax deductibility of non-compliant payments
Businesses will no longer be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying. The Government will also remove deductions for payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG despite the withholding requirements applying. This will have effect from 1 July 2019.
General Tax related measures
Extending anti-avoidance rules for circular trust distributions
The Government will extend to family trusts a specific anti-avoidance rule that applies to other closely held trusts that engage in circular trust distributions.
The measure applies to stop ‘round robin” trust distributions, where a distribution ultimately returns to the original trustee – in a way that avoids tax being paid on that amount. Tax on such a distribution will be imposed at a rate equal to the top personal tax rate plus Medicare.
Improving the taxation of testamentary trusts
From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
Better targeting the Research and Development Tax Incentive
The Government will amend the research and development tax incentive to better target the program and improve its integrity and fiscal affordability in response to the recommendations of the 2016 Review of the R&D Tax Incentive. The changes will apply for income years starting on or after 1 July 2018.
Reforms to combat illegal phoenixing
The Government will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt illegal phoenix activity. The package includes reforms to:
- Introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
- Prevent directors improperly backdating resignations to avoid liability or prosecution;
- Limit the ability of directors to resign when this would leave the company with no directors;
- Restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator;
- Extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts; and
- Expand the ATO’s power to retain refunds where there are outstanding tax lodgements. .
Removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution MITs
The Government will prevent Managed Investment Trusts (MITs) and Attribution MITs (AMITs) from applying the 50 per cent capital gains discount at the trust level.
This measure will apply to payments made from 1 July 2019. This integrity measure will ensure that MITs and AMITs operate as genuine flow-through tax vehicles, so that income is taxed in the hands of investors, as if they had invested directly. This measure will prevent beneficiaries that are not entitled to the CGT discount in their own right from getting a benefit from the CGT discount being applied at the trust level.
Under the measure, MITs and AMITs that derive a capital gain will still be able to distribute this income as a capital gain that can be discounted in the hands of the beneficiary.
Alcohol Taxation — extending support for craft brewers and distillers
The Government will increase the alcohol excise refund scheme cap to $100,000 per financial year and extend the concessional draught beer excise rates to 8 litre or greater kegs, from 1 July 2019.
For more information visit www.budget.com.au or if you have specific questions about how the 2018-19 budget may impact you or your business, please speak with your local Boyce accountant.