The Turnball Government has released the 2018 Federal Budget and as expected in an election year, the budget has provided some relief for low to medium income earners while not containing much in the way of bad news, serious cuts or major reforms.
The biggest selling point is the proposed introduction of a new low and middle tax offset for taxpayers earning up to $125,333. For those earning less than $37,000 the offset is $200. For those earning between $48,000 and $90,000 the offset is $530. For those earning between $37,000 and $48,000, the offset increases on a sliding scale from $200 to $530 depending on your income while those earning between $90,000 and $125,333 the offset decreases on a sliding scale from $530 to $0 depending on your income. The proposed offset will be paid as a lump sum when the 2019 tax return is assessed and will continue until the 2022 tax return.
The other major initiative to deliver tax savings is the proposed changes to the personal tax rates. There are a variety of changes proposed over a 7 year period with the first applying from 1 July 2018 being the increasing of the top threshold for the 32.5% tax bracket from $87,000 to $90,000. Further changes are then proposed from 1 July 2022 to increase the top threshold for the 19% tax bracket to $41,000 and increase the top threshold for the 32.5% tax bracket from $90,000 to $120,000 as well as increasing the low income tax offset from $445 to $645. Finally from 1 July 2024, the 37% tax bracket is proposed to be removed completely with the 32.5% tax bracket increasing from $120,000 to $200,000.
It is worth remembering that these are only proposals at this stage and given the long time frame of the changes, it is highly likely these reforms will not pass in their current form. The other proposed changes which Elysium believes could be relevant for you and your business are as follows: –
- The $20,000 immediate asset write off for small business with a turnover less than $10 million has been extended another 12 months until 30 June 2019
- From 1 July 2018, for companies with a turnover under $20 million, the refundable research and development tax offset will be capped at $4 million. Any excess offset amount will not be refundable but will be carried forward to future income years.
- From 1 July 2019, employers who fall behind on their PAYG obligations will not be able to claim a tax deduction for payments to employees (i.e. their wages). Businesses will also lose the ability to claim a tax deduction for subcontractor payments where no ABN was provided and the business did not withhold the appropriate PAYG withholding.
- From 1 July 2019, a self-managed super fund only need to be audited every third year which will save on compliance costs
- From 1 July 2019, family trust distributions to corporate beneficiaries will be subject to Division 7A regulations which basically makes the distribution a loan which must be repaid over 7 years
- From 1 July 2019, a ban on all exit fees charged by super funds along with an annual 3% cap on passive fees on super fund member balances below $6,000
- From 1 July 2019, for those members with minor super balances (i.e. less than $6,000) they will have to opt in to receive insurance cover. This will ensure members do not inadvertently erode their retirement savings due to insurance premiums the member did not want.
- From 1 July 2018, taxpayers who have incomes above $263,057 and have multiple employers will be able to nominate to not receive super contributions from certain employers and avoid breaching the $25,000 contributions cap.
- From 1 July 2019, the work test requirement for persons aged 65 to 74 who want to contribute to super will be scrapped if the member has a super balance below $300,000
- From 1 July 2019, deductions for holding costs such as loan interest and rates will not be allowed for investors holding vacant land. This also applies to those building a proposed rental property on this land who previously could claim these costs. These expenses cannot be carried forward to be claimed in future years but can still be added to the cost base of the property.
If you would like further information about any of these proposed changes and how they may impact you, please do not hesitate to contact us.