A summary of the key items released in the 2019 Federal Budget
Josh Frydenberg’s 2019-20 Federal Budget announced the first surplus in more than 10 years at $7.1 billion for 2019-20 and then forecast continued surpluses over the following four years - $11 billion in 2020-21; $17.8 billion in 2021-22; and $9.2 billion in 2022-23. The economy is forecast to grow by 2.75% in both 2019-20 and 2020-21 and by 3% in 2021-22. Unemployment is expected to remain unchanged at 5% through to 2022-23 while inflation is expected at 2.25% for 2019-20 and increasing to 2.5% in 2020-21.
The key revenue measures comprise:
- Staged reductions in personal income tax
- No significant changes to the taxation of superannuation
- Increasing the instant asset tax write-off and other business measures
It is important to remember that what follows is a series of proposals that must be passed by Federal Parliament before they become law. With an election required to be held by mid-May, parliament sitting days in order to pass legislation are limited. There are also many other Legislative Bills covering tax and superannuation stuck in Parliament which may lapse when the Federal election is called which is not ideal.
PERSONAL TAX MEASURES EXCLDUING SUPERANNUATION
The income tax rates for resident individuals will be progressively lowered over a number of years through changes to Tax Offsets, income rate thresholds and the income tax rates themselves.
Step 1 – Low and Middle Income Tax Offset
For this current 2018-19 year and through to 2021-22, the maximum non-refundable annual tax offset of $530 will increase to $1,080 and the base offset will increase from $200 to $255 for resident individuals. This offset benefit will be calculated as follows:
|Taxable Incomes (T.I.)||Offset|
|Up to $37,000||$255|
|$37,000 to $48,000||$255 + ([T.I. - $37,000] x 7.5%)|
|$48,000 to $90,000||$1,080|
|$90,000 to $125,999||$1,080 + ([T.I. - $90,000] x 7.5%)|
|$126,000 and above||Nil|
The offset will not be incorporated into the Pay As You Go Withholding tables, instead it will be credited as a lump sum on the annual income tax assessment.
Step 2 – Protection from Bracket Creep
From 1 July 2022 the 19% tax rate bracket will be extended to cover incomes up to $45,000 (increased from $37,500).
Also from 1 July 2022 the Low Income Tax Offset (LITO) will be slightly increased such that the taxable income at which the LITO will phase out will be at $66,667.
Then from 1 July 2024 the 32.5% marginal tax rate will reduce to 30%.
Step 3– Change to only 3 Personal Tax Rates
Also from 1 July 2024 the Government will only have three personal income tax rates, being 19%, 30% and 45%.
Tables through to 2023-24
|Tax Rate||Previous 2017-18||2018-19 to 2021-22||2022-23 to 2023-24|
|Nil||$0 - $18,200||$0 - $18,200||$0 - $18,200|
|19%||$18,201 – $37,000||$18,201 – $37,000||$18,201 – $45,000|
|32.5%||$37,001 – $87,000||$37,001 - $90,000||$45,001 - $120,000|
|37%||$87,001 - $180,000||$90,001 - $180,000||$120,001 - $180,000|
|45%||$180,001 +||$180,000 +||$180,000 +|
| Low & Middle
Income Tax Offset
|-||Up to $1,080||-|
| Low Income
|Up to $445||Up to $445||Up to $700|
Table from 2024-25
|Tax Rate from 2024-25||New Thresholds From 2024-25|
|Nil||$0 - $18,200|
||$18,201 - $45,000|
|30%||$45,001 - $200,000|
|Low Income Tax Offset||Up to $700|
Medicare Levy to Remain at 2%
The Medicare Levy will remain at 2.0% and there will be the usual indexation of the Medicare Levy low income thresholds.
There was a previously announced removal of the CGT main residence exemption for foreign residents for home sales from 9 May 2017, subject to a 30 June 2019 transitional rule. While not commented upon in this Budget, there is speculation that the Government may not proceed with it.
After significant changes in recent years, superannuation has been left largely untouched in the 2019-20 Federal Budget. The key changes announced comprise:Greater Flexibility for Retirement Contributions - Work Test Exemption Extended to Age 66
From 1 July 2020, individuals aged 65 and 66 will be able to make both voluntary concessional and non-concessional contributions without needing to meet the work test. Of course the ability to make non-concessional contributions remains subject to the individual’s total superannuation member’s balance being under the $1.6m cap.
Those aged 65 and 66 will also be able to access the bring forward arrangements for non-concessional contributions, again providing that it does not take them above their $1.6m members balance cap. The bring forward rules currently allows individuals aged less than 65 years to make 3 year’s worth of non-concessional contributions (which are generally capped at $100,000 per year) in a single year. This will be extended to 65 and 66 year olds. Otherwise, the existing annual caps for concessional and non-concessional contributions ($25,000 and $100,000 respectively) continue to apply.
The change will align the Work Test with the eligibility age for the Age Pension, which is scheduled to reach 67 from 1 July 2023.
Spouse Superannuation Contributions
The Government has also increased the age limit for spouse contributions from 69 to 74. Currently, those aged 70 years and over cannot receive contributions made by another person on their behalf.
Exempt Current Position Income Calculations for SMSF's and Small APRA Funds
The Government will streamline administrative requirements for the calculation of exempt current pension income (ECPI).
The Government will allow superannuation fund trustees with interest in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI.
This change will reduce unnecessary red-tape for SMSFs in pension phase.
Tax Relief for Merging Superannuation Funds
The current tax relief for merging APRA superannuation funds that was to expire on 1 July 2020 will be made permanent from that time.
Since December 2008, tax relief has been available for APRA superannuation funds to transfer revenue and capital losses to a new merged APRA fund and to defer any taxation consequences on gains and losses as part of the merger.
Inclusion of Release Authorities in Electronic SuperStream Rollovers
The Government will provide $19.3 million over three years from 2020-21 to the Australian Taxation Office (ATO) to send electronic requests to superannuation funds for the release of money required under a number of superannuation arrangements. This is an improvement on the current process which includes physical documentation.
The start date of SMSF rollovers in SuperStream will be delayed until 31 March 2021 to coincide with the expansion of the SuperStream.
BUSINESS TAXATION CHANGES
Instant Asset Write Off Extended to Medium Business and Threshold Increased
From 7.30pm AEDST on 2 April 2019 until 30 June 2020, the instant asset write-off threshold has increased to from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
So for Small Business (aggregated annual turnover of less than $10 million), they could already use the instant asset write-off threshold of $25,000 so the change is the increase to a $30,000 threshold from 7.30pm AEDST on 2 April 2019.
Small businesses can continue to place assets which cannot be immediately deducted in the small business simplified depreciation pool and depreciate those assets at 15% in the first year and 30% in each year after that. The pool can be immediately deducted if it is less than the applicable instant asset write-off threshold at the ends of the year of income.
For Medium Sized Business (aggregated turnover of $10 million or more but less than $50 million), they will now be able to access this deduction for assets purchased from 7.30pm AEDST on 2 April to 30 June 2020 costing up to $30,000. The purchase date is critical as medium sized businesses did not previously have access to the instant asset write-off.
Proposed Division 7A Private Company Loan Rules
The previously announced proposed changes to the Division 7A rules contained in the Government’s Consultation Paper in October 2018 which were said to apply from 1 July 2019 will now be deferred to 1 July 2020 in order to allow the government to have further consultation time.
The previously announced changes included:
- simplified rules to make it easier to comply with Division 7A;
- clarification that unpaid present entitlements from trusts (UPE’s) do come within the score of Division 7A;
- a self-correction mechanism providing taxpayers whose arrangements have inadvertently triggered Division 7A with the opportunity to voluntarily correct their arrangements without penalty;
- new safe harbour rules, such as for use of assets, to provide certainty and simplify compliance for taxpayers; and amended rules, with appropriate transitional; and
- complying Division 7A loans to have a single loan duration of 10 years and better aligning calculation of the minimum interest rate with commercial transactions..
Hybrid mismatches typically occur in relation to cross-border transactions when different countries treat instruments or entities differently. For example an instrument that gives rise to a debt deduction in one country, but is treated as equity and not assessable in another country. Australia has tax rules about this which have applied from 1 January 2019.
The Budget announcement is that it will make a number of immediate “minor” amendments to “clarify” their operation.
Managed Investment Trust Withholding Tax
From 1 January 2020, the Government will extend the reduced withholding tax rate to a recipient in Curacao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates. This extension is because of the change to the existing list of Countries with which Australia has entered into an Exchange of Information Agreement.
Currently, under the Managed Investment Trust (MIT) withholding regime, a fund payment made to a recipient with an address or place of payment in an Exchange of Information country is subject to a withholding tax rate of 15% rather than 30%.
More ATO Enforcement Funding
The government is providing additional $1 billion of funding to the ATO over 4 years to expand its Tax Avoidance Taskforce reviewing multinational enterprises.
The government expectation is to increase government tax revenue by $4.6 billion over those 4 years. Larger corporates and multinationals need to prepare themselves for more ATO scrutiny and possibly disputes.
Other Business Measures
The following measures may assist businesses:
- Additional $60 million in funding for Export Market Development Grants
- New apprenticeship incentives
The Export Market Development Grants scheme (EMDG), reimburses up to 50% of eligible export promotion expenses above $5,000 provided that the total expenses are at least $15,000. It can provide up to 8 grants for eligible applicants.
The New Apprenticeship Incentives include:
- Payments to employers a total of $4,000 ($2,000 after 12 months and $2,000 at completion), in addition to the existing $1,500 at commencement and $1,000 at completion of an eligible apprenticeship (so, an increase to $8,000 per apprentice).
- Payments to the apprentice of $2,000 ($1,000 at the start and $1,000 at completion).
Eligible apprenticeships include: carpenters and joiners, plumbers, hairdressers, air-conditioning and refrigeration mechanics, brick layers, stonemasons, plasterers, bakers and pastry cooks, vehicle painters, tilers, arborists.
If you have any questions please contact your client service partner at UHY Haines Norton.
The material contained in this newsletter is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this newsletter without taking appropriate professional advice.