This year's budget focuses on "responsible fiscal repair" with a clear intent of providing immediate benefits to low and middle income earners and a seven year plan to remove the 37% individual income tax bracket. What was notably absent was any further push of corporate tax rate changes other than a small mention in the Treasurer's speech about the need to continue to implement the previously announced policy.
After running a final budget deficit, the Government plans to return the budget to surplus in the 2019/20 year. The largest risks to the forecast are global protectionist trade policies and slow wage growth despite low unemployment. With significant uncertainty surrounding both these risks it is unsurprising that the big tax cuts are scheduled to occur beyond the four-year budget forecast period.
It appears the Labor Party will support the immediate personal income tax changes however they will also continue to push their own tax policies of removing negative gearing and reducing the general CGT concession from 50% to 25%.
Other significant tax changes or policy announcements were:
- Funding and measures to tackle the "Black Economy" and tax evasion.
- Expanding the taxable payments reporting system to track payments to contractors in selected industries.
- Modifications to the R&D tax concession rates and rules.
- Changes to super to abolish exit fees and to further protect small balances.
- Increase the limit of SMSF members from four to six and change the audit requirements to a three-year cycle for funds with good compliance history.
A more detailed summary of the changes in tax and superannuation that we expect to impact clients is set out below.
- A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
- The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year.
- The 2017/18 Federal Budget measure to increase the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019 will not proceed.
- The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.
Land holders (all entities):
- Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.
- The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019.
- The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income.
- Amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules from 1 July 2019. The start date of previously announced targeted amendments to Div 7A will also be deferred from 1 July 2018 to 1 July 2019.
- The new specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts.
- The concessional tax rates applied to the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate.
- Large (>$20m turn-over) R&D entities will have the concession phased in based on the intensity of R&D expenditure as a proportion of total expenditure.
- Small (<$20m turn-over) R&D entities will have refunds capped to $4m. per annum.
- Payments to employees and contractors are no longer deductible where any amounts that are required to be withheld are not paid, from 1 July 2019.
- Director Penalty Notices (personal liability) extended to unpaid GST, Luxury Car Tax and Wine Equalisation Tax.
- Businesses can no longer receive cash payments above $10,000 for goods and services, from 1 July 2019.
The taxable payments reporting system for payments to contractors will be expanded to include security services, road freight transport and computer system design industries, effective from 1 July 2019.
- The definition of a "significant global entity" (SGE) will be broadened to include more large multinational groups, from 1 July 2018.
- The thin capitalisation rules will be amended, effective 1 July 2019, to require entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.
- The thin capitalisation rules will be amended, effective 1 July 2019, to treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for thin capitalisation purposes.
- The list of countries whose residents are eligible to access a reduced withholding tax rate of 15% on certain distributions from Australian managed investment trusts (MITs) will be updated.
Managed Investment Trusts:
- The 50% capital gains discount for managed investment trusts (MITs) and attribution MITs (AMITs) will be removed at the trust level.
Tax exempt entities:
- Entities that become taxable after 8 May 2018 will not be able to claim tax deductions that arise on the repayment of the principal of a concessional loan.
- The maximum number of allowable members in SMSFs and small APRA funds will be increased to six from 1 July 2019.
- The annual audit requirement for self-managed superannuation funds will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.
- Individuals whose income exceeds $263,157, and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
- Individuals will be required to confirm in their income tax returns that they have complied with "notice of intent" requirements in relation to their personal superannuation contributions, effective from 1 July 2018.
- An exemption from the work test for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
- Insurance arrangements for low balance, inactive accounts and young (<25) members will be changed from being a default framework to being offered on an opt-in basis.
- A 3% annual cap will be introduced on passive fees charged by superannuation funds on accounts with balances below $6,000.
- Exit fees on all superannuation accounts will be banned.
- The financial institutions supervisory levies will be increased to raise additional revenue of $31.9m over four years, from 2018/19.
We have provided indepth Analysis' for further explanation: Tax & Accounting Overview and Political & Economic Overview.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Fergus Roughley, Director
Spry Roughley Services Pty Limited
Liability limited by a scheme approved under Professional Standards Legislation