The Federal Budget was handed down on 8th May, with a variety of measures that leave us in no doubt that this is an ‘election budget’. The Treasurer has taken just under half of the $35 billion of improved revenue and turned it into tax cuts targeted to benefit all Australians.
With a focus on business and personal taxation, we highlight the proposed changes which will be most relevant for you.
The Government will extend the $20,000 instant asset write-off for small business by a further 12 months to 30 June 2019 (small businesses have an aggregated annual turnover less than $10m).
Targeting the Black Economy
- From 1 July 2019, businesses will no longer be able to claim a deduction for payments from which withholding tax was not deducted, when it should have been – e.g. certain payments to employees and contractors.
- From 1 July 2019, the Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. This measure will require transactions over this threshold to be made through an electronic payment system or cheque.
- The contractor payment reporting system will be expanded to the following industries from 1 July 2019:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020. A new online form will make the reporting process easier.
- Corporations and tax laws will be reformed, and regulators will be provided with additional tools to assist them to deter and disrupt illegal phoenix activity. Most notably the package includes the extension of the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts. The commencement date has not been indicated.
Research and Development (R&D) Tax Incentive
- This incentive will be amended to better target the program and improve its integrity and fiscal affordability, with effect from 1 July 2018.
- For companies with an aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
- For companies with an aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate. Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.
Individual Income Tax
There are a number of proposed changes to marginal tax rates over the next seven years:
- From 1 July 2018 the 32.5% upper threshold is proposed to increase from $87,000 to $90,000.
- From 1 July 2022 the 32.5% upper threshold is proposed to increase from $90,000 to $120,000 and the 19% threshold is proposed to increase from $37,000 to $41,000.
- From 1 July 2024, the 32.5% upper threshold is proposed to increase from $120,000 to $200,000 and the 37% tax rate is proposed to be removed.
The Government will provide $130.8 million to the ATO from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.
- From 1 July 2019, the Government will deny deductions for expenses of holding vacant land, both residential and commercial – for example interest on finance used to purchase the land. Deductions will not be impacted when they are incurred after a property has been constructed and it is available for rent. This measure does not apply to land held for the purpose of carrying on a business.
- With the proposed changes to marginal tax rates, the benefits of negative gearing are diminished.
Super was largely untouched in this year’s budget. The new measures proposed include the following:
- From 1 July 2018 trustees of SMSFs will be able to increase their number of members to 6 (up from 4).
- Those SMSFs with a history of good record keeping will be able to move from an annual audit to three-year audits.
- From 1 July 2019 the ‘Work Test’ for those aged over 65 will not need to be met in the year after retirement provided their super balance is less than $300,000.
Private Company Loans / Trust Entitlements
- Legislation will be introduced from 1 July 2019, to amend the Division 7A provisions, which apply to loans made by private companies. This will also ensure that unpaid present entitlements (‘UPEs’) owed from Trusts to companies come within the scope of these provisions.
- This measure will ensure the UPE is either required to be repaid to the private company over time, with interest, as a complying loan under specified terms or is subject to tax as a dividend.
- In practice, UPEs have been treated as being subject to the Division 7A rules since December 2009, on foot of the publication of an ATO practice statement. From 1 July this requirement will be written into law.
We would love to discuss how these proposed measures might impact you and your business. Please do not hesitate to contact Heather Moore on (08) 9254 6854.