CTBS 2018/19 Budget Report – What’s Important

Changes to individual tax rates and the introductions of ANOTHER income offset

The Government will introduce a seven-year, three-step, Personal Income Tax Plan.

Step 1: Targeted tax relief to low and middle income earners The Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return. The benefit of the proposed Low and Middle Income Tax Offset is as follows:

  • Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200;
  • For taxpayers with taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530;
  • For taxpayers with taxable incomes from $48,000 to $90,000 a $530 offset applies; and
  • For taxpayers with taxable incomes from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.

From 01/07/2018 There is a change in where the 32.5% tax rates cuts out/ Shifting from $87,000 to $90,000. TAX TIP –Defer income to the following financial year is a must where possible. This is for businesses and individuals.

There are other announcements that delve a lot further into the future. In 5 years time we may be able to remove the 37% tax bracket altogether.

The extension of the $20,000 write-off for one more year (at least). This is the second time the government have announced a 12 month extension of the $20,000 instant asset write-off. They should just make an permanent. So the extension now does to 30th June 2019. Using the instant asset write-off where appropriate is still a great strategy to consider to reduce taxable income in the current year. 12 more months may fuel more investment in small businesses.

From the 01/07/2019 we will see a few more changes.

  • Removing tax deductibility of contractor payments (without ABNS) and if you don’t withhold from wage payments (where the law dictates you should of). The first one is a no brainer and the ATO would generally look to disallow this in most circumstances currently. Tax deductibility of wages should remain intact. I’d be interested to see how this works in practice.
  • Introduction of the $10,000 cash limit payment to businesses (black economy crackdown). The assumptions is that this is per transaction. It will be illegal to pay a business more than $10,000 in cash.
  • Expanding Contractor payments reporting systems. Currently Building and cleaning industry have these requirements. From 01/07/2019 it will be extended to IT Professionals, Road freight transport & Security provider services. It does appear the government will keep adding these and it will be difficult for any business not to report Contractor payments by 2030.
  • Three year audit cycle for some SMSFs. This is a surprise announcement. It could be a good surprise as far as compliance costs go for SMSFs that are on good ground. But again the 2010 financial year would be the first time this would occur.
  • SMSF members numbers can now go from 4 to 6. We are talking 1% of the SMSF population have more than 2 members. So this won’t do too much but interesting for those that wish to explore investing for an asset with 5 to 6 people involved.
  • Every other superannuation change is very minor. They are looking at making it easy to get lost super. Restricting fees  where there is a balance of less than $6,000 in a super account. No life insurance for under 25s or small balance funds (if the members agree)
  • Extending GST for off shore sellers of hotel accommodation – The government trying to get GST on these providers where the hotels involved belong in Australia. Makes sense in the digital age. This is starting to happen across the Internet with companies like Google & Uber already.
  • There are other changes announced for the R & D Offset, Illegal phoenix activities, improving that taxation of testamentary trusts and denying deductions relating to vacant land (on an account of revenue). Must be getting rent to claim deductions.

The budget always has some announcements that will make you think. There isn’t anything significant superannuation changes. There is nothing more regarding investment property changes or housing affordability. The main focus on this budget appears to be a small tax cut for everyone. What we get out of this budget is there is still a need to do the following to reduce taxable income

  1. Defer Income from the 2018 financial year to the 2019 financial year. You will pay less tax and be able to access the low and middle income tax offset in 90% of cases.
  2. Bring forward deductions to the 2018 year.
  3. If you are in business you will be able to utilise the instant asset write-off in the current year and the following year to.
  4. Look to maximize the $25,000 concessional super contribution limit. The limit is the same next year.