Last week saw the Government bring down the budget which was conspicuously light on significant tax changes. Shortly after we saw the Opposition’s response and this year we listened with keen interest as it provides the small business community insight into the environment that may lie ahead depending on the election outcome.
This article summarises three key areas: the budget announcements by the Government, headline proposals from the Opposition’s response and a review of announcements that have now lapsed as Parliament runs out of sitting days before the election.
THE FEDERAL BUDGET
- The low and middle income tax offset has been doubled to $1,080 and it will apply for this financial year (2018-19). The offset applies to individual taxpayers with up to $90,000 of taxable income, then tapers off for those on an income of up to $126,000.
- Increase to Medicare levy low-income threshold which gives relief to low-income taxpayers.
- Increasing the instant asset write-off from $25,000 to $30,000 for assets purchased after 7:30pm on 2nd April 2019. Additionally, this will apply for businesses with income of up to $50million (previously $10m). This has already been passed by Parliament.
|Date & Time||01/07/18 – 29/01/2019||29/01/2019 – 7pm 02/04/2019||7pm 02/04/19 – 30/06/2019|
|Small business (<$10m turnover)||<$20k immediate write off||<$25k immediate write off||<$30k immediate write off|
|>$20k small business pool||>$25k small business pool||>$30k small business pool|
|Medium business (<$50m turnover)||<$1000 Low value pool||<$1000 Low value pool||<$30k immediate write off|
|>$1000 depreciate under capital allowance rules||>$1000 depreciate under capital allowance rules||>$30k depreciate under capital allowance rules|
- The proposed amendments to the Division 7A legislation have been deferred by 12 months to 1 July 2020. This is a significant area for small business, so the deferral comes as a relief to many in the hope of gaining certainty around amendments with sufficient notice for taxpayers to plan appropriately.
- $42.1m of funding over the next 4 years to the ATO to increase activities in identifying and recovering unpaid super and tax for employees. The budget announcement has identified large businesses and high wealth individuals, rather than small businesses, as the target of these activities.
The budget was heavily weighted on legislative changes that are least one, if not two elections away and we have therefore refrained from the detail on these proposals. Some items of interest though are:
- Removal of work test for individuals aged 65 & 66 to allow for concessional and non-concessional contributions, including the ability to use the ‘bring-forward’ rule for non-concessional contributions. Proposed commencement date of 1 July 2020.
- New compliance obligations for holders of an ABN. Proposal that from 1 July 2021 ABN holders must meet their income tax obligations and annually confirm details held on the Australian Business Register to maintain their ABN.
- $9.2m of funding over 4 years from 2020 to establish a Sham Contracting Unit within the Fair Work Ombudsman to address sham contracting behaviour.
THE OPPOSITION’S BUDGET RESPONSE
- Increased tax offset for low-income and part-time workers of $350 for those earning less than $45,000 per year (about $100 more than the Coalition)
- Increase top marginal tax rate from 45% to 47% (excluding Medicare levy)
- Cap on deductions for managing tax affairs of $3,000 from 1 July 2019.
- 20% capital allowance write-off in the year of purchase for an asset from 1 July 2021 for assets costing more than $20,000.
- Denial of refunds for excess franking credits from 1 July 2019
- 30% minimum tax rate on discretionary trust distributions
- Limit negative gearing to new housing from 1 January 2020
- Halving of capital gains discount to 25% for all assets purchased from 1 January 2020
- Reduction of the non-concessional contribution cap from $100,000 to $75,000 per year
- Removal of ability for individuals to claim tax deduction for superannuation contributions (rolling legislation back to its previous state)
- $200,000 income threshold (currently $250,000) for application of Div293 tax which is an additional 15% tax on superannuation contributions
- Abolition of catch-up concessional contributions for those who have a superannuation balance of $500,000 or less
- Abolition of borrowing by SMSFs to purchase property (this is currently done by way of a Limited Recourse Borrowing Arrangement – such arrangements are almost exclusively implemented by SMSFs)
- No changes to the Research & Development incentives
There is a significant backlog of legislation that has not made its way through parliament yet and we will therefore have to wait for a newly elected government to re-introduce these measures, if at all. This includes:
- Increasing allowable number of members of an SMSF from 4 to 6
- Removal of CGT main residence exemption for foreign residents
- Combating phoenix activity and holding directors personally liable for a company’s GST liability in certain circumstances
- Introduction of DIN (Director Identifier Number)
- One-off 12-month amnesty for employers to self-correct historical under-payment of Super Guarantee without incurring additional penalties. This also included increasing the penalties for employers who did not report under the amnesty from 50% to 100%
- Reduction of reporting threshold for private corporate entities from $100m to $50m
Several other measures that were only at consultation paper stage have now also lapsed.
What does this all mean for our individual and SME clients?
Regardless of election outcome; it is clear that planning is more important than ever to ensure the right outcomes for you and your business. We invite you to join us on Wednesday 17th April at 5.30pm as we talk through the budget and tax policies so that you can better understand the impact to your business.