With the federal election delivering a Liberal National Coalition government for the next 3 years (based on recent history we will perhaps refrain from suggesting that Scott Morrison will be the Prime Minister for the next 3 years!) business and individuals alike have some clarity on the nature of the tax and business landscape ahead.
Following all of the headlines, this article will review which policies are already legislated, what is on the agenda and, just as importantly, what is not on the tax agenda in the near future.
What we expect is on the agenda
- Low and Middle Income Tax Offset
Proposed by the government in the April budget, this offset is expected to be one of the first bills to be introduced. The tax offset, of up to $1,080 for those on incomes of $90,000 or less for the 2019 (current) financial year which then phases down for those on incomes between $90,000 and $126,000, would provide immediate tax relief for low and middle income individuals.We anticipate this will be passed through Parliament quickly as Labor had proposed an almost identical policy. Practically we will see this flow through by way of larger refunds for individuals as the offset has not been factored into withholding rates for employers during the year.
- Personal income tax rates
Based on the federal budget, the Government will look to abolish the 32.5% and 37% tax brackets from 1 July 2024. This means individuals would have a tax rate of 30% on all income between $45,000 and $200,000.How high this is on the agenda is not clear given that we could have another election before this legislation would come into effect. One to watch.
- Division 7A re-write
A topic that will have a significant impact on the SME sector, a re-write of Division 7A legislation was underway in late 2018 with a proposed start date of 1 July 2019. Thankfully that start date has been deferred but we hope to see some further detail on this in coming months in order to advise clients on the options for navigating these changes.
- 6-member SMSFs
Legislation to increase the permitted number of members of an SMSF from 4 to 6 may be re-introduced to Parliament. This provides a number of planning opportunities but will also require a ‘proceed with caution’ approach to avoid unintended consequences.
- Director Penalty Notices to include GST
Whilst there was limited detail on this prior to the election, changes to bring GST into the Director Penalty Notice (DPN) regime would significant implications for all business owners.
What’s already happened?
- Business incentives
The $30,000 immediate deduction for assets purchased by 30 June this year received assent before the election campaign and is in place for all businesses with a turnover under $50m for the 2019 financial year.There have been a number of changes to this seemingly simple legislation in the 2019 financial year so if you are not sure if a purchase your business has made will be immediately deductible contact your accountant here at Hoffman Kelly to discuss.
- Company tax rates
Legislation has already passed which will see a decrease in the tax rate for companies defined as Base Rate Entities (BRE) and turning over less than $50m over the next 3 financial years.For Base Rate Entities the company tax rate will remain at 27.5% for the 2019 and the 2020 financial years; decreasing to 26% in the 2021 financial year and then finally to 25% in the 2022 financial year.
All other companies (being, non-Base Rate Entities) will continue to have a 30% tax rate.
What’s not on the agenda
- Removal of refundable franking creditsThe Government has no plans to change the current system that allows for the refund of excess franking credits
- Tax on distributions from discretionary trustsThe Government has no plans to change the current system which requires beneficiaries who receive income from a discretionary trust to pay tax at their own marginal rate on income from the trust (i.e. the beneficiary is responsible for the tax, not the trust).
- Negative GearingThe Government has no plans to change the current system which allows for losses incurred, from say a rental property or share portfolio, to be offset against other income derived, say from employment, and tax is payable on the net amount.
- CGT DiscountThe Government has no plans to change the current system that allows for individuals and trusts that have owned a CGT asset for more than 12 months to apply a 50% discount to the gross capital gain when an asset is sold. Tax is payable at marginal rates on 50% of the gross gain.