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2018/19 Federal Budget Tax Brief

The Federal Treasurer, Mr Scott Morrison handed down the 2018-2019 Federal Budget on 8 May 2018.

The Budget deficit is expected to be $14.5 Billion for the 2018/19 year, returning to a small surplus of $2.2 Billion in 2019/20, a year ahead of previously forecast.

As widely anticipated in an election year, the Treasurer has found room for individual tax cuts, increasing over time.

This Budget Tax Brief reflects the tax related major measures announced in the Budget that we expect will be of relevance to Hanrick Curran clients. Please note that the budget brief summarises our understanding of the Government announcements that have not yet been introduced into law.

 

INDIVIDUALS

Tax Cuts and Offsets – Over Time

The Budget targets ‘bracket creep’ and provides reductions in the effective tax rate via a new tax offset.  It also aims to remove the 37% tax bracket over a 7-year period.

The proposed amendments to the tax rates are as follows, culminating in the removal of the 37% tax bracket in 2025.

The budget introduces a new Tax Offset labelled The Low and Middle Income Tax Offset (LAMITO) which will apply in addition to the existing Low Income Tax Offset of $445 which applies to incomes between $18,200 and $37,000 then reduces and is not available once income reaches $66,667.

The LAMITO applies an additional benefit of $200 for incomes of less than $37,000.  It then increases by 3 cents per $1 for incomes between $37,000 and $48,000 up to a maximum benefit of $530.  This is maintained for incomes up to $90,000 and then reduces and is not available once income reaches $125,333.

Medicare Levy Increase Removed

The previously announced increase in the Medicare Levy from 2 – 2.5% will now not occur.

The Medicare Levy Threshold will increase for singles to $21,980 and for couples to $37,089.

Personal Image Rights – Taxed to Individual

High profile Individuals such as sports people and celebrities will no longer be able to divert income received from the use of their ‘image’ to another entity.  While not prevented from assigning the rights to their image to another entity, any income from use of their image will be personally taxed.  Effective from 1/7/2019.

No CGT Discount for (Everett) Assignment of Partnership Interests

Partners in partnerships will no longer be able to access the small business CGT concessions in relation to the assignment of partnership interests to another entity.  Known as ‘Everett Assignments’ after a tax case, partners in professional firms will often seek to ‘assign’ the income streams from their partnership interest to another taxpayer.  The assignment is the creation or sale of a right and subject to capital gains tax.  The Government proposes that the partner selling the right will not be able to access CGT relief on the sale. Effective 8/5/2018.

Integrity Measure for Testamentary Trust Income of Minors

Minors are treated like adults for the purpose of taxing income from testamentary trusts.  The government aims to close a loophole to ensure that the only income afforded the concessionary treatment is income received from assets transferred from a deceased estate.  This should ensure income from assets transferred to the testamentary trust from other sources should not receive the concessional tax treatment. Effective 1/7/2019.

 

BUSINESS

Instant Tax Write-Off for Assets < $20,000 extended for another year

The instant tax write off for assets costing less than $20,000 has been extended until 30 June 2019 (originally legislated to end 30 June 2018).

No deductions on interest on loans to purchase vacant land

The government is proposing to deny an interest deduction on loans to purchase vacant land (land banking) unless there is proof that there is a genuine business being carried on. Effective 1/7/2019.

Often developers will purchase new development land in a separate entity.  Without a track record of development, it may be difficult to prove that a business of property development has commenced. Effective 1/7/2019.

No deductions for non-compliant payments to employees and contractors

Businesses will be denied tax deductions for payments to employees and contractors if the PAYG withholding requirements were not complied with.  Effective 1/7/2019.

Contractor Payment Reporting Expanded

The ‘Taxable Payments’ reporting regime will be expanded.  Currently it applies to the building industry and will expand to the cleaning and courier businesses from 1 July 2018.  It is now proposed to also apply to the security, road freight and computer contactor industries from 1 July 2019.

No cash business payments exceeding $10,000

Payments for business transactions exceeding $10,000 will not be allowed to be made in cash and instead must be made either electronically or by cheque.  No detail is available about what happens for non-compliance.  Effective 1/7/2019.

Director Penalty Regime Extended

The director penalty regime currently can make a company director liable for a company’s unpaid employee PAYG withholding and superannuation guarantee requirements.  This is proposed to be extended to GST, Luxury car tax and wine equalisation tax also as part of the Government’s continuing effort to prevent Phoenix activities.

Division 7A

In the 2017-2018 budget, the Government flagged various changes to Division 7A.  The application date has now been extended until 1 July 2019.  In addition, the Government aims to provide certainty about the treatment of Unpaid Present Entitlements.

Previously Announced Measures

The Government is committed to passing all previously announced measures such as the reduction in company tax rates over time to 25%.

Trust Distributions – Integrity Rules

More Integrity Rules will be introduced to prevent trusts from distributing in a circle to other trusts, ending up at the first trust.  These rules will presumably apply in addition to the existing Trustee Beneficiary Statement Rules.

Tax on Digital Transactions – Government Discussion Paper

The Government has promised to issue a discussion paper on taxing of digital transactions.  The OECD BEPS action item 1 requires Governments to combat tax abuse in the digital economy.  Recent papers from Europe have suggested a 3% withholding tax on digital transactions.  India has also introduced a 6% tax.

 

RESEARCH & DEVELOPMENT

Refundable Tax offsets for R&D incurred by companies with <$20 Million turnover will be limited to 13.5% above the tax rate, in addition they will be subject to a $4 Million cap.

For companies with > $20 Million turnover, the rate of non-refundable tax offset will depend on the percentage of R&D expenditure as a proportion of total expenditure as follows:

The above measures are announcements only and have not been introduced to Parliament.  Only limited detail is available about the announcements and more will be available once they are introduced to Parliament.  We recommend you seek professional advice about how these announced measures may affect your personal circumstances.

Should you have any queries in relation to how the Budget announcements will affect you or your business and superannuation, please contact Jamie Towers, Clive Todd or your usual Hanrick Curran advisor on 07 3218 3900.

 

Alternatively, further details can be found on the Government’s Budget website: www.budget.gov.au

 

For a printable PDF please click here.

 

© Hanrick Curran 2018