Is there anything I should look out for in the Federal Budget?

As the Federal Election looms, the 2018-19 Federal Budget brings positive news to taxpayers and investors with a promise to return to surplus by 2019-20. The Budget focused on the recovery of taxes from the black economy while introducing a potential $13.4 billion in personal income tax reductions.

The below provides a summary of the key changes announced in the 2018 Budget. Please note that each of these ‘proposals’ will need to be approved by Parliament to become law – so there’s a chance that some of these may not materialise.

Personal

• The Treasurer announced the Government will introduce a seven-year Personal Income Tax Plan. The plan will consist of three steps targeted at tax relief for low and middle-income earners and protecting middle income Australians from bracket creep.
  1. Provide a Low and Middle Income Tax Offset – this is an additional offset to the current Low Income Tax Offset of $445 which aims at providing additional tax relief of $530 per year for the 2019 – 2022 financial years. These offsets reduce your tax liability but are not refundable;
  2. From 1 July 2018, the Government proposes to increase the upper threshold of the 32.5% marginal tax rate from $87,000 to $90,000. From 1 July 2022, the top of the 19% marginal tax rate will increase from $37,000 to $41,000 and the Low Income Tax Offset will increase from $445 to $645. Additionally, from 1 July 2022, the top threshold of the 32.5% marginal tax rate will increase from $90,000 to $120,000;
  3. From 1 July 2024, the Government proposes to increase the upper threshold of the 32.5% marginal tax rate from $120,000 to $200,000, removing the 37% tax bracket. This would make the top marginal tax rate of 45% to commence from $200,000 rather than $180,000.
• The Medicare Levy increase to 2.5% per the 2017 Budget will not proceed and will remain at 2%. The Medicare Levy thresholds for low income singles, families and seniors/pensioners will increase in the 2017-18 income year.
• The Government will also limit the concessional tax rates available for minors receiving income from testamentary trusts to:
  1. income derived from assets that are transferred from the deceased estate; or
  2. the proceeds of the disposal or investment of those assets.

Business

• The Treasurer announced that the Government will extend the $20,000 instant asset write-off for a further financial year until 30 June 2019 for businesses with aggregated annual turnover of less than $10 million.
• From 1 July 2019, unpaid present entitlements (distributions) between a trust and a private company will be caught by the Division 7A (private company loan rules).
• From 1 July 2019, family trusts that are beneficiaries of each other and distribute circularly to avoid tax will be taxed at the top marginal rate plus Medicare levy.
• From 1 July 2019, costs associated with holding vacant residential or commercial land – such as interest costs, will be denied as deductions but may be included in cost base subject to satisfying existing cost base tests. This will not apply to land used to carry on a business or to expenses incurred after property has been constructed on land that has received occupancy approval and is available for rent.

Superannuation

• The Government will allow individuals whose income exceeds $263,157 and who have multiple employers to nominate that their wages from certain employers are not subject to the superannuation guarantee. This measure will allow eligible taxpayers to avoid unintentionally breaching the $25,000 concessional contributions cap – resulting in these individuals being liable to pay excess contributions tax in addition to a shortfall interest charge.
• From 1 July 2019, the Government will introduce an exemption from the work test for voluntary contributions to superannuation, for people aged 65 -74 within their first year of retirement with superannuation balances below $300,000.
• From 1 July 2019, the Government will increase the maximum number of allowable members in a SMSF from four to six.

Opportunities for clients with companies and trusts

With the reduction of personal income tax rates (from July 2024), there is an opportunity to tidy up any loans resulting from Division 7A or Unpaid Present Entitlements (unpaid Trust Distributions) within your companies and trusts – providing you with enough cash surplus to assist in your wealth creation.

Speak to us today to find out how we can optimise your small business finances.