Article by: Hall & Wilcox Tax
With a modest surplus of $2.2 billion predicted for 2019-20, and tax cuts totalling $140 billion, Scott Morrison’s third budget is a strong indication of an imminent election.
There are few losers in this budget, with significant personal income tax cuts scheduled for the next 7 years without any corresponding halt to the planned reduction of the corporate tax rate. Further, despite recent debate and media coverage, the budget did not include any changes to negative gearing or the 50% CGT discount.
Expenditure programs have been slated for infrastructure and the health care sector, among others. This includes announcements relating to infrastructure impacting Western Sydney, including a plan to co-fund the first stage of the North South Rail Link from Schofields to Macarthur, and improvements to community infrastructure.
However, Scott Morrison has tempered the spending and tax cuts with measures aimed at increasing revenue by an estimated $5.3 billion over the next 4 years by targeting the black economy.
Reforms announced in the budget include:
- significant personal income tax cuts, including the introduction of a 7-year Personal Income Tax Plan
- various measures in response to the final report from the Black Economy Taskforce, including those aimed to combat illegal phoenixing
- a number of superannuation changes
- various integrity measures, including those aimed to limit the CGT discount and
- an extension of the $20,000 instant asset write-off.
Below is a snapshot of some of these measures. For more on the budget and what it could mean for you, contact Hall & Wilcox.
Personal income tax cuts
Next financial year, individuals will benefit from tax savings of up to $530 aimed at the ‘middle’ tax bracket. The top of this bracket will be increased from $87,000 to $90,000 from 1 July 2018 and then to $120,000 from 1 July 2022.
The upper threshold of the 19% tax bracket will then increase from $37,000 to $41,000, with an accompanying increase in the low and middle income tax offset. The next tax bracket ($90,000 to $180,000) is to be eliminated in 2024.
There will be no increase in the Medicare levy rate, remaining at 2%.
The $20,000 instant asset write-off has been extended to 30 June 2019 for businesses with an aggregated annual turnover of less than $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
Restricting deductions for vacant land
Taxpayers will not be allowed a deduction for expenses associated with holding vacant residential or commercial land from 1 July 2019.
From 1 July 2019, SMSFs that have a history of 3 consecutive years of clear audit reports will be able to move to a 3-yearly audit cycle.
The ATO will also be empowered to help match ‘lost superannuation’ activation to active accounts.
Exit fees for switching superannuation will be banned, and caps will be placed on other fees (e.g. administrative).
Insurance for new members under 25 will now be ‘opt-in’.
From 1 July 2019, the benefit of adult marginal tax rates applying to distributions from testamentary trusts to minors will only be available for income generated from the assets placed in the testamentary trust by the deceased, or the disposal or investment proceeds of those assets.
Limiting concessions for partnerships
Partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership, will no longer be able to access the small business CGT concessions in relation to those rights.
Measures have been announced in response to the Black Economy Taskforce, including:
- From 1 July 2019, businesses will not be able to claim deductions for payments to their employees (e.g. wages) where PAYG has not been withheld
- Introduction of an economy-wide limit of $10,000 for cash payments made to businesses for goods and services from 1 July 2019
- Consulting on a new regulatory framework for issuing ABNs in 2018-19
- Measures to combat illicit tobacco
The Government is aiming to make Director Penalty Notices apply in respect of GST liabilities, in addition to the existing application of the notices to PAYGW and SGC.
Measures will be introduced to prevent individuals with potentially valuable ‘image rights’ (such as sportspeople and media identities) from obtaining a tax advantage by entering into arrangements to license those rights to controlled companies and trusts.
Research and development tax incentive
The Government intends to better target the research and development tax incentive with an emphasis on improving the integrity of the system by strengthening anti-avoidance rules, increasing transparency and simplifying the system.
Additionally, there are intensity focused changes (on a bracket scheme basis) to the R&D tax that would apply.
Anthony Bradica is a Partner, Jim Koutsokostas is a Special Counsel and Raoul D'Cruz is a Lawyer in the Tax team at Hall & Wilcox.
For further information please contact:
Hall & Wilcox
Phone: +61 414 509 268