2018 Australian Federal Budget – tax changes

Changes have been made for personal and business tax clients; Australian corporates and multinational groups.

Personal Taxes

• Introduction of a Low and Middle Income Tax Offset, non-refundable, from 1 July 2018:
  • Up to $200 for taxpayers with taxable income of $37,000 or less
    • Up to $530 for taxpayers with taxable income between $37,000 and $48,000 ($200 for taxpayers with taxable income of $37,000 with an increase of 3c per dollar thereafter up to $530), and
  • $530 for taxpayers with taxable income between $48,000 and $90,000
  • For taxpayers with taxable income between $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
• Change to personal tax income brackets:
  • From 1 July 2018:
    • 32.5% bracket will increase from $87,000 to $90,000
  • From 1 July 2022
    • 19% bracket will increase from $37,000 to $41,000
    • 32.5% bracket will increase from $90,000 to $120,000
    • Low income tax offset will increase to up to $645
  • From 1 July 2024
    • 32.5% bracket will increase from $120,000 to $200,000
    • Removal of the 37% bracket. Income over $200,000 at 45%
• Testamentary Trusts
  • From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
• Medicare Levy
  • The proposed increase from 1 July 2019 will no longer go ahead, therefore the Medicare levy will remain at 2%.
  • From 1 July 2018, the Medicare levy low-income thresholds will increase as follows:
    • Individuals, from $21,655 to $21,980
    • Families, from $36,541 to 37,089, with an additional $3,406 for each dependent child or student (increased from $3,356)
    • Single seniors and pensioners, from $34,244 to $34758
    • The family threshold for seniors and pensioners, from $47,670 to $48,385, with an additional $3,406 for each dependent child or student (increased from $3,356)
• Youth Allowance
  • The new Parental Income Test threshold under the regional workforce independence criterion will be increased to $160,000 (with a further $10,000 increase in the threshold for each additional child) and the financial year preceding the beginning of the recipient’s 14 month ‘self-support period’ will be used as the assessment year.
• Pension work bonus
  • From 1 July 2019, the bonus will increase from $250 to $300 per fortnight, to earn up to $7,800 each year without impacting their pension

Private Business

• Deemed Dividends Rules
  • From 1 July 2019, trust distributions to private companies where the amounts remain unpaid (referred to as ‘unpaid present entitlements’ (UPEs)) will come within the scope of the deemed dividend rules (Division 7a). They will be required to be repaid to the private company over time as a complying loan or will be subject to tax as a dividend. It is unclear whether this change will only apply to future UPEs.
  • Start date for simplification amendments to division 7a has been deferred from 1 July 2018 to 1 July 2019
• Immediate $20,000 write-off of depreciable assets
  • The immediate write-off deduction for small entities has been extended to 30 June 2019.
• Circular Trust Distributions
  • From 1 July 2019, the Government intends to extend the operation of the Trustee Beneficiary Reporting rules to family trusts that engage in circular trust distributions.
• Vacant Land
  • From 1 July 2019, no deductions will be available for expenses associated with holding vacant land, where the land (residential or commercial) is not genuinely held for the purpose of producing assessable income.
  • The measures will not apply to:
    • Expenses associated with holding land that are incurred after a property has been constructed on the land, it has received approval to be occupied and is available for rent; or
    • Land used by the owner in carrying on a business, which includes primary production businesses.
• Small Business CGT concessions
  • From 8 May 2018, partners that alienate their income by creating, assigning or dealing in rights to the future income of a partnership will no longer be able to access the small business CGT concessions on the capital gain made in relation to the right.

Corporate Tax

• In addition to the reduction in corporation tax rates for smaller companies, there are proposals in place to also reduce the rate to 25% by the 2026/27 income year for companies with aggregate turnover in excess of $50m.
• Crackdown on illegal phoenixing, including preventing directors backdating resignations to avoid liability or prosecution, and limiting the ability of directors to resign when this would leave the company with no directors.

Research and Development

• Refundable R&D Tax Offset
  • For companies of an annual turnover less than $20m, the refundable R&D tax offset will be capped at $4m annually, however an amount in excess will be carried forward. The net benefit will be fixed at 13.5%

Global Taxes

• Thin capitalisation
  • Double gearing structures – From 1 July 2018, the threshold at which an entity becomes an ‘associate entity’ for thin capitalisation purposes is to be reduced from ownership of 50% or more to 10% or more.
  • Tightening asset valuations – From 1 July 2019, companies will be required to reply on the asset values within their financial statements.
• Foreign controlled Australian consolidated groups
  • From 1 July 2019, Foreign controlled Australian consolidated groups that control a foreign entity will be treated as both outward and inward investment vehicles.

Indirect Taxes and Trade

• GST – Online Hotel bookings
  • From 1 July 2019, GST will be extended to offshore sellers of Australian hotel accommodation
• Exercise relief for craft brewers and distillers
  • From 1 July 2019, the alcohol excise refund scheme cap will increase from $30,000 to $100,000 per year.
  • The concessional draught beer excuse rate will be extended to apply to smaller kegs of 8 litres of more (currently 48 litres).
• Tobacco duty
  • From 1 July 2019, importers will be required to obtain a permit to import tobacco and meet their duty and tax liabilities when tobacco first enters the country.
• Luxury Cars
  • From 1 July 2019, luxury car tax on cars re-imported after being refurbished overseas will be removed.
• Biosecurity System
  • From 1 July 2019, a new levy on sea imports will be imposed on port operators. The levy will be $10.02 per twenty foot container (or equivalent) or $1 per tonne of non-containerised cargo and payable on a quarterly basis.

Asset and Wealth Management

• CGT Discount for MITs
• From 1 July 2019, Managed Investment Trusts (MITs) and Attribution Managed Investment Trusts (AMITs) will be prevented from applying the 50% CGT discount at the trust level.
• Beneficiaries will still be able to claim once distributed from the Trust, if they are entitled.

• Reduced withholding tax
• From 1 January 2019, 56 jurisdictions will be added to the list of countries whose residents are eligible to the reduced 15% withholding rate (instead of 30%) on certain distributions from MITs and AMITs.

 

 

 

Superannuation

• Fees
• From 1 July 2019, a 3% cap will be introduced on passive fees charged on accounts with balances below $6,000.
• From 1 July 2019, exit fees will be banned on all accounts.

• Transfers to ATO
• From 1 July 2019, all inactive accounts where balances are below $6,000 are required to be transferred to the ATO.

• Insurance in Superannuation
• From 1 July 2019, insurance within a member account must be opt-in for: members with low balances of less than $6,000; members under the age of 25; and members whose accounts have not received a contribution in 13 months and are inactive.

• High income earners
• From 1 July 2018, individuals whose income exceeds $263,157 and have multiple employers will be able to nominate that their wages from certain employers are not subject to superannuation guarantee.

• Work test exemption
• From 1 July 2019, voluntary contributions to superannuation for people aged 65 – 74 years with superannuation balances below $300,000, in the first year that they do not meet the work test requirements, will be exempt from the work test.

• SMSF Members
• From 1 July 2019, Maximum number of members will extend from four to six.

Other Matters

• Film Industry
  • Over four years from 2019/20, the Location Offset rate will increase from 16.5% to 30% for eligible large budget international productions that are filmed in Australia from 1 July 2018.
• Wages deductions
  • From 1 July 2019, businesses will no longer be able to claim deductions for payments to their employees where they have not withheld any amount of PAYG. This will also apply to businesses with contractors who do not provide an ABN.
• Cash payment limit

From 1 July 2019, a limit of $10,000 for cash payments made to businesses for goods and services will be introduced.