An election budget sure, but at least it isn’t creating ‘too much’ additional complexity nor uncertainty.

Australia’s Federal Budget returns to Surplus, and that means TAX CUTS!

So assuming you believe the forecast numbers (always a tricky one), Australia’s Federal Budget is back in surplus for the first time in more than a decade.

And while there is plenty of commentary out there as to how this has been achieved, the result is the incumbent Government is using the opportunity to reduce the tax burden for the majority of Australians (and hopefully from their point of view win them a few votes in the coming weeks and months at the same time).

But aside from the tax cuts, there is actually very little else to talk about as far as a direct impact on our Clients affairs and day to day operations is concerned.  And while there are commentators out there saying that is a sign of a lack of ideas, we welcome a budget that isn’t looking to turn everything upside down as is so often the case.

The (New) Personal Income Tax Plan

Last year the Government announced substantial tax cuts for individuals commencing on 1 July 2018 and then building to major changes in 2024.

But with the bigger surplus, and an impending election where they are behind on the polls, they have taken things to the next level.

The plan will still be delivered in 3 steps, but the details have changed, starting with a tax cut for this year (2019), assuming of course they are re-elected.

Step 1 – Immediate tax relief for low and middle income earners for this year.  A tax offset of up to $1,080 (was $530) each per year. The offset begins at $255 (was $200) for those earning up to $37,000, increasingly incrementally up to $48,000 per annum, with those earning between $48,000 and $90,000 entitled to the maximum offset of $1,080. The benefit then reduces to zero for those earning over $126,000.

Step 2 – From 1 July 2022 the 19% tax bracket increases from $41,000 to $45,000 AND the 32.5% tax bracket increases from $90,000 to $120,000.

Step 3 – From 1 July 2024 the 37% tax bracket is to be removed entirely, while reducing the 32.5% rate to a flat 30% and, as previously announced, increasing the top threshold from $180,000 to $200,000.  This means from 1 July 2024 those earning between $45,000 and $200,000 will be subject to a 30% marginal tax rate, with the top tax bracket of 45% only kicking in from $200,000.  (Though obviously, we will have to wait 5 years (and at least 2 elections) for this measure to apply!)

Low and middle income tax offset (proposed for 2018-19 to 2021-22)

Low and middle income tax offset (proposed for 2018-19 to 2021-22) (LMITO)
Taxable income (TI)LMITO
$0 – $37,000$255
$37,001 – $48,000$255 + ([TI – $37,000] × 7.5%)
$48,001 – $90,000$1,080
$90,001 – $125,999$1,080 – ([TI – $90,000] × 3%)
$126,000 +Nil

PROPOSED Tax rates and income thresholds

Tax rates and income thresholds
Rate2017-182018-19 to 2021-222022-23 to 2023-24
Nil$0 – $18,200$0 – $18,200$0 – $18,200
19%$18,201 – 37,000$18,201 – 37,000$18,201 – 45,000
32.50%$37,001 – $87,000$37,001 – $90,000$45,001 – $120,000
37%$87,001 – $180,000$90,001 – $180,000$120,001 – $180,000
45%$180,001 +$180,001 +$180,001 +
Low and middle income tax offsetUp to $1,080
Low income tax offset (LITO)Up to $445Up to $445Up to $700

PROPOSED Tax rates and income thresholds 2024-25 onwards

Tax rates and income thresholds 2024-25 onwards
Rates from 2024-25New thresholds from 2024-25
Nil$0 – $18,200
19%$18,201 – 45,000
30%$45,001 – $200,000
45%$200,000 +
LITOUp to $700

Other News of Note…

There are a few other key points worth noting on the tax and business front –

  • The much anticipated “simplification” of Division 7A has been deferred again

As a result, we still remain uncertain as to whether the recommendations of the Board of Taxation in 2014, or the Treasury’s Consultation proposals from October 2018, or indeed a combination of both, will prevail.

The further delays are frustrating to those of us that have prepared for and welcome simplicity.  However it gets a lot of accountants out there who have not, off the hook once again!

  • Extension of the Instant Asset Write-Off effective immediately (well, if they can make it law)

As this is a pre-election budget, this move is unsurprising.  So as of last night, the threshold for the instant write-off of an asset purchased by most businesses is now $30,000, up from $25,000 (you knew they increased it from $20,000 to $25,000 for many businesses just a couple months back right)?  The new threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets. The instant write-off concession will also be expanded to businesses with an aggregated turnover of less than $50 million.

As mentioned, the Government previously announced on 29 January 2019 that it would increase the instant asset write-off threshold for small businesses (with aggregated annual turnover of less than $10 million) from $20,000 to $25,000. Therefore, the $25,000 threshold will only apply from 29 January 2019 until Budget night and the $30,000 threshold will then apply from the Budget night until 30 June 2020.  Confused yet?  But hey, it is a generous concession, so enjoy it!

  • The Black Economy takes another hit

ABN holders will be required to both lodge their tax returns (not a big ask), AND confirm the accuracy of their Australian Business Register details annually (again, this shouldn’t be a big deal if you are organised) in order to keep their ABN.  These new rules will start to kick in from 2021.

  • Additional Funding for the ATO’s Tax Avoidance Taskforce

The Government has committed $1 billion to the ATO’s Tax Avoidance Taskforce to continue the crack down on tax avoidance by large corporates, private groups and wealthy individuals.  In particular, extra spending will be allocated to assist the ATO to recover unpaid superannuation and taxes!!!

  • Super Contributions work test exemption extended to age 66

The Budget amends the work test so that individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test.  The age limit for making spouse contributions will also be increased from 69 to 74.  The proposed extension of the work test exemption means that individuals aged 65 or 66 who don’t meet the work test, because they may only work one day a week or volunteer, will be able to make voluntary contributions to superannuation, giving them greater flexibility as they near retirement.  The Treasurer said the proposed change will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.