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The 2019 Federal Budget was handed down on Tuesday 2 April. Following is a summary of the headline measures.

BUSINESS TAX CHANGES

Instant Asset Write-Off Boosted and Expanded – Two key changes have been made. Firstly, the write-off has been extended to medium-sized businesses (those with an aggregated annual turnover of less than $50 million). Secondly, the threshold has been increased to $30,000. Therefore, subject to legislation, businesses with an aggregated turnover of less than $50 million will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are purchased and then first used, or installed ready for use, from Budget night (2 April 2019) to 30 June 2020.  These changes are in addition to those currently before Parliament (but not yet passed into law) which extend the write-off by 12 months to 30 June 2020 and increase the threshold to $25,000 (up from $20,000) for assets purchased and installed ready for use from 29 January 2019. As the law currently stands, the write-off threshold is $20,000, is only available to small businesses (turnover less than $10 million), and expires 30 June 2019.

Division 7A Changes Deferred – The Government’s proposed Division 7A changes will be deferred by 12 months to 1 July 2020. To recap, Division 7A is designed to prevent profits or assets being provided to shareholders or their associates tax-free.

Crackdown on Unpaid Tax and Super by Larger Businesses – The Government will provide more than $40 million to the ATO to recover unpaid tax and Superannuation Guarantee owed by larger businesses. This will not extend to the small business sector however (i.e. those with a turnover of less than $10 million).

Strengthening ABN Rules – This measure imposes new compliance obligations on ABN holders to retain their ABN. From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually. By contrast, under current law ABN holders are able to retain their ABN irrespective of whether they are meeting their income tax return lodgement obligations or the obligation to update their ABN details. The upshot of the new rules is that ABN holders will be made more accountable for meeting their Government obligations, while minimising the regulatory impact on businesses complying with the law.

Tackling Sham Contracting – The Government will provide more than $9 million to establish a dedicated unit within the Fair Work Ombudsman to address sham contracting. This is where employers seek to avoid statutory obligations and employment entitlements (such as paid leave and superannuation) by misrepresenting employer/employee relationships as independent contracts.

PERSONAL TAX CHANGES

Income Tax Cuts by Increasing Tax Offset – Subject to the passage of legislation, tax relief will be granted to individuals via the non-refundable low and middle income tax offset (LMITO). The LIMTO will increase from a current maximum of $530 per year to $1,080. Further, the base rate will increase from $200 to $255 per year for 2018/2019 through to 2021/2022. Depending on your level of income, the changes will benefit individuals as follows:

• The LMITO will now provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.

• Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080.

• Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.

• For taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

The LMITO will be enjoyed straight after individuals lodge their income tax returns for the above years.

Income Tax Cuts via Rate and Threshold Changes – The following changes are slated for future income years:

• From 1 July 2022, an increase to the top threshold of the 19% personal income tax bracket from$41,000 to $45,000.
• From 1 July 2022, an increase in the low income tax offset (LITO) from $645 to $700.

Medicare Levy Low Income Thresholds increased for 2018/2019 – The 2018/2019 Medicare levy low-income threshold for singles will be increased to $22,398 (up from $21,980 for 2017/2018). For couples with no children, the family income threshold will be increased to $37,794 (up from $37,089 for 2017/2018). The additional amount of threshold for each dependent child or student will be increased to $3,471 (up from $3,406). For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $35,418 (up from $34,758 for 2017-18). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385), plus $3,471 for each dependent child or student.

SUPERANNUATION CHANGES

Removal of Work Test for Certain Taxpayers – The current superannuation work test will be removed for people aged 65 and 66 from 1 July 2020. This will enable an estimated 55,000 individuals to make concessional and non-concessional voluntary superannuation contributions even if they are not working. Under current rules, they can only make voluntary contributions if they meet the work test, which requires that they work a minimum of 40 hours over a 30-day period.

Extending Eligibility for the Bring-Forward Cap – From 1 July 2020, access to the bring-forward cap will be extended from taxpayers aged less than 65 years of age to those aged 65 and 66. This will enable these taxpayers to make up to three years’ worth of non-concessional contributions, capped at $100,000 a year, to superannuation in a single year (but no further contributions for that current or two subsequent financial years).

Increase to Age Limit for Spouse Contributions – The age limit for spouse contributions will increase from 69 to 75 from 1 July 2020. This provides taxpayers with a greater ability to contribute on behalf of their spouse and, in doing so, provide for their retirement and potentially access a tax offset of up to $540 if their spouse is a low-income earner.

Reduce Red Tape for Super Funds – From 1 July 2020, it is proposed that the Government will allow superannuation funds that have both an accumulation and retirement interests during an income year to choose their preferred method of calculating exempt current pension income (ECPI). There is also a proposal to remove a redundant requirement for superannuation funds that are 100% in pension phase for all of the income year to acquire an actuarial certificate when calculating ECPI using the proportionate method.

Delayed Start Date for Super Insurance Opt-In Rule – The Government confirmed that it will delay the start date by three months to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis in respect of members with accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

BROADER BUSINESS CONDITIONS

In good news for the business community, the Budget papers forecast that the economy will grow at 2.25% in 2018/2019 (current financial year), despite a very subdued first half of the year. Economic growth will then jump to 2.75% in 2019/2020. To provide some historical context, average annual economic growth in Australia has been 3.47% from 1960 to 2017.

If you have any question on how these measures may impact you or your business, please contact your PT Partners Advisor on (07) 3808 4499.

Josh McMullen is a senior tax writer at PT Partners.