On Tuesday, 8 May 2018, Treasurer Scott Morrison handed down the 2018-19 Federal Budget.
We’ve cherry picked those tax and superannuation changes which will impact most of our clients – the highlights are set out below.
For detailed information and further related announcements, the full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.
No big ticket tax reform and none of the major changes we’ve seen in recent years to grapple with
Welcome tax relief for individuals
Happy to see the $20,000 asset write off extended for small businesses
Despite a lot of noise – no changes to work-related deductions
In the 2018-19 Budget, the Government announced staged tax relief for low and middle-income earners. The Government is proposing a major 7-year 3-step plan to reform personal income tax:
Step 1 will see a new non-refundable Low and Middle-Income Tax Offset from 2018-19 to 2021-22, designed to provide tax relief of up to $530 for each of those years. The offset will be delivered on assessment after an individual submits their tax return and will be in addition to the existing low-income tax offset (LITO).
Step 2 will increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018.
Step 3 – from 1 July 2024, the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely.
Talk of allowing individual taxpayers a standard tax deduction for work-related expenses (WRE) has been around for more years than we may care to remember. There was some pre-Budget speculation around the likelihood of the Government introducing a standard tax deduction in this year’s Budget, especially after the ATO aired its strong concerns about what it said was the over-claiming of work-related tax deductions. Calls for a standard deduction are not new and have been around for a number of years, most notably recommended by the Henry Tax Review in 2010, however, there was no announcement in this year’s 2018-19 Federal Budget.
$20,000 instant asset write-off for SBEs extended by 12 months
The Government will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2019. This applies to businesses with aggregated annual turnover less than $10 million. SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off (or other simplified depreciation rules), eg horticultural plants and in-house software.
Cash payments limit: payments made to businesses
The Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services.
This measure will require transactions over a threshold to be made through an electronic payment system or by cheque. Logically it would seem that this threshold amount should be $10,000, but this is not spelt out in the Budget papers or the media release.
The rules will not apply to transactions with:
- financial institutions; or
- consumer-to-consumer non-business transactions.
This measure was recommended by the Black Economy Taskforce. It is designed to support other measures designed to counter the black economy. There is no revenue impact associated with it.
The limit will apply from 1 July 2019 (ie next year). The Government will consult further as part of the implementation process.
SMSF member limit to increase from 4 to 6 – law to be amended
The Budget confirmed that the maximum number of allowable members in new and existing self-managed superannuation funds (SMSFs) and small APRA funds will be expanded from 4 to 6 members from 1 July 2019. This measure was originally flagged on 27 April 2018 by the Minister for Revenue and Financial Services, Kelly O’Dwyer.
The proposed increase to the maximum number of SMSF members seeks to provide greater flexibility for large families to jointly manage retirement savings. Given the growth in the sector to date, Ms O’Dwyer said the measure will ensure SMSFs remain compelling retirement savings vehicle. The Government is expected to ask the Tax Office to work with industry on the design and implementation of this measure. It is not expected to have a revenue impact.
The date of effect is 1 July 2019
Superannuation work test exemption for contributions by recent retirees
The Government will introduce an exemption from the work test for voluntary superannuation contributions by individuals aged 65-74 with superannuation balances below $300,000 in the first year that they do not meet the work test requirements. This measure will apply from 1 July 2019.
Super Guarantee opt-out for high-income employees who breach concessional cap
The Government will allow individuals whose income exceeds $263,157 and have multiple employers to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
Super fees to be capped at 3% for small accounts, exit fees banned
Passive fees charged by superannuation funds will be capped at 3% for small accounts with balances below $6,000, while exit fees will be banned for all superannuation accounts from 1 July 2019. These measures form part of the Government’s Protecting Your Super Package.
ATO consolidation of small inactive super accounts to get more proactive
The Government will strengthen the ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts with balances below $6,000 to the ATO to protect them from further erosion. The ATO will expand its data matching processes to proactively reunite these lost and low balance super accounts with the member’s active account, where possible. This measure will also include the proactive payment of funds already held by the ATO. The majority of accounts transferred to the ATO are expected to be reunited in the year they are received.
Superannuation insurance opt-in rule for younger and low-balance members
The Government will change the insurance arrangements for certain cohorts of superannuation members from 1 July 2019. Under the proposed changes, insurance within superannuation will move from a default framework to be offered on an opt-in basis for:
- members with low balances of less than $6,000;
- members under the age of 25 years; and
- members with inactive accounts that have not received a contribution in 13 months.
Improve access to Youth Allowance for regional students
The Government will be providing $53.9 million over 4 years from the 2018-19 income year to improve regional students’ access to the Youth Allowance by changing the threshold and assessment year for parental income. The new Parental Income Test threshold cut-off under the regional workforce independence criterion will be increased from $150,000 to $160,000. The new $160,000 cut-off will also be increased by $10,000 for each additional child in the family.
Measures for older Australians
The Government will introduce a range of measures to enhance the standard of living of older Australians:
- increase the Pension Work Bonus from $250 to $300 per fortnight (ie $7,800 a year) and extend the Bonus to self employed retirees who will be able to earn up to $300 per fortnight without impacting their pension;
- amend the pension means test rules to encourage the development and take up of lifetime retirement income products that can help retirees manage the risk of outliving their savings; and
- expand the Pension Loans Scheme to everyone over Age Pension age and the maximum fortnightly income stream will be increased to 150% of the Age Pension rate. This will enable Australians to use the equity in their homes to increase their incomes.
These measures commence on 1 July 2019.