Last night, Treasurer Scott Morrison handed down the Federal Government’s Budget.

Please find enclosed a full report summarising the tax & accounting measures introduced that will come into effect from 1 July and onwards. The key measures that are likely to be applicable to the majority of our clients I have highlighted below.

If you wish to discuss any of these measures in further detail, please don’t hesitate to contact our office.

Individuals

• A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
• The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year.
• The 2017/18 Federal Budget measure to increase the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019 will not proceed.
• Supplementary amounts (such as pension supplement, rent assistance and remote area allowance) paid to a veteran, and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018.
• Schemes to license a person’s fame or image to another entity such as a related company or trust to avoid income tax will be curtailed.
• The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.

Income tax

• Significant changes to the calculation of the R&D tax incentive will commence for income years beginning on or after 1 July 2018. Additionally, a maximum cash refund will also apply for some entities.
• The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019.
• Amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules from 1 July 2019.
• The start date of targeted amendments to Div 7A will be deferred from 1 July 2018 to 1 July 2019.
• Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.

Black economy measures

• A package to reform the corporations and tax laws to deter and disrupt illegal phoenix activity and the black economy will be introduced.
• The taxable payments reporting system for payments to contractors will be expanded to include security services, road freight transport and computer system design industries, effective from 1 July 2019.

Superannuation

• The maximum number of allowable members in SMSFs and small APRA funds will be increased to six from 1 July 2019.
• The annual audit requirement for self-managed superannuation funds will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.
• 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 the superannuation guarantee (SG) from 1 July 2018.
• Individuals will be required to confirm in their income tax returns that they have complied with “notice of intent” requirements in relation to their personal superannuation contributions, effective from 1 July 2018.

Indirect taxes

• Offshore sellers of hotel accommodation in Australia will be required to calculate their GST turnover in the same way as local sellers from 1 July 2019.
• The luxury car tax on cars re-imported into Australia, following a refurbishment overseas, will be removed from 1 January 2019.
• Alcohol excise refund scheme cap increased from $30,000 to $100,000 per financial year from 1 July 2019, and lower excise rates will apply for smaller beer kegs.

If you wish to discuss any of these measures in further detail, please don’t hesitate to contact our office.

In 2017, the Government flagged and publicised plenty of changes to the tax and superannuation system, but how many of them have actually been passed by Parliament and made into law? Parliament ended its final sitting week in December 2017 with plenty of outstanding matters for the Government to deal with in 2018. Here is a brief summary of these proposals and how they could affect you.

Personal

The Bill that proposes to increase Medicare levy rate from 2% to 2.5% of taxable income for the 2019–2020 and later income years is still before the Senate. Labor Senators have recommended the rate of 2.5% to apply only to those individuals with incomes above $87,000. In addition, they would also like to reinstate the Budget Repair Levy of 2% on taxable incomes in excess of $180,000 which ended on 1 July 2017. Labor has indicated that they will vote against the increase in Medicare levy rate should they not get the desired changes. The Government seems unlikely to agree to the changes to the Budget Repair Levy as requested by Labor, which all points to a difficult passage for the Bill unless the Government can do a deal with the minor parties and/or independents.

Business

The Bill that seeks to progressively lower corporate tax rate is still before the House of Representatives. In its current form the Bill proposes to extend the 27.5% corporate tax rate to all corporate tax entities by 2023-2024, at which point the tax rate would be progressively cut to 25% by 2026–2027. An associated Bill to ensure that a company will not qualify for the lower company tax rate if more than 80% of its assessable income is passive income (ie interest, dividends, or rent) is also before the House of Representatives.

Businesses will need to satisfy a passive income test to access the 27.5% corporate tax rate from 2017–2018.

For the 2016–2017 income year, a company only needed to be carrying on a business and have a turnover of under $10 million to qualify for the 27.5% tax rate. If this Bill passes, small companies set up to invest in property and collect rent would no longer be able to access the lower tax rate if that income consists of more than 80% of its total income. It would be a similar outcome for those companies who invest in shares.

Superannuation

The salary sacrifice contributions integrity Bill is still before the Senate. It proposes to prevent employers from using employees’ salary sacrifice contributions to reduce their own minimum 9.5% super guarantee contributions from 1 July 2018. The Bill also extends the choice of super funds to employees covered by new enterprise agreements and work determinations made on or after 1 July 2018.

Education

The Bill to reduce the Higher Education Loan Program (HELP) minimum repayment income thresholds is still before the Senate. The Bill lowers the minimum repayment threshold from $51,956 to $41,999 from 1 July 2018 with a 1% repayment rate. It also proposes to index the minimum repayment income threshold according to the Consumer Price Index (CPI).

Social security

Bills that implement major social security changes are at various stages before Parliament, including:

• the creation of a jobseeker payment to replace seven existing payments;
• cessation of the widow B pension;
• removing certain exemptions for drug or alcohol dependence;
• establishing a two-year drug testing trial in three regions; and
• changes to residency requirements for the aged pension.

How might these changes affect me?

If you would like to know more about how these changes could potentially affect you, or you would like to consider some forward tax planning for you or your business to get ahead in 2018, contact us today.

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