May 2018 : 2018/19 Federal Budget
1. Personal income tax changes
1.1 Personal income tax plan
The Government will introduce a seven-year, three-step, Personal Income Tax Plan, as follows:
Step 1: Targeted tax relief to low and middle income earners
The Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodge their tax return.
The benefit of the proposed Low and Middle-Income Tax Offset is as follows:
- Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200;
- For taxpayers with taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530;
- For taxpayers with taxable incomes from $48,000 to $90,000 a $530 offset applies; and
- For taxpayers with taxable incomes from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
The benefit of the Low and Middle Income Tax Offset is in addition to the Low Income Tax Offset.
| LITO Current (2018 and 2019) | LAMITO Proposed (2019) | ||
|---|---|---|---|
| 0 – 37,000 | Up to $445 | 0 – 37,000 | Up to $200 |
| 37,001 – 66,666 | $445 – 1.5% of excess over $37,000 | 37,001 – 48,000 | $200 + 3% of excess over $37,000 |
| 66,667+ | Nil | 48,001 – 90,000 | $530 |
| 90,001 – 125,333 | $530 – 1.5% of excess over $90,000 | ||
| 125,334+ | Nil | ||
Step 2: Protecting middle income Australians from bracket creep
The Government has proposed the following changes to the personal income tax rates:
1. From 1 July 2018, the Government will increase the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000. The rates below do not include the Medicare Levy.
| Rate | Current (2018) | Proposed (2019) |
|---|---|---|
| 0% | 0 – $18,200 | 0 – $18,200 |
| 19% | $18,201 – $37,000 | $18,201 – $37,000 |
| 32.5% | $37,001 – $87,000 | $37,001 – $90,000 |
| 37% | $87,001 – $180,000 | $90,001 – $180,000 |
| 45% | $180,001+ | $180,001+ |
2. From 1 July 2022, the Government will:
- extend the 19% personal income tax bracket from $37,000 to $41,000; and
- further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
The Government has also proposed an increase to the Low Income Tax Offset from $445 to $645 from 1 July 2022. This offset will reduce at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between $41,000 and $66,667.
Step 3: Ensuring Australians pay less tax by making the system simpler
In the third step of the Personal Income Tax Plan the Government will simplify and flatten the personal tax system by removing the 37% tax bracket entirely. From 1 July 2024, the Government will extend the top threshold of the 32.5% personal income tax bracket from $120,000 to $200,000. The 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000 and taxpayers with taxable incomes exceeding $200,000 will pay tax at the top marginal rate of 45%.
1.2 Changes to the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2018 income year, as follows:
- The threshold for singles will be increased from $21,655 to $21,980;
- The family threshold for will be increased from $36,541 to $37,089;
- The threshold for single seniors and pensioners will be increased from $34,244 to $34,758; and
- The family threshold for seniors and pensioners will be increased from $47,670 to $48,385.
For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.
TAX TIP – Medicare levy to remain unchanged
The Government has announced that it will not proceed with the previously announced increase in the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019.
Consequential changes to other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also not proceed.
2. Changes affecting business taxpayers
2.1 Extending the $20,000 immediate write-off for small business
The Government will extend the $20,000 immediate write-off for small business by a further 12-months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Only a few assets are not eligible (such as horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
Further to this, the current ‘lock out’ laws for the simplified depreciation rules (preventing small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.
2.2 Removing tax deductibility of payments where withholding obligations have been disregarded
From 1 July 2019, businesses will no longer be able to claim a deduction for the following payments:
- Payments to their employees such as wages where they have not withheld any amount of PAYG from these payments (i.e., despite the fact the PAYG withholding requirements apply).
- Payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG (despite the withholding requirements applying).
2.3 Introduction of an economy-wide cash payment limit
From 1 July 2019, the Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. This measure will require transactions over a threshold to be made through an electronic payment system or cheque. Transactions with financial institutions or consumer to consumer non-business transactions will not be affected.
2.4 Expanding the contractor payment reporting system
The contractor payment reporting system was first introduced in the building and construction industry and extended to the cleaning and courier industries from 1 July 2018. Under the contractor payment reporting system, businesses are required to report payments to contractors to the ATO. This brings payments to contractors in these industries into line with wages, which are reported to the ATO.
The Government has announced it will further expand the contractor payment reporting system to the following industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020. A new online form will make the reporting process easier.
... and more
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* Disclaimer: This newsletter is of a general nature and for general information only. Do not act on this information before getting specific advice. Other factors or individual circumstances may influence the result.