Here’s a summary of what you need to know about the tax landscape in the wake of the 2018 Federal Budget, by Victoria Le from Peak Strategies

1. The Economy
Details: The Government expects Australia’s economy to see a return to surplus of $2.2 billion in 2019-20, a year ahead of what was previously expected.

2. 7-Year 3-Step Income Tax Program
Date of Effect: Beginning 1 July 2018 over 7 years in 3 different phases.
Details: The Government has given the marginal tax rates a workout and hopes to shed the 37% income tax bracket over a 7-year course. This was one of the biggest announcements of the night and although this is a long transitional process, the Government hopes to remain in power by seducing the low and middle class income earners.

By 2024-25, the Government anticipates 94% of all taxpayers to be under the 32.5% marginal tax rate or less.

3. Low and Middle Income Tax Offset

Date of Effect: 2018-19 financial year and lasting until 2021-22 financial year

Details: In addition to the low income tax offset, the introduction of the low and middle income tax offset will be introduced. Those Australians who are low to medium class income earners may be eligible for a non-refundable $530 tax offset. 

4. Abandoned Medicare Levy Increase

Date of Effect: Immediately

Details: In last year’s budget,the Government anticipated to increase the Medicare Levy from 2% to 2.5% from 1 July 2019 for taxpayers earning above $87,000. Plans for this have now been scrapped and will remain at 2%.

5. Small Business $20,000 Instant Asset Write Off

Date of Effect: 1 July 2018

Details: Previously, the $20,000 threshold was to return to $1,000 on 1 July 2018 however the Government has extended the small business write offs on eligible assets costing less than $20,000 for another 12 months and will now end 30 June 2019.

6. Ban on Cash Transactions

Date of Effect: 1 July 2019

Details: The Government I going to introduce a ban on cash transactions of over $10,000 that are made to businesses for goods and services provided. Recommended by the Black Economy Taskforce, this measure is designed to force electronic payments/cheques to be made out to businesses.

7. Tightening Deductions on Payments to Employees/Contractors

Date of Effect: 1 July 2019

Details: Businesses will no longer be able to claim deductions for payments made to employees (i.e. wages)where Pay As You Go (PAYG) was not withheld from those payments despite PAYG withholding requirements applying.

Similarly, payments made to contractor swill also not be deductible where the contractor does not provide an ABN and the business does not withhold any amount of PAYG despite with holding requirements applying.

8. Division 7A and Unpaid Present Entitlements (UPE)

Date of Effect: 1 July 2019

Details: The Government are looking to clarify and legislate the Division 7A* operations to ensure unpaid present entitlements** from Trusts come within the scope of Division 7A.

Initially, the start date for the amendments from the 2016-17 budgets were to take place 1 July 2018 but have been pushed back for a further 12 months. These anticipated amendments seek to improve he integrity of Division 7A.

The 2016-17 Budget measures to be reviewed include:

– A self-correction system which allows taxpayers who inadvertently trigger Division 7A, an opportunity to voluntarily correct their arrangements without any fines being incurred.

– New safe harbour rules to provide better compliance and certainty to taxpayers as well as transitioning rules where required.

– Complying Division 7A loans to have a single 10 year term to better align the minimum interest calculations with commercial transaction.

– Technical amendments to improve overall Division 7A operations.

It is still uncertain how this new legislation will treat unpaid present entitlements that have been quarantined pre -16 December 2009.

*Division 7A: Benefits or payments provided by private companies to directors/shareholders that were not issued by way of a company dividend and was not repaid.

**Unpaid Present Entitlements: Corporate beneficiary becomes entitled to a share of Trust income but has not been paid this amount by the Trust. Division 7A is triggered when the present entitlement remains unpaid before the Trust’s lodgement day for that income year.

9. Administration on Claiming Superannuation Deductions

Date of Effect: 1 July 2018

Details: The Government announced that it will take measures to improve the integrity of the Notice of Intent forms for taxpayers claiming super contributions in their tax returns. No form= no deductions. Ensure you have completed this form at the end of the income year and submit this to your Super Fund if you wish to claim super in your personal tax return.

Overall, a conservative budget handed down by the Government this year.If you have any questions or would like to discuss any of the 2018-19 Budget measures, please let Peak Strategies know. 

Victoria Le is a senior chartered accountant at Peak Strategies 

Source: Chartered Accountants Australia and New Zealand and Thomson Reuters Federal Budget Tax Bulletin 2018-2019. Click here