The Federal Treasurer, Mr Josh Frydenberg, handed down the 2019/20 Federal Budget at 7:30 pm (AEDT) on 2 April 2019.
Mr Frydenberg said the Budget is “back in the black”, announcing a budget surplus of $7.1b, and forecasting a surplus of $11b in 2020/21, $17.8b in 2021/22 and $9.2b in 2022/23. The budget focuses on “restoring the nation’s finances”, further strengthening the economy to create more jobs and to “guarantee the essential services”.
The government proposes various changes to further lower individual taxes, including increasing the low and middle income tax offset, and lowering the 32.5% rate to 30% in 2024/25. More businesses will have access to immediate deductions for asset purchases, with the expansion of the instant asset write-off to businesses with an annual turnover of less than $50m.
The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.
The tax highlights are set out below.
Income tax
• The legislated Personal Income Tax Plan will be changed to further lower taxes for individuals, including changes to the low and middle income tax offset (LMITO), the low income tax offset (LITO) and the personal income tax (PIT) rates and thresholds.
• The instant asset write-off threshold for businesses with an aggregated turnover of less than $10m will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
• Businesses with an aggregated turnover of $10m or more but less than $50m will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
• The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2018/19 income year.
• Payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018 will be treated as exempt income.
• An income tax exemption will be provided for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods.
• Six more organisations have been approved as specifically-listed deductible gift recipients.
• The list of countries whose residents are eligible to access a reduced withholding tax rate of 15% on certain distributions from Australian managed investment trusts (MITs) will be updated.
Tax integrity and black economy
• Australian Business Number (ABN) holders will be required to lodge their income tax return and confirm the accuracy of their details on the Australian Business Register annually to retain their ABN status.
• The start date of amendments to Div 7A will be delayed by 12 months to 1 July 2020.
• Minor amendments will be made to the hybrid mismatch rules to clarify their operation from 2019.
• The ATO’s Tax Avoidance Taskforce will extend its operations and expand its activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes.
• The ATO will receive funding to increase activities to recover unpaid tax and superannuation liabilities with a focus on large businesses and high wealth individuals.
• A dedicated sham contracting unit will be established within the Fair Work Ombudsman to address sham contracting behaviour by some employers.
Indirect taxes
• For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of
$10,000.
• Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been granted or extended.
Income tax
Personal Income Tax Plan changed to further lower taxes
The legislated Personal Income Tax Plan (the Plan) will be changed to further lower taxes for individuals, including changes to the low and middle income tax offset (LMITO), the low income tax offset (LITO) and the personal income tax (PIT) rates and thresholds.
Immediate changes to LMITO
The LMITO will be changed such that the reduction in tax it provides will increase from a maximum amount of $530 to $1,080 pa, and the base amount will increase from $200 to $255 pa for the 2018/19 to 2021/22 income years.
The LMITO will 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. From 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 received after individuals lodge their 2018/19 tax returns and will continue to be provided in addition to the LITO.
Changes to 19% PIT bracket and LITO from July 2022
From 1 July 2022, the top threshold of the 19% PIT bracket will increase to $45,000 (up from
$41,000 as legislated under the Plan).
From 1 July 2022, the LITO will increase to $700 (up from $645 as legislated under the Plan). The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as legislated under the Plan). The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Together, the increase to the top threshold of the 19% PIT bracket and the changes to LITO will lock in the reduction in tax provided by the LMITO when the LMITO is removed.
Further changes to PIT rates and thresholds from July 2024
From 1 July 2024, the 32.5% marginal tax rate will be reduced to 30%.
From 1 July 2024, the 37% bracket will also be abolished (as legislated under the Plan).
Instant asset write-off threshold increased and expanded to medium sized businesses
The instant asset write-off threshold for small businesses (with an aggregated turnover of less than $10m) will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 (Budget night) to 30 June 2020.
The current threshold as legislated is $20,000, applicable for assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019. Proposed changes to this threshold were announced on 29 January 2019 and are contained in legislation before parliament (Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019). These proposed changes increase the threshold from $20,000 to $25,000 and extend it for an additional 12 months to 30 June 2020. When legislated, small businesses will be able to immediately deduct purchases of assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.
The current rules in Div 328 of the Income Tax Assessment Act 1997 (ITAA 1997) regarding accelerated depreciation for small businesses will remain in place. Therefore, assets that cannot be immediately deducted will need to be pooled and depreciated at an initial rate of 15% in the first year and 30% in each subsequent year. Also, small business depreciation pools valued under the instant asset write-off threshold at the end of the income year can be immediately deducted. The current “lock out” laws for simplified depreciation rules, which prevent small businesses from re-entering the pooling rules for five years if they opt out, will continue to be suspended until 30 June 2020.
Medium sized businesses (with aggregated annual turnover of $10m or more, but less than $50m) will also be able to immediately deduct purchases of eligible assets costing less than
$30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020. These businesses must also have acquired these assets after Budget night to be eligible as they have previously not had access to the instant asset write off. Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions in the tax law (Div 40 of ITAA 1997).
Medicare levy — low income thresholds to increase
The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2018/19 income year.
The threshold for singles will be increased to $22,398 (up from $21,980 in 2017/18). The family threshold will be increased to $37,794 (up from $37,089 in 2017/18). For single seniors and pensioners, the threshold will be increased to $35,418 (up from $34,758 in 2017/18). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385 in 2017/18). For each dependent child or student, the family income thresholds increase by a further $3,471 (up from $3,406 in 2017/18).
Income tax exemption for payments to QLD storm affected primary producers
Payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018 will be treated as exempt income.
The tax treatment relates to payments distributed to affected taxpayers through a grant totalling $1m to the Foundation for Rural and Regional Renewal, working with the Salvation Army and a local community panel.
Income tax exemption for North Queensland flood grants
An income tax exemption will be provided for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods.
Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, grants provided under the On-Farm Restocking and Replanting Grants Program, and the On-Farm Infrastructure Grants Program.
The exemption will apply where the grants relate to the monsoonal trough, which produced flooding that started on or after 25 January 2019 and continued into February 2019. The grants will be made non-assessable non-exempt income for tax purposes.
Deductible gift recipients list updated
Since the 2018/19 Mid-Year Economic and Fiscal Outlook, the following organisations have been approved as specifically-listed deductible gift recipients from 1 July 2019 to 30 June 2024:
• Australian Academy of Law
• China Matters Limited
• Foundation Broken Hill Limited
• Motherless Daughters Australia Limited
• Superannuation Consumers Centre Limited, and
• The Headstone Project (Tasmania) Incorporated.
Taxpayers may claim an income tax deduction for gifts of money or property to these organisations of $2 or more.
International tax — list of information exchange countries to be updated
The government will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15%, instead of the default rate of 30%, on certain distributions from Australian managed investment trusts (MITs). To be listed, countries must have established the legal relationship enabling them to share taxpayer information with Australia.
This update will add Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates to join 114 other jurisdictions already on the list. These new jurisdictions have entered into information sharing agreements since the previous update in 2018.
The updated list will be effective from 1 January 2020.
Tax integrity and black economy
Requirements for Australian Business Number holders to retain their status
To disrupt black economy behaviour, Australian Business Number (ABN) holders:
• with an income tax return obligation will be required to lodge their income tax return, from 1 July 2021, and
• will be required to confirm the accuracy of their details on the Australian Business Register annually, from 1 July 2022.
Currently, ABN holders are able to retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.
Further consultation to Div 7A amendments; reforms delayed again
The start date of amendments to Div 7A of the Income Tax Assessment Act 1936 will be delayed by 12 months to 1 July 2020. The proposed amendments announced in the 2018 and 2016 Federal Budgets will undergo further consultation with stakeholders following feedback from stakeholders to a consultation paper issued in October 2018. The amendments in the consultation paper included replacing the existing seven-year and 25-year model with a single 10-year model without a requirement for a formal written loan agreement and clarification as to when unpaid present entitlements come within the scope of Div 7A.
Tax integrity — clarifying the operation of the hybrid mismatch rules
Minor amendments will be made to the hybrid mismatch rules to clarify their operation.
The hybrid mismatch rules are intended to prevent multinational corporations from exploiting differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.
Amendments will be made to stipulate how the rules apply to multiple entry consolidated (MEC) groups and trusts, and to limit the meaning of foreign tax, for income years commencing on or after 1 January 2019.
Amendments will also be made to specify that the integrity rule can apply where other provisions have applied for income years commencing on or after 2 April 2019.
Tax integrity — extension and expansion of Tax Avoidance Taskforce
The ATO will be given additional funding to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.
The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It will use the additional funding to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
Tax integrity — ATO to focus on recovery of tax and super from large businesses
The ATO will receive additional funding to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.
Sham contracting unit to be established
A dedicated sham contracting unit will be established within the Fair Work Ombudsman to address sham contracting behaviour engaged in by some employers, particularly those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations such as superannuation guarantee and other employment entitlements.
Indirect taxes
Increased luxury car tax refunds for primary producers and tourism operators
Luxury car tax refund arrangements will be amended to provide further relief to farmers and tourism operators.
For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of
$3,000. The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.
Access to Indirect Tax Concession Scheme granted or extended
Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme (ITCS) has been granted or extended as follows:
• new access to refunds will be granted to the diplomatic and consular representations of Sudan in Australia.
• upgraded access to the ITCS will be granted to the Commission for the Conservation of Southern Bluefin Tuna.
• the ITCS access for Laos, Mauritius and Samoa has been extended to include construction and renovation relating to their current and future diplomatic missions and consular posts.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.