2018 Federal Budget Announcements

Tuesday night the Federal Government handed down its budget for the 2018-19.  This budget promises to deliver a suite of tax cuts for individuals at various income levels.  As with all budgets each proposal must be passed by Parliament before they’re legislated.  We have summarised the main tax announcements below.

Individual Tax

The Government will introduce a Personal Income Tax Plan over a seven-year period that involves three steps:

Step 1: 2018-19 to 2021–22

• Extend the top threshold for the 32.5% income tax bracket from $87,000 to $90,000
• Introduction of a Low and Middle Income Tax Offset of up to $530 per annum, in addition to the Low Income Tax Offset

Step 2: 2022-23 to 2023-24

• Extend the top threshold for the 19% income tax bracket from $37,000 to $41,000
• Extend the top threshold for the 32.5% income tax bracket from $90,000 to $120,000
• Increase the Low Income Tax Offset from $445 to $645

Step 3: 2024-25 and later financial years

• Removal of the 37% personal income tax bracket
• Extend the top threshold for the 32.5% income tax bracket from $120,000 to $200,000.  This proposal removes the 37% bracket entirely.

Retaining the Medicare Levy at 2%

Effective 1 July 2019, the Government will not increase the Medicare Levy rate from 2 to 2.5% of taxable income that was legislated to commence. 

Increasing the Medicare Levy low-income thresholds

Effective 1 July 2018, the Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2017-18 income year.  As an example, a family income limit has been increased from $36,541 to $37,089.

Business tax

Extending accelerated depreciation for small businesses

Effective 1 July 2018, the Government will extend the existing $20,000 instant asset write-off by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover of less than $10,000,000.  Under this measure, a business will be able to immediately deduct purchases of eligible assets costing less than $20,000 where they are installed and ready for use before 30 June 2019.

Deductions denied for vacant land

Effective 1 July 2019, the Government will deny deductions for expenses (e.g., interest costs) with holding vacant land where the land is not genuinely held for the purpose of earning assessable income.

Superannuation

Superannuation work test exemption for retirees

Effective 1 July 2019, the Government intends to amend the superannuation contribution rules to allow people aged 65 to 74 that have a total super balance of under $300,000 to make voluntary contributions for 12 months from the end of the financial year they last satisfied the work test.  This will give people more time to make contributions to super after they have retired and finished working.  Previously, if a taxpayer retired after the age of 65 and did not pass the work test (40 hours in a consecutive 30 day period), they would no longer be able to make any contributions.

Self Managed Superannuation Fund membership increasing to six

Effective 1 July 2019, the Government will amend the definition of Self Managed Superannuation Funds (SMSF) in the SIS Act to increase the maximum number of members in new and existing funds from four to six.

Three year audit cycle for some SMSFs

Effective 1 July 2019, the Government will allow certain SMSF’s to move from an annual to a three-yearly audit cycle where they have:

• Three consecutive years of clear audit reports; and
• Lodged the fund’s annual returns in a timely manner.

Whilst this will result in some SMSFs being cheaper to operate, it could also make any compliance breaches that do occur more serious as it could take up to three years before a breach is detected.

Preventing inadvertent concessional cap breaches

Effective 1 July 2019, the Government will allow individuals whose income exceeds $263,157 and who have multiple employers to nominate that their wages from certain employers are not subject to the Superannuation Guarantee (SG).  This measure is being introduced to allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of receiving compulsory SG.  The employee will be able to negotiate to receive additional salary and wages to make up for the lost SG contributions.

If you have any questions regarding these budget announcements, please do not hesitate to contact us.