Tuesday night the federal treasurer, Josh Frydenberg, handed down the Federal Budget for 2019-2020. To be on the front foot of providing relevant advice to our business and personal clients we have summarised the details of the budget. Below is an infographic produced by Chartered Accountants AU/NZ that provides a snapshot of the budget.
We have split our summary into 3 focus areas: Personal, Business and Superannuation.
Personal Income Tax
* Increase in the low and middle income tax offset to applu in 2018-19. Please see below table for more information
*other tax benefits (tax rates/thresholds and low income tax offset changes) to commence in 2022-23 and later income years.
Increase in tax bracket thresholds from 1 July 2022
From 1 July 2022, the Government will increase the top threshold of the 19 per cent personal income tax bracket from $41,000, as legislated under the plan, to $45,000.
Low Income Tax Offset from 1 July 2022
From 1 July 2022, the Low Income Tax Offset (LITO) will be increased to a maximum $700 for those with taxable income less than $37,500. LITO will phase out at 5% in the income range from $37,500 to $45,000, and at 1.5% thereafter.
Reduced marginal tax rate 1 July 2024
From 1 July 2024/25, the Government will reduce the 32.5 per cent marginal tax rate to 30 per cent. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates, improving incentives for working Australians. In 2024/25 an entire tax bracket, the 37 per cent tax bracket, will be abolished under the Government’s already legislated plan. With these changes, by 2024/25 around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.
Medicare levy thresholds for 2018/19
The threshold for singles will be increased from $21,980 to $22,398. The family threshold will be increased from $37,089 to $37,794. For single seniors and pensioners the threshold will be increased from $34,758 to $35,418. The family threshold for seniors and pensioners will be increased from $48,385 to $49,304. For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.
Business Owners
- Extension of the provision allowing small business to instantly write-off asset purchases. Please see below table for more information.
- Further consultation on Division 7A reform.
In broad terms, the Government originally announced that they will amend Div 7A starting 1 July 2019 by:
- Introducing simplified loan rules — pursuant to which the current 7-year and 25-year loan models will be replaced by a single 10-year loan model (subject to a two-year transitional period for existing loans of 1 July 2019 to 30 June 2021);
- Requiring that unpaid present entitlements — i.e. amounts to which a private company is presently entitled from a trust and which are not paid to the company — are paid out or put on complying loan terms;
- Allowing taxpayers to self-correct their arrangements without penalty;
- Introducing legislative safe harbour rules for provision of assets for use; and
- Making various technical amendments, e.g. clarifying that s. 109M (about loans in ordinary course of business) is confined to money lending businesses.
The Government will defer the start date of the 2018-19 Budget measure 12 months
- As part of the 2019–20 Federal Budget, the Government announced that it will provide $42.1 million over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities. The activities to be conducted will focus on larger businesses and high wealth individuals to ensure on-time payment of tax and superannuation liabilities; they will not extend to small businesses.
Superannuation
- Work Test changes.
From 1 July 2020 Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test. Currently the Work Test (a minimum of 40 hours worked over a 30 consecutive day period in the financial year of contribution) applies from a superannuation fund member’s 65th birthday. This change will align the superannuation Work Test with the eligibility age for the Age Pension, which is scheduled to reach age 67 from 1 July 2023. This will allow them to make non-concessional contributions up to $300,000 in a single income year instead of $100,000.
- Spouse contributions.
The maximum age at which a spouse contribution can be made will be increased from age 69 to age 74. The limit applies to the age of the spouse into whose superannuation account the spouse contribution is being made. Currently those aged 70 and over cannot receive contributions made by another person, including a spouse, on their behalf.
- Bring-forward of the NCC cap.
The cut-off age for the bring-forward of up to two future years of the non-concessional contribution (NCC) will be extended by two years. This means NCCs of up to $300,000 can be made in one financial year. Currently the bring-forward arrangement applies until 30 June in the financial year the superannuation fund member turns age 65. This will be extended to allow those aged 65 and 66 to use the bring-forward arrangement.
If at any time you would like to know more or discuss any points within this summary and how it may affect you, please contact our office on 03 9603 0066.