Bracket adjustment in personal income taxes
From 1 July 2018 the Government will increase the top threshold for the 32.5% marginal tax rate bracket from $87,000 to $90,000.
From 1 July 2022, the Government will further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000. It will also increase the Low Income Tax Offset from $445 to $645 and extend the 19% personal income tax bracket from $37,000 to $41,000.
Low and middle income tax offset
From 1 July 2018, the Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum targeted at low to middle income earners. It will affect individuals with taxable income of up to $125,333, and will apply from 2018-19 to 2021-22 income years.
The offset will provide a benefit of up to $200 for taxpayers with a taxable income of $37,000 or less. For incomes from $37,000 to $48,000 the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530.
Those with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. From $90,001 to $125,333 the offset will phase out at a rate of 1.5 cents per dollar.
The offset will be received as a lump sum on assessment after an individual lodges their tax return.
The Medicare levy low income thresholds will be increased for singles, families, seniors and pensioners from the 2017-18 income year. The increases take account of recent movements in the CPI.
The Medicare Levy rate will no longer be increased from 2% to 2.5% of taxable income from 1 July 2019 as previously announced.
$20,000 instant asset write-off extended
The availability of the small business $20,000 instant asset write-off has been extended for a further 12 months to 30 June 2019. This concession was previously due to expire on June 30, 2018.
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.
Cash payment limit
The Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. It is proposed to apply from 1 July 2019.
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.
Removing tax deductibility of non-compliant payments
A tax deduction will not be allowed for the following where PAYG is not withheld:
Payments made by businesses to contractors where the contractor does not provide an ABN.
The measure will have effect from 1 July 2019.
Targeted amendments to Division 7A deferred
The start date of the measures to make targeted amendments to Division 7A, announced in the 2016-2017 budget and originally earmarked to take affect 1 July 2018, has been deferred to 1 July 2019.
Application of Division 7A to unpaid present entitlements
The Government is proposing to tighten the rules regarding the application of the provisions of Division 7A to an unpaid present entitlement of a private company. This will commence from 1 July 2019
The measure will ensure the unpaid present entitlement is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.
Maximum number of super members
The maximum number of allowable members in new and existing self-managed superannuation funds (SMSFs) and small APRA funds is proposed to be increased from four to six. This measure will commence from 1 July 2019
This will provide greater flexibility for joint management of retirement savings, in particular for large families.
Deductions for personal contributions
The integrity of the “notice of intent” processes for claiming personal superannuation contribution tax deductions is proposed to be improved. This measure will commence from 1 July 2018.
Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a notice of intent, despite being required to do so. This results in their superannuation funds not applying the appropriate 15% tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.
Voluntary contributions to super funds
An exemption is proposed to be introduced from the work test for voluntary contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements. The start date of the said measures is July 1, 2019.
Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who self-report as working a minimum of 40 hours in any 30 day period in the financial year.
Three-yearly audit cycle for SMSFs
The annual audit requirement is proposed to be changed to a three-yearly requirement for SMSFs with a history of good record-keeping and compliance, to commence from 1 July 2019.
This measure will reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
Recovery of tax and superannuation debts
The Government will provide $133.7 million to the ATO to continue to deliver on a range of strategies that sustain both an increase in debt collections and an improvement in the timeliness of debt collections.
The measure will ensure the ATO is able to continue to target those taxpayers gaining an unfair financial advantage over those who pay their fair share of tax and superannuation.
Tax compliance funding
The Government has set aside $130.8 million for the ATO to increase its compliance activities conducted towards taxpayers and their tax agents.
The funding, from 2018-19, is intended to provide the ATO with the resources needed to undertake new compliance activities, including additional audits and prosecutions, improving education and guidance materials, pre-filling of income tax returns and improving real time messaging to tax agents and individual taxpayers to deter over-claiming of entitlements.
Disclaimer: All information provided in this newsletter is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.
*Content in partnership with Tax & Super Australia.