Quick Budget Breakdown 2018

The key points to know, including tax cuts, business updates and superannuation matters.




Key Statistics:

  • Budget deficit of $14.5 billion in 2018/19 with a small surplus of $2.2 billion forecast for 2019/20.
  • Economic growth (GDP) of 3.0 per cent through to 2021/22.
  • Inflation of 2.25 per cent rising to 2.5 per cent in 2019/20 and beyond.
  • Unemployment rate of 5.25 per cent falling to 5.0 per cent in 2021/22.
  • Government spending to dip to 24.7 per cent of GDP by 2021/22.
  • Taxes to GDP ratio to remain under the self-imposed limit of 23.9 per cent.
  • Net debt to peak at 18.6 per cent of GDP.
  • Conservative estimates taken on commodity prices such as iron ore and coal, but exports rising strongly.

 

Individuals:

  • A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
  • The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year.
  • The 2017/18 Federal Budget measure to increase the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019 will not proceed.
  • Supplementary amounts (such as pension supplement, rent assistance and remote area allowance) paid to a veteran, and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018.
  • Schemes to license a person’s fame or image to another entity such as a related company or trust to avoid income tax will be curtailed.
  • The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.

 

Income Tax:

  • Significant changes to the calculation of the R&D tax incentive will commence for income years beginning on or after 1 July 2018. Additionally, a maximum cash refund will also apply for some entities.
  • The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019.
  • Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.
  • The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income.
  • Payments to employees and contractors are no longer deductible where any amounts that are required to be withheld are not paid, from 1 July 2019.
  • The definition of a “significant global entity” (SGE) will be broadened to include more large multinational groups, from 1 July 2018.
  • The thin capitalisation rules will be amended, effective 1 July 2019, to require entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.
  • The thin capitalisation rules will be amended, effective 1 July 2019, to treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for thin capitalisation purposes.
  • Tax exempt entities that become taxable after 8 May 2018 will not be able to claim tax deductions that arise on the repayment of the principal of a concessional loan.
  • The 50% capital gains discount for managed investment trusts (MITs) and attribution MITs (AMITs) will be removed at the trust level.
  • A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts.
  • The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate.
  • A five year income tax exemption will be provided to a subsidiary of the International Cricket Council (ICC) for the ICC World Twenty20 to be held in Australia in 2020.
  • 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.
  • Six more organisations have been approved as specifically-listed deductible gift recipients.

 

Superannuation (including SMSFs):

  • The maximum number of allowable members in SMSFs and small APRA funds will be increased to six from 1 July 2019.
  • The annual audit requirement for self-managed superannuation funds will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.
  • Individuals whose income exceeds $263,157, and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
  • Individuals will be required to confirm in their income tax returns that they have complied with “notice of intent” requirements in relation to their personal superannuation contributions, effective from 1 July 2018.
  • Work test exemption for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
  • Life insurance cover in super to be opt-in for individuals under 25 years of age.
  • A 3% annual cap will be introduced on passive fees charged by superannuation funds on accounts with balances below $6,000, and exit fees on all superannuation accounts will be banned.
  • The financial institutions supervisory levies will be increased to raise additional revenue of $31.9m over four years, from 2018/19.

 

Business:

  • Instant asset write off for business with a turnover up to $10 million extended to purchases up to $20,000.
  • New anti-phoenixing measures to make sure small businesses don't get ripped of by those trying to avoid paying bills.
  • Extra $250 million for the Skilling Australians Fund.
  • Changing the tax treatment of stapled structures to remove loophole that gives foreign companies a tax break over Australian companies.
  • Tightening thin cap rules to stop multinationals from fiddling with debt to reduce their tax liabilities.
  • Discussion paper to come that will explore options for taxing digital business in Australia.
  • Black Economy Taskforce recommendations will bring in $5.3 billion over the next four years by targeting sectors that under report income.

 

Indirect taxes:

  • Offshore sellers of hotel accommodation in Australia will be required to calculate their GST turnover in the same way as local sellers from 1 July 2019.
  • The luxury car tax on cars re-imported into Australia, following a refurbishment overseas, will be removed from 1 January 2019.
  • Alcohol excise refund scheme cap increased from $30,000 to $100,000 per financial year from 1 July 2019, and lower excise rates will apply for smaller beer kegs.
  • Measures to combat illicit tobacco in Australia, including collecting tobacco duties and taxes upon importation and creating a multi-agency task force, will be introduced.
  • Customs tariffs from placebos and clinical trial kits that are imported into Australia will be removed from 1 July 2018.
  • Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been extended.

 

Tax Integrity:

  • The small business capital gains tax (CGT) concessions will no longer be available to partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership.
  • Managed investment trusts (MITs) and attribution MITs (AMITs) will be prevented from applying the 50% capital gains tax (CGT) discount at the trust level. This measure will apply to payments made from 1 July 2019.
  • A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts. The measure will apply from 1 July 2019.
  • From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate, or the proceeds of the disposal or investment of those assets.


Retirement:

  • Pension Work Bonus to be increased from $250 to $300 per fortnight. 
  • Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.
  • Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.


ATO:

  • The ATO will upgrade and modernise its excise and excise equivalent goods payment systems from 2020/21 to replace the paper lodgement system.
  • The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.

 


 Sources: Wolters Kluwer, SBS