2019-20 FEDERAL BUDGET

2019-20 FEDERAL BUDGET

FEDERAL BUDGET UPDATE. APRIL 2019 

The Federal Treasurer, Mr Josh Frydenberg, handed down the 2019/20 Federal Budget at 7.30pm on the 2 April 2019. The political stakes could not be higher this year, with an election to be called after this budget is released.

The budget focuses on restoring finances, strengthening the economy and providing essential services to those who need it. Mr. Frydenberg stated the budget is ‘back in the black,’ announcing a budget surplus for 2019/20 of $7.1 billion and forecasting continuing surpluses in the following years.

Whatever one’s political leaning might be and notwithstanding how one might see the Budget in terms of social equity and fairness, it is essential for us to gain an understanding of how it will influence our decisions. Especially for those of us in business or dependent on investment returns, there are implications to digest. Sadly, in some cases, the effects remain unclear because of the lack of detail in the Budget papers, as well as the impending Federal Election results to determine the Federal Government is moving forward. As further details emerge over time, we will continue to monitor the progress and endeavour to keep you informed.

The full Budget papers are available at http://www.budget.gov.au, and the Treasury ministers’ media releases are available at http://ministers.treasury.gov.au.

Please note with any Budget update these changes are proposals only and may or may not be made law. Happy reading.

MAIN HIGHLIGHTS

MAIN HIGHLIGHTS 
FOR INDIVIDUALS
FOR BUSINESSES
ALL BUSINESSES
SMALL BUSINESSES
LARGE CORPORATIONS & MULTINATIONALS
INTERNATIONAL
GOODS & SERVICE TAX
SUPERANNUATION
OTHER CHANGES
QUESTIONS/ IMPORTANT NOTICE

FOR INDIVIDUALS:

1. Immediate changes to the low- and middle-income tax offsets (LMITO)

Date of effect: Immediately 2018/2019 financial year

  • The LMITO will change to reduce the tax it provides, by increasing the tax offset from $530 to $1,080 for singles and up to a rate of $2,160 for dual income families.
  • This measure provides an additional reduction of tax by increasing the tax offset with:
Taxable incomesIndividuals
Less than $37,000 or less$255
between $37,000 and $48,000Value of offset will increase at a rate of 7.5 cents per dollar to a maximum of $1,080.
between $48,000 and $90,000Eligible for the maximum offset of $1,080.
From Taxable income ofThe offset will phase out at a rate of 3 cents per dollar.
  • Taxpayers will be able to access the offset after they lodge their end of year tax returns from 1 July 2019, which is just 13 weeks’ away.
  • The LMITO will continue to be provided in addition to the Low-Income Tax Offset (LITO).
  • This measure projects to assist more than 10 million Australian’s. With 4.5 million individuals estimated to receive the full offset in the 2018/19 financial year.

2. Changes to the 19% Personal Income Tax bracket (PIT) and Low-Income Tax Offset (LITO)

Date of effect: From 1 July 2022

    • The threshold of the 19% PIT bracket will increase to $45,000 (up from $41,000 as legislated under the current legislated personal income tax plan).
    • The LITO will increase to $700 (up from $645 under the legislated personal income
Taxable incomeLITO offset received
Under $37,500$700 (max offset)
$37,500-$45,000$700 reduced by 5 cents/dollar
$45,000- $66,667 $700 reduced by 1.5 cents/ dollar
Over $66,667No LITO will be received

3. Changes to the Personal Income Tax rates and thresholds

Date of effect: From 1 July 2024

    • The 32.5% marginal tax rates will be reduced to 30% and
    • The 37% bracket will also be abolished (as legislated under the plan).Simplifying the tax brackets to three tax brackets:
Average Full-time earnings* Tax rateProportion of PopnShare of personal tax paid
Less than $45,00019%24%2%
between $45,000- $200,00030%70%62%
Greater than $200,0045%6%36%

*Average full-time earnings excluding overtime work.
This measure proposes that 94% of the population by 2024, will be paying tax at a rate of no more than 30%.

4. The Medicare Levy – low-income thresholds to increase

Date of effect: Immediately 2018/19 financial year

    • The Medicare Levy remains at 2%. Lower income earners continue to be exempt through increases to the threshold above which the levy applies.
TypeNew Threshold (2018/2019)Previous Threshold (2017/2018)
Singles $22,398$21,980
Family *$37,794$37,089
Single – Seniors & Pensioners$35,418$34,758
Family- Seniors & Pensioners$49,304$48,385
  • For each dependent child or student, the family income threshold will increase by a further $3,471 (previously $3,406).

5. Tax Avoidance Task Force

Date of effect: Proposed funding

    • The Budget has boosted ATO funding by $1 billion over four years from 2019/20 to extend operations of its Tax Avoidance Taskforce. The Taskforce targets various entities, including high net wealth individuals and their tax agents suspected of promoting tax avoidance schemes and strategies. The boost in funding will allow the ATO to monitor compliance activity and subsequent payment of liabilities more closely.
    • While no specific measures have been announced about limiting claims on deductions, the Government has made efforts to address this by boosting ATO funding for increased compliance monitoring of individuals.

6. Tax integrity – ATO focus on recovery of tax & super from large businesses

Date of effect: Proposed funding

The ATO will receive additional funding to increase activities to recover unpaid tax & superannuation liabilities. These activities will focus on larger businesses and high net wealth individuals to ensure – on-time payments of their tax & superannuation liabilities. This measure will not extend to small businesses.

FOR BUSINESSES:

ALL BUSINESSES:

1. The requirement for Australian Business Number holders to retain their status

Date of effect: 1 July 2021

• To disrupt any black economy behaviour, Australian Business Number (ABN) holders:

      – with an income tax return obligation will be required to lodge an 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 obligations or the obligation to update their ABN details.

  • The new conditions revealed in the Federal Budget come after a Treasury consultation paper last year which considered reform to the ABN system to ensure information was up to date with possible renewal fees discussed.
  • This measure has been considered a sensible system of regulating ABN holders instead of imposing fees.

2. A Sham contracting unit to be established

Date of effect: Proposed funding

  • 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 contractors to avoid statutory obligations such as superannuation guarantee and other employment entitlements.

SMALL BUSINESSES:

  1. Increasing the instant asset write-off threshold to $30,000 and expanding access to medium-sized businesses with an annual turnover of less than $50 million.
    Date of effect: Immediately 2018/2019 financial year

    • A small business with turnover of less than $50 million will now be able to access the immediate deduction for assets bought costing less than $30,000 that is first used or installed and ready for use from 2 April 2019 until the end of 30 June 2020.
    • It has been estimated to assist 3.4 million businesses who will be eligible for the benefit. This is to help business reinvest in their businesses, to employ more workers and grow.
    • Before this measure, businesses were only able to get an immediate deduction of $20,000 for small businesses with less than $10 million turnovers up to the 28 January 2019, which legislation changed to $25,000 on 29 January 2019. Therefore, there is effectively three instant asset write-off thresholds for the 2018/19 financial year.
Asset first used or installed and ready for use between:Small business (turnover less than $10Medium business (turnover less than $50 million)
1 July 2018- 28 January 2019 <$20,000n/a
29 January 2019- 2 April 2019 <$25,000n/a
2 April 2019- 30 June 2020 <$30,000<$30,000

Please contact your tax agent should you need further information on this.

2. Fast-tracking the company tax rate cut to 25% for small – medium-sized companies with an annual turnover of less than $50 million and increasing the unincorporated small business tax discount rate.
Date of effect: 1 July 2021

    • Currently, companies with an aggregate turnover of less than $25 million and have no more than 80% of their assessable income as base rate entity passive income have a tax rate of 27.5% tax rate.
    • The budget announced to fast-track the company tax rate to 25% for companies with an annual turnover of less than $50 million by 2021/22. To be phased in over three years (According to the Treasury Laws Amendment introduced by the Government in October 2018) small businesses company rates to reduce to 26% for the 2020/21 income year and to 25% in 2021/22 income and subsequent years.
    • Fast-tracking these cuts is forecasted to benefit around 970,000 small to medium- sized companies that employ 5.2 million workers.
    • Australia currently, has relatively high rates of tax, cutting a relatively low levels of income compared with other countries will reduce our international competitiveness and attract and retain talent.
    • It has also legislated to increase the unincorporated small business tax discount from 8% to 13% in 2020/21.
  1. Amendments to Division 7A Date of effect: 1 July 2020
    • The start date of amendments to Division 7A of the Income Tax Assessment Act 1936 will be delayed by 12 months to 1 July 2020.
    • The proposed amendments announced in 2018 and the 2016 Federal Budget will undergo further consultation following stakeholder feedback to a consultation paper issued in October 2018.
    • The feedback highlighted that Division 7A is a complex area of tax law and raised implementation issues which warrant further consideration.
    • This is a welcomed announcement as the end of the 2018/19 year is fast approaching.
  2. Single Touch Payroll for small employers with 19 or less employeesDate of effect: 1 July 2019
    • While, not a new announcement, there is $53 million to be allocated for the expansion of the Single Touch Payroll (STP).
    • Single touch payroll is a new way of reporting tax and super information to the ATO.
    • If you are using an STP reporting solution through your accounting or payroll software, you will be sending your employee’s tax & super information to the ATO each time you run your payroll and pay your employees.
    • Information may be sent through software or third-party service providers.
    • Large employers with 20 or more employees should now be reporting through STP.
    • Small employers with 19 or less employees will need to report through STP from 1July 2019. This is a gradual transition with the ATO is providing flexible options.
    • If you’re an employer with 4 or less employees, you will have additional options.
    • There is a list of no-cost and low-cost STP solutions shown on the ATO website.
  3. Establishment of the Small Business Taxation DivisionDate of effect: 1 March 2019
    • The Government will commit $57.5 million over five years from 2018-19 to the ATO, Administrative Appeals Tribunal (AAT) and the Department of Jobs and Small Business. To provide access to the new dedicated Small Business Taxation Division (which sits within the AAT) to make it easier, cheaper and quicker for small businesses to resolve tax disputes with the ATO. The intended benefits include individual case managers, a lower application fee and faster decisions made.
    • This measure was originally announced on 12 February 2019 with effect from 1 March 2019.
  4. Improved access to both advice and finance
    Date of effect: Proposed funding

    • There are plans for improved access to both advice and finance for small businesses.
    • Under a 12-month pilot, ten tax clinics would be established across metropolitan and regional Australia to provide free advice to assist unrepresented small businesses on tax issues, and there would be a $2 billion Australian Business Securitisation Fund.
  5. A new e-invoicing system for Australia
    Date of effect: Proposed funding

    • Australian small business is collectively owed $26 billion in unpaid invoices at any given time. Of late payments, over 20% result from errors on invoices and over 20% from the invoices being sent go to the wrong recipient following manual data entry.
    • The Australian Government is committed to delivering e-invoicing. It is an initiative between the Prime Minister of Australia and the Prime Minister of New Zealand from discussions in March 2018. The agreement to adopt common approaches was  formalised on the 25th of October 2018 by signing an international arrangement.
      • The e-invoicing initiative will build on the work of Australia’s digital Business council and the ATO in developing a framework of standards and guidelines for e-invoicing based on international standards.
      • With over $1.2 billion invoices exchanged in Australia annually, this e-invoicing initiative is estimated to save our economy $28 billion over ten years.
      • E-invoicing is not mandatory – businesses will be free to take it up if they choose to.
      • If interested in more information- the ATO has suggested contacting your software provider to see if they offer e-invoicing and ask them about what you need to do, to become digitally ready.

LARGE CORPORATIONS AND MULTINATIONALS:

1. Overall Budget effect

• The Budget contains no significant new measures or policies affecting the large corporates or multinationals, However there is an ongoing focus on tax integrity which will continue to impact these taxpayers.

  1. Tax Avoidance Task Force to receive $1 billion in additional fundingDate of effect: Proposed funding
    • The ATO Tax’s Avoidance Taskforce, since it was established in the 2016 Budget, has been tasked with administering integrity measures such as the Multinational Anti- Avoidance Law (MAAL) and the Diverted Profits Tax (DPT). This Budget continues the funding of the ATO’s Tax Avoidance Taskforce to continue to undertake compliance activities which focus on large corporates and multinationals.
    • $12.9 billion in tax liabilities have been raised from compliance activities since July 2016.
    • The Taskforce is expected to raise a net gain of $3.6 billion over four years forward estimates.
    • With a well -resourced ATO focused on tax integrity measures, multinational and large corporations should be prepared for ongoing ATO interaction and engagement.
  2. Tax integrity – ATO focus on recovery of tax & super from large businessesDate of effect: Proposed funding

• The ATO will receive additional funding to increase activities to recover unpaid tax & superannuation liabilities. These activities will focus on larger businesses and high net wealth individuals to ensure – on-time payments of their tax & superannuation liabilities. This measure will not extend to small businesses.

INTERNATIONAL

1. International – list of information exchange countries to be updated

Date of effect: 1 January 2020

  • The Government will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15%, instead of the 30% default rate on certain distributions from Australian managed investment trusts (MITs).
  • To be listed, countries must have established a legal relationship to share taxpayer information with Australia.
  • These new jurisdictions have entered into information-sharing agreements since the previous update in 2018; they include Curacao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates. These jurisdictions will join the 114 jurisdictions already on the list.

GOODS AND SERVICES TAX

1. No changes to GST

• There were no announcements to GST, changes or measures.

SUPERANNUATION

1. Permanent relief for Merging superannuation fund

Date of effect: 1 July 2020

  • Since December 2008, tax relief has been available to qualifying superannuation funds that have merged. This allowed deferral of capital gains or losses similar to other scrip-to scrip rollovers. This tax relief was due to expire on 1 July 2020.
  • However, from 1 July 2020, this tax relief provided will be made permanent. Moving the rules from the Income Tax (Transitional Provisions) Act 1997 to the Income Tax Assessment Act 1997.

2. Spouse contribution tax offset eligibility extended

Date of effect: 1 July 2020

  • The restrictions on individuals claiming a spouse contribution tax offset are proposed to be reduced from 1 July 2020. The easing of the rules giving spouses age 70 to 74 eligibility, provided they meet the work test.
  • People are working longer, and this is a welcomed measure.
  • Although the age has increased to 74 years, there are no changes announced to theamount of the offset, the income limits of the spouse, restrictions to the spouse’s contribution caps or the non-refundable attribute of the offset.

3. Voluntary superannuation contributions for 65 and 66-year old’s without a work test

Date of effect: 1 July 2020

  • Currently, people aged 6554 and over need to satisfy a work test prior to being able to make voluntary contributions (either concessional or non-concessional).
  • This measure proposes to allow members aged 65 and 66 to make these contributions without needing to satisfy the work test requirement.
  • The work test requires a self-reported declaration that the member worked for 40 or more hours in any 30 consecutive days during the financial year.
  • This means members aged 65 and 66 will (subject to their total superannuation balance) be able to make up to three years of non-concessional contributions under the bring-forward rule in one financial year.
  • Please note individuals are currently eligible to make a bring-forward contribution for part of the year they are 65. As long as the individual is 64 at the beginning of the financial year, they may make a contribution after turning 65 (as long as they meet the work test). The extension of the rule by two years to an individual who is 66 at the beginning of 1 July 2020 would be eligible for the bring-forward contributions.

4. Exempt current pension income calculation streamlined for super funds

Date of effect: 1 July 2020

  • Superannuation fund trustees from 1 July 2020 will be allowed to calculate exempt current pension income (ECPI) on a preferred method basis.
  • Currently, some superannuation fund has restrictions as to whether they can use the segregated methods or the proportion methods when calculating ECPI. For example, currently, it a fund stops using the segregated method in an income year, they cannot go back to using it.
  • However, from the 2020/21 financial year, superannuation funds will now have the option to choose a preferred method of calculation.
  • Also, from 1 July 2020, an actuarial certificate will not be required for superannuation funds, which have solely retirement phase accounts.
    5. SuperStream to be expanded

    Date of effect: 31 March 2021

    • SuperStream will be expanded to include the transfer of information and money between employers, superannuation funds and the ATO. This change will take effect from 31 March 2021.
    • Currently, SuperStream is used only as an information reporting mechanism between employers and superannuation funds. The most common transactions are employer contributions and member rollovers between funds.
    • From 1 March 2021, the ATO will have the ability to send requests via SuperStream to superannuation funds for the release of money from a member’s account. Some superannuation payment arrangements may be affected.
    • To coincide with this change, SMSF rollovers in SuperStream will be delayed until 31 March 2021 as well.• $42.1 million over 4 years has been provided to recover unpaid tax and superannuation liabilities, focusing on timely payment of large business and high net wealth individuals tax and superannuation liabilities. This reflects the recent focus on worker entitlements.

6. ATO Integrity measures
Date of effect: Proposed funding

– $42.1 million over 4 years has been provided to recover unpaid tax and superannuation liabilities, focusing on timely payment of large business and high net wealth individuals tax and superannuation liabilities. This reflects the recent focus on worker entitlem

7. Superannuation Consumer Advocate

Date of effect: Unknown – expressions of interest process

  • The Government will undertake an expression of interest (EOI) process to identify options to support the establishment of a Superannuation Consumer Advocate.
  • The EOI will assist the Government in understanding whether an advocate would be necessary, as well as whether industry bodies have the capacity to assist in the role.
  • The Advocate would assist in superannuation policy and discussions by acting on behalf of superannuation consumers (or members).
  • The Advocate would also be given financial assistance to be a leader in the superannuation system by providing education and assistance to members as they navigate the superannuation system.

OTHER CHANGES:

  1. Luxury Car Tax relief for farmers and tourist operatorsDate of effect: 1 July 2019
    • Luxury car tax refund arrangements will be amended to provide further relief to farmers and tourism operators.
    • For vehicles acquired 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 (Previously a maximum of $3,000).
    • The eligibility criteria and types of vehicle eligible (eligible four-wheel or all-wheel drive cars) will remain unchanged under the new refund arrangements.
  2. Family Tax Benefit for ABSTUDY recipientsDate of effect: Proposed funding
    • This Budget announced that the Government will provide an additional $36.4 million over the next five years to extend Family Tax Benefits to the families of ABSTUDY students over the age of 16, required to live away from home to attend school.
    • This funding supports continued efforts to close the gap in learning outcomes between indigenous Australians on completion of high school.
  1. Social security payments reporting to be verified by Single Touch Payroll (STP)Date of effect: 1 July 2020
    • Individuals who receive income support payments from the Department of Human Services (DHS) will have their reported income matched with the Single Touch Payroll (STP) reports from 1 July 2020.
    • Under this arrangement, DHS will be able to verify on a more frequent and accurate basis the ability for the recipient to make a claim. However, the requirement to report income regularly, will still lie with the individual recipient.
    • This measure is to reduce the chances of long outstanding debts to accrue.
  2. Energy Assistance PaymentDate of effect: Proposed funding
    • There will be a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 April 2019 and who are resident in Australia.
    • Qualifying payments are the Age Pension, Carer Payment, Disability Support Pension, Parenting Payment Single, The Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependant partners) and the Safety, Rehabilitation and Compensation Act 1988.
    • This measure builds on the 2017/18 budget measure “Energy Assistance Payment.”

Any questions?

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Important notice

Clear Mind Accounting Pty Ltd does not expect or invite any person to act or rely on any statement, view or opinion expressed in this report without first obtaining advice from a qualified professional person. The authors are not responsible for the results of any actions taken on the basis of information neither in this publication nor for any error in or omission from this publication.