Personal Tax Cuts in a 3 Step Plan to be Implemented Over 7 years
Step 1: Target Relief for Low and Middle Income Earners
The government will introduce the Low and Middle Income Tax Offset (LAMITO) which is a non-refundable tax offset of up to $530 per year made available for the 2019, 2020, 2021 and 2022 income tax years. It will be paid as a lump sum on assessment after lodgement of an individual’s income tax return. This LAMITA is in addition to the current Low Income Tax Offset (LITA) available to taxpayers. The application of the proposed benefit is:
- Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200.
- Taxpayers with taxable incomes of $37,000 to $48,000 will receive a benefit of up to $530. Increasing at 3 cents per dollar after $37,000 of taxable income up to the maximum $530.
- Taxpayers with taxable incomes of $48,000 to $90,000 will receive a benefit of up to $530.
- Taxpayers with taxable incomes of $90,000 to $125,333 will receive a pro rata benefit phasing out at 1.5 cents per dollar.
Step 2: Protecting Middle Income Australians From Bracket Creep
- From 1 July 2018, the top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000. Allowing another $3,000 of taxable income to be taxed at 32.5% instead of 37%. These rates do not include medicare levy.
- From 1 July 2022, the top threshold of the 19% tax bracket will increase from $37,000 to $41,000 and to further increase the top threshold of the 32.5% tax bracket from $90,000 to $120,000.
- It is also proposed to increase the current Low Income Tax Offset (LITO) from $445 to $645 from 1 July 2022. This LITA will reduce at a rate of 6.5 cents per dollar between taxable incomes of $37,000 to $41,000 and reduce at a rate of 1.5 cents per dollar between taxable incomes of $41,000 to $66,667.
Step 3: Ensuring Australian Pay Less Tax By Making The System Simpler
The Government proposes to remove the 37.5% tax bracket entirely. From 1 July 2024, the government will extend the top threshold of the 32.5% tax bracket from $120,000 to $200,000. The tax bracket of 32.5% will apply to taxable incomes from $41,001 to $200,000 and taxable incomes exceeding $200,000 will be taxed at the top marginal rate of 45%.
The $20,000 Asset Write Off Has Been Extended!
The Government has announced in the budget that it will extend the $20,000 Asset Write Off for another 12 months to 30 June 2019 for businesses with an aggregated annual turnover of less than $10 million. Small businesses will continue to be able to claim a deduction for capital purchases of less than $20,000 first used or installed before 30 June 2019. Capital purchases of greater than $20,000 will continue to be depreciated in the general pool at 15% for the first year and at 30% for subsequent years. The pool balance can be deducted if the balance at the end of the year is less than $20,000.
Tax Deductibility To Be Removed Where PAYG Withholding Obligations Are Not Met
Government to legislate to remove the tax deductibility of wages and payments where PAYG withholding obligations have been disregarded for employee’s wages and for payments made by businesses to contractors where an ABN has not been provided and withholding tax has not been withheld.
Introducing a Cash Payment Limit
From 1 July 2019, the Government is legislating a $10,000 limit for cash payments made to purchase goods and services. This will require transactions over the $10,000 limit to be made by electronic means or by cheque. There are to be an exemption for transactions with financial institutions and for payments from consumer to consumer for non-business transactions.
Extending the Contractor Payment Reporting System
First used for the building and construction industry, the contractor payment reporting system will be extended to cleaning and courier industries from 1 July 2018 and extended to security providers, investigation services, road freight transport and computer system design and related services from 1 July 2019.
Superannuation Related Changes
Exemption from the Work Test To Make Personal Contributions in the First Ineligible Year
From 1 July 2019, the Government plans to provide an exemption from the Work Test for people aged 65 to 74 for voluntary contributions to superannuation where there superannuation balance is below $300,000 but only for the first year that they do not meet the requirements. Currently, people aged 65 to 74 need to meet the work test of working 40 hours in a 30 day period to be able to make personal contributions to superannuation.
3 Year Audit Cycle for SMSFs with a Good Record
The Government intends to change the annual audit requirement of SMSFs with a good history of record keeping, compliance and lodgements from 1 July 2019 to a three-yearly requirement. SMSFs with 3 years of clear audit reports and on time lodgements will only be required to be audited every 3 years. This is a good change that will reduce costs in most SMSFS.
Increasing the Maximum Number of Members in an SMSF or Small APRA Fund to 6
From 1 July 2019, the Government intends to increase the maximum number of allowable members in an SMSF or small APRA fund from 4 to 6 to allow larger families more flexibility in consolidating and managing their superannuation benefits.
Preventing Inadvertent Breaches of Concessional Contribution Cap by Specific Employees
From 1 July 2018, the Government intends to allow individuals with taxable income above $263,157 and who have multiple employers to nominate that their wages from certain employers are not subject to the super guarantee requirements. This will help employees keep their concessional contributions from exceeding their concessional contribution cap and being taxed at their marginal rates of tax. The employee may have the possibility of negotiating to receive the forgone super as wages.
Changes Affecting Companies
Division 7A Changes
From 1 July 2019, the government will ensure that unpaid present entitlements or unpaid trust distributions come within the scope of Division 7A. This will apply where a Trust distributes income to a related private company but does not pay the cash distribution. The unpaid present entitlement will be required to be paid to the company, paid over 7 years as a complying loan or is subject to tax as a dividend.
The Government also intends to defer the start date from 1 July 2018 to 1 July 2019 for the 10 Year Enterprise Tax Plan – targeted amendments to Division 7A that was announced in the 2016-17 Federal Budget.
Changes to Combat Illegal Phoenixing
The Government will make changes to the Corporations law and tax laws to help them deter and disrupt illegal phoenixing activity. The changes will including making directors personally liable for the company’s debts and extending the director’s penalty regime to GST, luxury-car tax and wine equalisation.
Research and Development Tax Incentive
From 1 July 2018, the Government will make changes to the research and development tax incentive to improve its integrity and make sure it is fiscally affordable to the Government.
Changes Affecting Trusts
Improving the Taxation of Testamentary Trusts
From 1 July 2019, the concessional tax treatment for income received by minors from testamentary trusts will be limited to income derived from assets that were transferred from the deceased estate into the testamentary trust or the proceeds of the disposal or investment of these assets. Currently, income received by minors from testamentary trusts is taxed at normal adult tax rates rather than higher tax rates that apply to minors. This change will stop people injecting assets into the testamentary trust that didn’t come from the deceased estate and receive a tax benefit from doing so.
Other Income Tax Changes
Deny Deductions for Holding Vacant Land
From 1 July 2019, the Government will legislate to deny deductions for holding vacant residential or commercial land.
Income for a Person’s Fame or Image to Be Taxed Personally
From 1 July 2019, high profile individuals will no longer be able to license their fame or image to a company or a trust to take advantage of lower tax rates. Instead, the income will be required to be disclosed as assessable income to the individual.