16 May 2018
As the last full budget before the next Federal election, the headline focus for Budget 2018-19 has been tax cuts for individuals. However, there are several other measures that will impact SMEs and other businesses, SMSFs and individuals. We’ve highlighted some of the key budget features you should be aware of.
1. Business
Further extension of the $20,000 instant asset write off
Last year’s budget extended the $20,000 instant asset write off by one year, and this year’s budget has done the same. This means that small businesses with an annual turnover of up to $10 million can continue to claim an instant asset write off on eligible depreciating assets that cost less than $20,000, until 30 June 2019.
Changes to Division 7A rules deferred
Division 7A is part of the Income Tax Assessment Act 1936 and treats certain loans from private companies to shareholders and associates as taxable dividends. There have been plans to rewrite and replace the existing Division 7A rules to reduce complexity and last year’s budget proposed comprehensive changes due to commence 1 July 2018. However, in this year’s budget, the Government has announced that the proposed changes will not come into play until 1 July 2019.
The planned changes will now also be more comprehensive and will apply to all existing Division 7A loans as well as Unpaid Present Entitlements (UPEs).
While this change won’t come into effect for over a year, it is a good idea to include considerations related to Division 7A as part of your upcoming year’s tax planning , as the impact will be significant for some.
Measures to tackle the black economy
In line with various enquiries and reports undertaken by its Black Economy Taskforce, the Government will be introducing a range of measures, which will impact some businesses.
Taxable payments reporting system to be extended
Last year’s budget announced that from 1 July 2018 the taxable payments reporting system (TPRS) will be extended to contractors in the courier and cleaning industries.
In this year’s budget, a further extension to the TPRS regime was announced (to take effect from 1 July 2019), covering the following industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
Under this system, businesses are required to provide the ATO with a detailed report of payments made to contractors, specifying the contractor’s details (name and ABN). This is an “integrity measure" to ensure that contractors are accurately reporting their income.
Affected businesses will likely need to commit some resources to complying with this measure, as it does require additional reporting.
Cash payments limit
From 1 July 2019 businesses will be subject to a cash payment limit of $10,000 for payments made when acquiring goods or services. Any payments above that limit must be made via cheque or through an electronic payment system.
No tax deduction for non-compliant PAYG and contractor payments
From 1 July 2019, businesses will not be able to claim deductions for payments to employees (such as wages) where they have not withheld any amount of PAYG from these payments (where such an obligation exists). This measure will also apply to payments made to contractors who do not provide an ABN and where otherwise PAYG withholding should apply (i.e. no ABN Withholding).
Further extension of the Director Penalty Regime
The Director Penalty Regime allows the ATO to seek recovery action personally against company directors for certain unpaid amounts due.
Until relatively recently, this was largely aimed at unpaid PAYG amounts, and was then extended to unpaid Superannuation Guarantee. In this year’s budget, the Government has announced its intention to extend the regime to include unpaid GST, luxury car tax and wine equalisation tax. This makes it more important than ever for directors to stay on top of these liabilities and ensure obligations are kept up to date.
The budget also proposes a tightening of the rules regarding resignation of directorships. This will prevent directors from improperly backdating resignations to avoid liability and limit them from stepping down if it leaves a company without any directors.
These changes are all part of the Government’s plan to crack down on illegal phoenix activity (where a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts).
Commonwealth Government tenders will require good tax record
From 1 July 2019 businesses tendering for Australian Government procurement contracts over $4 million (GST inclusive) will be required to provide a statement from the ATO indicating that they are “generally compliant with their tax obligations”. Failure to obtain the statement will eliminate the business from the tender process.
This could be problematic for a range of businesses, but those industries that tend to have larger contract values (e.g. building and construction) will be most affected.
2. SMSFs
Increasing the number of members for SMSFs
The budget confirmed that the maximum number of members in an SMSF will be increased from four to six from 1 July 2019.
The extra members will provide additional flexibility to funds and will make intergenerational planning simpler.
Three-year audit cycle for SMSFs
The current annual audit requirement for SMSFs will extend to a three-yearly cycle for superannuation funds with a history of good record keeping and compliance.
The measure will apply to SMSF trustees that have a history of three consecutive years of clear audit reports and on-time annual return lodgements.
3. Individual Tax
Personal tax cuts
The budget proposes a series of cuts to personal income tax , together with the introduction of a new ‘Low and Middle Income Tax Offset’. These changes are to be implemented in 3 stages.
- Stage 1: A new offset of up to $530 will apply from 1 July 2018. The maximum benefit will apply to those on taxable incomes of $48,000 to $90,000, with partial offsets for those earning up to $125,000. In addition, the top threshold of the 32.5% marginal tax rate will be pushed out to $90,000 (currently $87,000).
- Stage 2: From 1 July 2022, the top threshold of the 19% tax bracket will be increased to $41,000 (currently $37,000), accompanied by a further increase in the new tax offset. The top threshold of the 32.5% tax bracket will also be further increased to $120,000.
- Stage 3: From 1 July 2024, the 37% tax rate will be abolished, and anyone earning between $41,00 and $200,000 will be taxed at a rate of 32.5%. Those earning more than $200,000 will be taxed at a rate of 45% (the rate that currently applies to anyone earning more than $180,000).
No changes to work-related expenses
There was pre-budget talk about allowing individual taxpayers a standard tax deduction for work-related expenses. This did not eventuate, but with additional funding being allocated to the ATO and related organisations within Budget 2018-19, it is likely that the crackdown on deduction claims, such as travel and laundry, will continue. It is worth noting that this focus includes confirmation with employers of the legitimacy of employee work related expense claims.
4. Other
No tax deductions for vacant land
The Government has announced changes to the deduction of expenses associated with holding vacant land.
These changes will affect those incurring interest and other related costs from holding land that is not currently producing assessable income. For example, someone building units on vacant land could currently claim their interest expenses before the completion of the units. This would likely be denied under the proposed changes, which are intended to come into effect from 1 July 2019.
If you want to know more about how you can incorporate the outcomes from this year’s budget into your business and tax planning, get in touch today.