Election budget delivers tax cuts
The Turnbull Government has released what is being painted as an election budget that includes income tax cuts for Australians in every pay bracket, furthers its plan for business tax cuts and commits $75 billion to infrastructure development.
It has committed to a tax cap of 23.9 per cent of GDP by reducing the tax loads on individuals and businesses in line with GDP growth, which is expected to be 2.75% in FY18 and improving to 3% in the two following years.
A deficit of $14.5 billion is expected in FY19, but the budget is expected to return to balance the following year before moving back into surplus in FY21.
Time will tell whether the Turnbull government will return the budget to surplus as planned and implement its planned tax regime, as the next election will be held between 8 August 2018, and 18 May 2019.
- The centerpiece of the federal budget is a seven-year plan to cut personal taxes. The Low-Income Tax Offset will give up to $530 to taxpayers on incomes between $48,000 and $90,000 from FY19 to FY22, which will be received as a lump sum after individuals lodge their tax returns. Taxpayers earning less than $37,000 will receive up to $200.
- The $87k to $90k tax bracket will benefit from a threshold change. From 1 July 2018, the top threshold of the 32.5 per cent tax bracket will be increased from $87k to $90k and will be increased from $90k to $120,000 from 1 July 2022. The threshold for the 19 per cent bracket will increase from $37,000 to $41,000 at the same date.
- From 1 July 2024, the government plans to reduce the number of tax brackets from five to four. It will increase the top threshold of the 32.5 per cent bracket and remove the current 37 per cent tax bracket so that the lower rate applies to people earning between $41,000 and $200,000. The top rate of 45 per cent will remain for incomes above $200,000.
Enterprise tax and regulation
- The government is continuing to push its 10-year Enterprise Tax Plan, first introduced in 2016. The 27.5% corporate tax rate will apply to businesses with aggregated turnover of less than $50 million from FY19. This bill has received Royal Assent on 19 May 2017.
- The second phase of the bill aims to progressively reduce the corporate tax rate to 25% for all corporate entities by 2026-27. This was introduced to parliament on 11 May 2017 but is still before the senate.
- In October last year, the Government introduced another associated bill to ensure that only corporate entities that meet the aggregated turnover threshold and have no more than 80% base rate entity passive income will be eligible for the lower corporate tax rate. If passed, the effective date will be from FY18.
- In addition, the $20,000 instant asset write-off has been extended for a further 12 months, to 30 June 2019.
- As part of the current federal budget, the government has also funded measures to ensure multinational companies are paying their ‘fair share’ of tax and is working with governments on a global scale on a plan to fairly tax global digital businesses.
- In an effort to combat money laundering, the government will also implement an Australia-wide cash payment limit of $10,000.
- Corporate and tax laws will be reformed to clamp down on illegal ‘phoenixing’, which involves the deliberate misuse of the corporate form.
- The budget includes $24 billion for ‘nationally significant’ transport projects for the coming financial year as part of a $75 billion transport infrastructure investment over the next decade. It includes $1 billion for the M1 Pacific Motorway for the Eight Mile Plains to Daisy Hill and Varsity Lakes to Tugun sections. In all, Queensland will receive $5.2 billion for major new transport projects.
- The Protecting Your Super Package will cap passive fees at 3% on accounts with below $6,000 and will ban exit fees on all superannuation accounts. The package will also strengthen an ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts where the balances are below $6,000 to the ATO, which will attempt to match the balance with its owner.
- The Government will raise additional revenue of $31.9 million over four years from FY19 by increasing the Financial Institutions Supervisory Levies.
- There will be an exemption 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 work test requirements.
- ATO has signaled it is taking a ‘firm stance’ on tax and superannuation debts. The government will provide $133.7 million to the ATO to address the level of unpaid tax and superannuation in the community to extend a program that otherwise would have ended on 30 June 2018.
- The maximum number of allowable members in self-managed superannuation funds and small APRA funds will be increased from four to six.
- Individuals whose income exceeds $263,157 and who have multiple employers will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee from 1 July 2018, which will help them avoid unintentionally breaching the $25,000 annual concessional contributions cap.
- For some SMSFs with a history of good record-keeping and compliance, annual audit requirements will be reduced to a three-yearly requirement from 1 July 2019.
This is a concise briefing on several measures contained within the FY19 budget relating to tax and superannuation, for more detailed advice contact MWM Advisory on (07) 5596 9070.
Supporting you through the changes
Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your financial plans for the future. If you have any concerns, or would like to discuss your financial strategy, please don’t hesitate to call us on 07 5596 9070 to arrange an appointment.
As the 2018-19 Budget has not passed into legislation, the material contained in our commentary should be used as a guide in conjunction with professional expertise and judgement. All responsibility for applications of our Budget 2018-19 commentary and for the direct or indirect consequences of decisions based on the information rests with the user.