As expected with only a handful of weeks before the required election, the Morrison government’s 2019-20 Federal budget has not proposed any significant changes to Australia’s tax system. There are some small, short–term tax cuts on offer, a welcome proposal to extend the instant asset write-off, recognition that there really is no strategy for superannuation (due to, yet another, change of policy), but no wholesale changes announced. This is to be contrasted with Labor’s wide-reaching proposals to change long standing aspects of Australia’s tax system.
The government is declaring a return to surplus and a $100 billion spend on infrastructure over the next decade. Expect to hear a lot about these in the coming weeks. Of more concern for business is their proposal for significant increases in funding for tax avoidance taskforces and for the Australian Securities and Investments Commission.
Pilot’s summary of the major tax related budget announcements follows.
1. Personal tax
As part of a broader theme of sweeteners for the electorate, the Government have announced a raft of personal income tax cuts over the forward estimates. The implementation of the reduced rates and thresholds will largely rely on the Coalition forming Government following the May election.
For tax returns lodged from 1 July 2019, taxpayers with taxable income below $126,000 will receive an increased Low and Middle Income Tax Offset (LMITO). Broadly, taxpayers earning between $48,000 and $90,000 will receive the benefit of an approximately doubled LMITO to $1,080 from 2018-19 to 2021-22.
The Government is proposing to streamline personal tax rates to eventually end up with only three income brackets by 2024-25: 19%, 30% and 45%. It is worth noting that these changes are drafted to take effect in two election cycles time.
In addition, the Government has proposed to increase the Low Income Tax Offset (LITO) to a maximum of $700 (currently $445) for taxable incomes up to $66,667 in 2024-25.
These changes are reflected below:
Tax rates and proposed thresholds
|Rate||2017-18||2018-19 to 2021-22||2022-23 to 2023-24|
|Nil||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – $37,000||$18,201 – $37,000||$18,201 – $45,000|
|32.5%||$37,001 – $87,000||$37,001 – $90,000||$45,001 – $120,000|
|37%||$87,001 – $180,000||$90,001 – $180,000||$120,001 – $180,000|
|45%||$180,001 +||$180,001 +||$180,001 +|
|Low and middle income tax offset (LMITO)||–||Up to $1,080||–|
|Low income tax offset (LITO)||Up to $445||Up to $445||Up to $700|
From 2024-25, the top rate of income tax will be payable by those with taxable incomes exceeding $200,000 (currently $180,000). Should the proposed changes be legislated, middle-income Australia will see a reduction in their marginal tax rates, as follows:
|Rates from 2024-25||Proposed thresholds from 2024-25|
|Nil||$0 – $18,200|
|19%||$18,201 – $45,000|
|30%||$45,001 – $200,000|
|Low income tax offset (LITO)||Up to $700|
As a result of these changes, the government estimates that approximately 94% of taxpayers will pay tax at a marginal rate of 30%.
Small business tax rate changes
The Government has proposed to fast track reductions in the corporate tax rate for small and medium businesses. Those companies currently paying income tax at 27.5% (i.e. turnover less than $50 million during 2018-19 with no more than 80% passive income) will pay tax at 25% by 2021-22. This is 5 years ahead of schedule.
The Government estimates that the proposed changes to the corporate tax rate will benefit approximately 970,000 businesses.
Instant asset write-off
While extending the time and increasing the write-off is now commonplace at every budget, the newest addition of proposed changes is to extend the write-off to slightly larger businesses. This is notwithstanding the fact that the government is yet to legislate the last round of proposed changes.
Let’s take a look at who, what and when this concession applies to:
|Eligible businesses||Aggregated annual turnover||Asset write-off limit||Time frame announced||Time frame practically|
|Current law||Small||Up to $10m||$20,000||Up to 30 June 2019||Up to 29 January 2019|
|Existing proposals||Small||Up to $10m||$25,000||29 January 2019 to 30 June 2020||29 January 2019 to 2 April 2019|
|New proposals||Small||Up to $10m||$30,000||2 April 2019 to 30 June 2020||2 April 2019 to 30 June 2020|
|New proposals||Medium||$10m to $50m||$30,000||2 April 2019 to 30 June 2020||2 April 2019 to 30 June 2020|
Importantly, “medium businesses” are only able to access the write-offs for assets purchased and first used/installed ready for use from 2 April 2019. Conversely, “small businesses” only need to have the assets first used/installed ready for use, which suggests that the write off may apply to assets already held for those businesses prior to budget night.
Note that access to small business pools for assets over the write-off limits will remain in place only for “small businesses”.
Assuming all of the proposals are implemented, we expect this to encourage spending and be a positive driver in the economy.
Work test exemption
The work test for individuals aged 65 and 66 making voluntary super contributions is proposed to be removed from 1 July 2020. These individuals will no longer be needed to complete a minimum of 40 hours paid work in not more than 30 consecutive days.
Complete removal of the work test was proposed in the 2016-17 federal budget from 1 July 2017, however, the Government then reneged and decided that it would remain in place.
The proposed exemption for 65 and 66 year olds means 67-74 year olds will still be caught by the work test.
Bring forward rules
It was also proposed to extend the bring-forward rules to include individuals aged 65 and 66. Currently, individuals must be younger than 65 to bring their non-concessional contributions cap forward three years, to a maximum contribution of $300,000 within any three year period.
4. Compliance and Enforcement
Tax avoidance, the black economy and compliance continues to be a focus in this budget.
1. Tax Avoidance Taskforce funding
The Government proposes $1b over the next four years from 2019-20 to extend the operation, programs and market coverage of the Tax Avoidance Taskforce. The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure will allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
2. Focus on unpaid Super and Tax by larger businesses
The Government will provide $42.1m over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.
3. ABN system
The Government will impose new compliance obligations on ABN holders in order to retain their ABN. From 1 July 2021, ABN holders with tax obligations will be required to lodge income tax returns, and by 1 July 2022 they will be required to also confirm the accuracy of ABN registration details, in order to retain their ABN.
There is also an investment being made to ensure compliance across the board:
1. Response to Royal Banking Commission
$606.7m will be provided over five years from 2018-19 to facilitate the response to the Hayne Banking Royal Commission. The package comprises a suite of measures that fulfil the Government’s commitment to take action on all 76 recommendations. The cost of some of the more notable recommendations is:
- 67% of this ($404.8 million over four years from 2019-20) will be applied to resource the Australian Securities and Investments Commission (ASIC) to implement its new enforcement strategy and expand its capabilities and roles;
- 24% ($145.0 million over four years from 2019-20) will be used to resource the Australian Prudential Regulation Authority (APRA) to strengthen its supervisory and enforcement activities;
- 1% ($7.7 million over three years from 2020-21) will go towards ;establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives;
- 2% ($11.2 million in 2019-20) towards establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and co-ordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee.
2. Sham contracting
$19.2m will be invested in a dedicated unit within the Fair Work Ombudsman to address sham contracting behaviour engaged in by some employers. The focus is on those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations and employment entitlements.
3. Anti-money laundering
The Government will provide $28.4m over four years from 2019-20 (including $6.5 million in capital funding) to the Australian Transaction Reports and Analysis Centre (AUSTRAC) to expand the Fintel Alliance. The Fintel Alliance is a public private partnership that builds resilience in the financial system and disrupts money laundering, terrorism financing and other serious crime.
5. And then there were ants
There does appear to be an anti-ant theme coming through the Budget papers with significant dollars allocated to their eradication, including:
- $18.3 million to support the eradication of Red Imported Fire Ants;
- $9.2 million to help control Yellow Crazy Ants; and
- $8.4 million to significantly advance the response to the biosecurity threat of Argentine Ants.
Perhaps it would be cheaper to issue magnifying glasses to all school kids?
*No ants were harmed in the writing of this.