Last year in my summary of the 2018 Budget I said the Government had no idea what was going to happen in 12 months so there was no point predicting the next 5 years.
Well 12 months later and we have a new Prime Minister and a new Treasurer. That was not predicted. And more new tax rates. And they decided to change all the things they said was going to happen in 5 year’s time. Again.
There have been so many predictions and so many tax rates for future years that I have lost count. I am convinced it is to confuse us all. Last year we had the 3 stage process of tax cuts over 6 years. Well after 12 months they changed it.
Yesterday my email inbox exploded and groaned with the strain of very intelligent people and well established companies telling me they have the best analysis and commentary of our budget.
It might be pointless. It could be crap too because most of it could be a waste of time. I think it was all just for show. It is expected that this weekend the date of the election will be announced and with hardly any sitting days in Parliament left there is as much chance of these proposals passing into law as there is of me beating the world record in the 100m sprint. Well not quite.
You see the only way this budget will become law is if the current government wins the next election and based on polls I have seen the chances of that happening is quite low. But you never know.
If Labour come to power they have already stated that they would increase taxes and increase spending. The Liberal Government is banking people wanting lower taxes.
So this budget was not really a budget. It was a tax giveaway just before a General Election. In other words a bit of a bribe. This is the second tax giveaway in two years.
It was designed to make us all fuzzy and gooey so that we would forget that the political system in the last few years was a bit of a Muppet Show.
Generally the Federal Budget is a bit of a waste of time – it never works out the way they say it will. But with an uncertain economic situation it is interesting that the current tax collected is the highest Australia has ever seen. For the first time in a decade we are heading for a surplus and if all goes well in a few year’s time we will start to pay off the national debt.
I will believe that when I see it. You see we have a history of spending it before we earn it.
I know most of you will have received budgets updates. Most will put you to sleep.
So as I do every year I thought I would write a summary which is in plain English and explain what it really means to you and me.
So for those of us who like plain English here is our summary:
Personal income tax
Changes to personal income tax rates
Budget surpluses sound good but let’s be honest. Tax cuts sound much nicer.
Earnings up to $18,200
People on this income level will continue to pay no income tax.
Earnings $18,201-$37,000 A Year
Lower income earners can expect to receive a $55 tax cut in the 2019-20 financial year, which amounts to $1 a week.
$1. Not exactly something you can get excited about.
But factor this in with last year’s tax cut and people in this bracket will be granted a $255 tax cut which is just under $5 a week. Just enough to buy a coffee on a Sunday morning.
Earnings of $37,001-$48,000
It starts to get better in this income tax bracket because the overall savings is
$480 in tax relief. This means you can now get a coffee and add a muffin to it.
Earning $48,001-$90,000
Most of the tax relief in this Budget flows to middle income earners, who will receive a tax cut of $1,080.
Now you get to watch Netflix with your coffee and muffin. Not bad.
Earnings $90,001-$126,000
People on $90,000 also enjoy the highest cut of $550 with the amount of tax relief gradually reducing to zero for those on a taxable income of $126,000.
For example, if you make $100,000 a year, you’ll get a $400 cut; if you’re on $120,000 you’ll get a $100 cut.
No great but better than having to pay more.
Earnings $126,000-$200,000
Sorry you get zilch. Zero. Nothing.
Higher income earners have no tax cuts in this Budget. They were handed a modest $135 cut last year, though which is less than $2. That should get you a bottle of water a week, which if you are earning $200,000 is not much. In other words crap.
How Will You Get The Tax Cuts?
Here is the catch. The tax cuts will not be seen in your weekly pay packet. They will be delivered in a lump sum “tax offset” in your annual tax return, starting July 1.
So you will not really see any of it until August 2020 at the earliest. That coffee, muffin and maybe the movie will have to wait a while.
Oh, and as stated above you’ll only see the extra dosh if the government is re-elected. Which might not happen.
But Wait ……There’s A Bit More!
It’s not all bad news for higher income earners. In future years:
If the government is re-elected, it wants to flatten out tax rates, which will benefit high earners.
The government wants to lower the marginal tax rate — which covers those earning $37,001 to $87,000 — from 32.5 cents in the dollar to 30c.
But then the government wants to go a step further and abolish the second highest tax rate of 37c by lifting the 30c marginal tax rate threshold from $87,001 to $200,000.
This could effectively put 94% of all Australians within the 30% tax bracket. Not bad.
If implemented, it would mean an Aussie on $50,000 a year would receive a $1,205 tax cut.
Someone on $200,000 would receive a whopping $11,640. That’s a lot of coffee and a lot of muffins. But here’s the thing. I cannot see Labour voting for this. So if they win don’t expect it to happen.
The reason we could be wasting our time on this is that these changes are not expected to kick in until 2024-25, which is two elections away. We have no idea what will happen in the May 2019 election so I am not sure on what basis the Government has assumed they will be in office for the next three terms.
Based on history come 2024-25 I expect tax rates to be totally different.
Changes affecting business taxpayers
Increasing and expanding access to the instant asset write-off
I do like this as it encourages investment though I would rather it be restricted to equipment used in the business to generate income.
I have a suspicion that a lot of cars are going to get sold which helps the image and ego but probably does not add to the bottom line.
The instant asset write-off was extended until 30 June 2020.
There are two changes:
- Increasing the instant asset write-off threshold from $25,000 to $30,000. This is per asset.
- Extending it to medium sized businesses as well as small businesses
TAX TIP – Claiming an instant asset write-off prior to Budget night
Now most advisors do not know this but on 29 January 2019, the Government announced that it would increase the instant asset write-off threshold from $20,000 to $25,000 and extend the write-off for an additional 12 months to 30 June 2020. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.
So in summary:
- 1 July 2018 – 28 January 2019: less than $20,000.
- 29 January 2019 – before 7.30 pm (AEDT) on 2 April 2019: less than $25,000.
- From 7.30 pm (AEDT) on 2 April 2019 – 30 June 2019: less than $30,000.
Company Loans to Directors or Shareholders
Ok so this section is a bit technical but I will do my best. If you have taken money out of your company and it has been treated as a loan from the company to you (ie you have not taken a salary or dividend) then special rules apply.
There were some major changes that were being introduced from 1 July 2019 but due to the lack of time it will not get passed so these new rules will get deferred to 1 July 2020.
As the rules are mostly about ensuring people are paying the correct amount of tax expect Labour to legislate this if they come to power.
The changes are a major overall to this part of taxation so it will be a discussion for another day.
Expanding Single Touch Payroll
Many of you know that Single Touch Payroll will become effective from 1 July 2019. We will be sending you a separate note on this next week but in a nutshell, every payroll run that you now process will immediately be informed to the ATO. This means you have to have special compliant software even if you pay your son, daughter or spouse.
The Government has announced that it will support the expansion of the data collected through Single Touch Payroll (‘STP’) by the ATO and the use of this data by Commonwealth agencies. The idea is to ensure all income relating to employees is captured electronically.
STP data will be expanded to include more information about gross pay amounts and other details. We have been told these changes will reduce the compliance burden for employers and individuals reporting information to multiple Government agencies. Well they would say that wouldn’t they.
From 1 July 2020, the Government will simplify and automate the reporting of any employment income for welfare (i.e., social security) recipients through STP. This is to stop fraudulent welfare claims.
Australian Business Number (ABN) system
All holders of ABN’s will have to:
- Lodge their income tax return if they have an income tax return obligation from 1 July 2021.
- 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 lodgment obligation or the obligation to update their ABN details.
The idea is to clean up the ABN register and remove ABN’s that are not active.
Superannuation related changes
Please note we are not financial planners and not authorised to provide investment advice in any capacity. The information below is for information only and YOU MUST seek professional advice from a financial planner before you make any decisions or changes.
Changes to the superannuation contribution rules
- Removing the work test for those aged 65 and 66 years
The Government has announced that it will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 years without meeting the work test from 1 July 2020.
An individual satisfies the work test where they are ‘gainfully employed’ on at least a part-time basis during the income year in which the contributions are made.
- Access to the ‘bring-forward rule’ for those aged 65 and 66 years
The Government has announced that it will allow those aged 65 and 66 to make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).
Under current law, broadly, those aged 65 and over cannot access bring-forward arrangements.
- Increasing the age limit for spouse contributions
Individuals up to and including the age of 74 will be able to receive spouse contributions (with those 65 and 66 no longer needing to meet a work test).
Currently, those aged 70 and over cannot receive spouse contributions.
Other changes
Increased refunds for eligible primary producers and tourism operators
The Government will provide further relief to farmers and tourism operators by amending the luxury car tax refund arrangements.
For vehicles acquired on or 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.
Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000.
The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.
There are some major changes and relief for primary producers. Most of our clients are not in the sector so we have decided not to bore you with the details. If this is of interest to you please let us know and this information will be provided.
‘Sham’ contracting
This has been on the ATO radar for some time.
Some employers force their employees to be contractors and not employ them as employed members of staff. Sometimes the employee wishes to be a contractor to obtain better tax terms.
The Government will provide substantial funding to establish a dedicated sham contracting unit (within the Fair Work Ombudsman) to address sham contracting behaviour engaged in by some employers.
This measure is targeted at those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid employment and statutory obligations.
ATO Tax Avoidance Taskforce
The Government will provide $1 billion over four years, from the 2020 income year, to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.
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.
In addition the Government will provide $42.1 million 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.
And that’s a wrap. I could go on about budget surpluses and repayment of debt, funding for Highways etc but that will send you to sleep. I hope this summary has made it a bit easier to understand what it really means for you.
