Comprehensive Overview of How the Budget Impacts You
- Significant changes to the calculation of the R&D tax incentive will commence for income years beginning on or after 1 July 2018. Additionally, a maximum cash refund will also apply for some entities.
- The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019.
- Amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules from 1 July 2019.
- The start date of targeted amendments to Div 7A will be deferred from 1 July 2018 to 1 July 2019.
- Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.
- The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income.
- Payments to employees and contractors are no longer deductible where any amounts that are required to be withheld are not paid, from 1 July 2019.
- The definition of a “significant global entity” (SGE) will be broadened to include more large multinational groups, from 1 July 2018.
- The thin capitalisation rules will be amended, effective 1 July 2019, to require entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.
- The thin capitalisation rules will be amended, effective 1 July 2019, to treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for thin capitalisation purposes.
- Tax exempt entities that become taxable after 8 May 2018 will not be able to claim tax deductions that arise on the repayment of the principal of a concessional loan.
- The 50% capital gains discount for managed investment trusts (MITs) and attribution MITs (AMITs) will be removed at the trust level.
- A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts.
- The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate.
- A five year income tax exemption will be provided to a subsidiary of the International Cricket Council (ICC) for the ICC World Twenty20 to be held in Australia in 2020.
- The list of countries whose residents are eligible to access a reduced withholding tax rate of 15% on certain distributions from Australian managed investment trusts (MITs) will be updated.
- Six more organisations have been approved as specifically-listed deductible gift recipients.
- The maximum number of allowable members in SMSFs and small APRA funds will be increased to six from 1 July 2019.
- The annual audit requirement for self-managed superannuation funds will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.
- Individuals whose income exceeds $263,157, and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
- Individuals will be required to confirm in their income tax returns that they have complied with “notice of intent” requirements in relation to their personal superannuation contributions, effective from 1 July 2018.
- An exemption from the work test for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
- Insurance arrangements for certain superannuation members will be changed from being a default framework to being offered on an opt-in basis.
- A 3% annual cap will be introduced on passive fees charged by superannuation funds on accounts with balances below $6,000, and exit fees on all superannuation accounts will be banned.
- The financial institutions supervisory levies will be increased to raise additional revenue of $31.9m over four years, from 2018/19.
Black Economy Measures
- A package to reform the corporations and tax laws to deter and disrupt illegal phoenix activity and the black economy will be introduced.
- The taxable payments reporting system for payments to contractors will be expanded to include security services, road freight transport and computer system design industries, effective from 1 July 2019.
- Business seeking to tender for Australian government contracts above $4m (including GST) will need to provide a statement of compliance with their tax obligations, from 1 July 2019.
- Businesses can no longer receive cash payments above $10,000 for goods and services, from 1 July 2019.
- Offshore sellers of hotel accommodation in Australia will be required to calculate their GST turnover in the same way as local sellers from 1 July 2019.
- The luxury car tax on cars re-imported into Australia, following a refurbishment overseas, will be removed from 1 January 2019.
- Alcohol excise refund scheme cap increased from $30,000 to $100,000 per financial year from 1 July 2019, and lower excise rates will apply for smaller beer kegs.
- Measures to combat illicit tobacco in Australia, including collecting tobacco duties and taxes upon importation and creating a multi-agency task force, will be introduced.
- Customs tariffs from placebos and clinical trial kits that are imported into Australia will be removed from 1 July 2018.
- Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been extended.
- A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
- The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year.
- The 2017/18 Federal Budget measure to increase the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019 will not proceed.
- Supplementary amounts (such as pension supplement, rent assistance and remote area allowance) paid to a veteran, and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018.
- Schemes to license a person’s fame or image to another entity such as a related company or trust to avoid income tax will be curtailed.
- The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.
Seven-year Personal Income Tax Plan to be introduced
A seven-year Personal Income Tax (PIT) Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% PIT bracket.
This measure builds on the 2016/17 Budget measure that extended the 32.5% PIT bracket from $80,000 to $87,000 from 1 July 2016.
Step 1: Low and middle income tax offset to be introduced
A low and middle income tax offset (LMITO) will be introduced as a non-refundable tax offset of up to $530 pa to resident low and middle income taxpayers from 2018/19 to 2021/22.
The LMITO will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. For taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. For taxpayers with taxable incomes from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
The LMITO will be received as a lump sum on assessment after an individual lodges their tax return. The benefit of the LMITO is in addition to the existing low income tax offset.
Step 2: Relief from bracket creep for middle income taxpayers
Middle income taxpayers will be provided relief for bracket creep in phases.
From 1 July 2018, the top threshold of the 32.5% PIT bracket will be increased from $87,000 to $90,000.
From 1 July 2022, the low income tax offset will be increased from $445 to $645, and the 19% PIT bracket will be increased from $37,000 to $41,000 to lock in the benefits of the LMITO in Step 1. The increased low income tax offset will be withdrawn at a rate of 6.5 cents per dollar for incomes between $37,000 and $41,000, and at a rate of 1.5 cents per dollar for incomes between $41,000 and $66,667.
From 1 July 2022, the top threshold of the 32.5% PIT bracket will be further increased from $90,000 to $120,000.
Step 3: Removing the 37% personal income tax bracket
The 37% PIT bracket will be removed from 1 July 2024.
From 1 July 2024, the top threshold of the 32.5% PIT bracket will be increased from $120,000 to $200,000. Taxpayers will pay the top marginal tax rate of 45% for taxable incomes exceeding $200,000, and the 32.5% PIT bracket will apply to taxable incomes of $41,001 to $200,000.