Overview
On Tuesday, 8 May 2018, Treasurer Scott Morrison handed down the 2018-19 Federal Budget, his 3rd Budget.
In what is widely perceived to be an election Budget (and certainly the last full Budget before the next Federal election), in his Budget speech, the Treasurer said that, in 2017-18, the Budget deficit will be $18.2 billion, less than half what it was 2 years ago. The deficit will fall again to $14.5 billion in 2018-19, Mr Morrison said. According to the Treasurer, the Budget is forecast to return to a modest balance of $2.2 billion in 2019-20 (a year ahead of what was previously expected) and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
In the lead up to the Budget, the Treasurer had said the Budget needed to “exercise the restraint that has been so important in ensuring that we bring that Budget back to balance”.
A summary of the key points from the budget are summarised below.
Individuals
Bracket Adjustment in Personal Income Taxes – The upper threshold for the 32.5% marginal tax rate bracket will increase from $87,000 to $90,000. This will affect individuals with a taxable income over $87,000 and will apply from the 2018-2019 financial year.
This has been implemented to address the issue of bracket creep. It’s anticipated that the adjustment to the marginal tax bracket will stop a further 200,000 Australians from entering the 37% marginal tax rate bracket.
Moreover, from 1 July 2022, there will be further adjustments made to the brackets. The upper income threshold for the 32.5% per cent bracket will be increased from $90,000 to $120,000. In addition, the upper income threshold for the 19% rate will increase from $37,000 to $41,000.
Further proposed changes from 1 July 2024 see the 37% tax bracket will be removed entirely. The top threshold of 32.5% per cent personal income tax bracket will be increased from $120,000 to $200,000. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.
Low and Middle Income Tax Offset – Introduction of a non-refundable tax offset of up to $530 per annum targeted at low to middle income earners. This will affect Individuals with a taxable income of up to $125,333 and will apply from 2018-19 to 2021-22.
For taxpayers with a taxable income of $37,000 or less, the Low and Middle Income Tax Offset will provide a benefit of up to $200.
Between taxable income of $37,000 and $48,000, the value of the offset will increase by 3 cents in the dollar up to the maximum offset of $530.
Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible to receive the $530 maximum offset.
The offset will phase out at a rate of 1.5 cents per dollar between taxable income $90,001 and $125,333.
Medicare Levy – An increase in the Medicare levy low-income thresholds for singles, families, and seniors and pensioners. This will benefit low-income earners and apply from 2017-2018.
In addition, the Government has confirmed that it will not be increasing the Medicare Levy rate from 2% to 2.5%.
Taxation of Testamentary Trusts
From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
Income received by minors from testamentary trusts is currently taxed at normal adult tax rates rather than the higher tax rates that normally apply to minors. However, some taxpayers have benefited from the lower tax rates from assets unrelated to the deceased estate that have been injected into the trust.
This measure will clarify that adult marginal tax rates will only apply to minors in respect of testamentary trust income generated from assets of the deceased estate (or the proceeds of the disposal or investment of those assets).
Business
$20,000 Instant Asset Write-Off Extended – The availability of the small business $20,000 instant asset write-off has been extended for a further 12 months to 30 June 2019.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Further, the small business simplified depreciation pool can also be immediately deducted if the balance is less than $20,000 over this period.
Better Targeting the R&D Tax Incentive
For companies with aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
The maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will be increased from $100 million to $150 million per annum.
For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate.
Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.
Cash Payment Limit – The Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. It is proposed that the said measure would apply from 1 July 2019.
Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. This measure will require transactions over a threshold to be made through an electronic payment system or cheque.
Removing Tax Deductibility of Non-Compliant Payments – A Tax deduction would not be allowed for the following where PAYG is not withheld:
- Wages;
- Payments made by businesses to contractors where the contractor does not provide an ABN.
PAYG reporting and tax withholding requirements provide integrity to the tax system. The Black Economy Taskforce recommended this action to create a further financial disincentive for businesses to engage in black economy behaviour and ensure greater compliance with tax obligations.
Targeted Amendments to Division 7A – The start date of the measures to make targeted amendments to Division 7A announced in the 2016-2017 has been deferred to 1 July 2019.
Application of Division 7A to Unpaid Present Entitlements – From 1 July 2019, the Government is proposing to tighten the rules regarding the application of the provisions of Division 7A to an unpaid present entitlement of a private company. This measure will ensure the unpaid present entitlement is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.
Recovery of Tax and Superannuation Debts – The Government will provide $133.7 million to the ATO to continue to deliver on a range of strategies that sustain both an increase in debt collections and an improvement in the timeliness of debt collections. The measure will ensure the ATO is able to continue to target those taxpayers gaining an unfair financial advantage over those who pay their fair share of tax and superannuation.
Superannuation
Voluntary Contributions to Super Funds – From 1 July 2019, an exemption is proposed to be introduced 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 the work test requirements.
Maximum Number of Super Members – From 1 July 2019, the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds is proposed to be increased from four to six.
Three Yearly Audit Cycle for SMSF – Also from 1 July 2019, the annual audit requirement is proposed to be changed to a three-yearly requirement for self-managed superannuation funds (SMSFs) with a history of good record-keeping and compliance.
Capping Passive Fees for Low Balance Super Funds – From 1 July 2019 the government will introduce a 1.5% per cent semi-annual cap on administration and investment fees charged by superannuation funds on accounts with balances below $6,000.
Social Security
Pension Work Bonus – From 1 July 2019, the Pension Work Bonus will increase from $250 to $300 per fortnight with the maximum unused amount that can be accrued increasing to $7,800 (up from $6,500).
In addition, the Government will extend the Pension Work Bonus to those who are self-employed. However, a ‘personal exertion’ test will be introduced to ensure the Pension Work Bonus is only available to those who are engaged in gainful work and not to those receiving passive income such as income from real estate.
Expanding the Pension Loan Scheme – From 1 July 2019, the Government will expand eligibility to the Pension Loan Scheme to include all Australians of Age Pension age. The Government will also increase the loan amount so that an individual can receive a fortnightly amount up to 150% of the maximum Age Pension rate.
Currently part-pensioners and some self-funded retirees who own a property in Australia can access the non-taxable Pension Loan Scheme. It is available to those who are not entitled to the maximum rate of pension, or any pension, because of the Income Test or Assets Test (but not if they are ineligible under both tests).
Under the scheme, individuals who are Age Pension age can obtain a loan (secured against the individual’s property) to increase their fortnightly pension payment from a part-rate or nil rate, up to the maximum pension rate.
Other existing rules including age-based loan to value ratio limits, ability to repay the loan at any time or on the sale of the property and fortnightly compounding of interest at a rate of 5.25% will continue to apply.
Income Test for Carer Allowance – From 20 September 2018 the Government will introduce a $250,000 annual Income Test threshold for the Carer Allowance and Carer Allowance (child) Health Care Card.
Currently, individuals who are providing care and attention to someone who has a disability or is frail with age can be eligible for:
- a non-means tested Carer Allowance of $127.10 per fortnight and a Health Care Card if care is provided to someone who is aged 16 or older or a child under age 16 with higher needs;
- a Health Care Card only if care is provided to a child under age 16 with lower needs.
Spending Incentives
Energy Bills – The government has pledged $41.5 million over seven years to ensure secure, reliable and affordable energy. The National Energy Security Board estimates yearly power bills will be slashed by $400 for the average Aussie household from 2020 under the government’s national energy guarantee.
Preschool and Childcare – From 2 July 2018, families with a combined income of $187,000 or less, will no longer have a limit on the Child Care Subsidy.
Hospitals – The government is touting “record levels” of public hospital funding, including a public hospital agreement that will deliver more than $30 billion in extra funding between 2020-21 and 2024-25.
The Medicare Guarantee Fund will receive $34.4 billion and a new program to encourage doctors to move to regional areas will be introduced.
Schools – Schools are big winners this year, with needs-based funding to deliver an extra $24.5 billion over the next decade. That’s 50% more funding per student on average. The government will also support businessman David Gonski’s recommended curriculum reforms and new online learning tools. The National Schools Chaplaincy program will win permanent funding, including an extra $247 million over four years, and will develop a focus on anti-bullying.
Infrastructure – The Treasurer has announced a $1 billion Urban Congestion Fund, designed to fund state-level projects that improve traffic flow.
In NSW, the government has promised $400 million to duplicate the Port Botany freight rail line, taking up to 900 trucks off the congested roads each day.
The Treasurer announced $971 million in federal funding for the Coffs Harbour bypass, which will enable drivers to avoid 12 sets of traffic lights on that increasingly busy stretch of road and a new, four-lane bridge will be built over the Shoalhaven River at Nowra.
Environment – The government is investing more than $500 million in the Great Barrier Reef to improve water quality, combat the coral-destroying crown-of-thorns starfish and conduct scientific research.
Job’s Incentive – An additional $250 million will go towards the Skilling Australians Fund to support growth in apprenticeships and traineeships. An extra $89 million will create more than 40,000 Transition to Work places to support youths aged 15 to 21 at risk of long-term unemployment.
An additional $8.3 million will go towards helping veterans find civilian employment, while the Brotherhood of St Laurence will receive $700,000 to establish a Youth Employment Body to create “best-practice youth employment service models”.
Law and Order – The government has splashed out to hunt down criminals, terrorists and paedophiles. More than $37 million has been pledged for the Australian Federal Police, the Australian Criminal Intelligence Commission and the Australian Security Intelligence Organisation, $68.6 million to establish the Australian Centre to Counter Child Exploitation, and $59.1 million to establish the National Criminal Intelligence System, a national database for use by police and intelligence agencies.
National Security – The government is investing $293.6 million in aviation security to safeguard Australia against “evolving threats” in civil aviation. This will include $50.1 million to enhance security at 64 regional airports with new and upgraded screening technologies.
It will also spend $121.6 million to enhance screening of air cargo and international mail.
The government is also providing $62.2 million to deter people smuggling.
To tackle the increasing threat of cyber crime and terrorism, the government is also providing $130 million to identify threats via visa screening.