The 2019/20 Federal Budget was handed down on 2nd Aprill 2019 by the Federal Treasurer, Mr Josh Frydenberg at 7:30 pm (AEDT) on 2 April 2019.
Here are our key take-outs which outline and explain the changes and proposed changes and how they will affect individuals and businesses.
1. Personal Income Tax Changes
The most significant change is the expansion to the low and middle-income tax offset which will apply with immediate effect, which means it will apply to the 2018-19 tax year.
The low and middle-income tax offset (LMITO) relief increases from a maximum of $530 to $1,080 per year for singles and $2,160 for dual income families. For example, those earning between $45,000 and $95,000 per year will receive the full benefit.
The Budget has also included other personal income tax benefits, including a reduction for the 32.5% tax rate to 30% and an increase in the level at which it cuts in from $41,000 to $45,000. However, both those measures are proposed changes and are delayed for a number of years, and therefore it is not certain that will in fact proceed. They are at least two, and quite possibly three, Federal elections away.
The Coalition has outlined their plan to have a single marginal tax rate of 30% applying on earnings from $45,000 up to $200,000 from 2024-25. This would result in over 70% of the population having a marginal tax rate of no more than 30%. In addition, if an individual earning $60,000 - $90,000 per year receives a 10-20% pay rise they will not move into a higher tax bracket.
2. Business Tax Cuts
The Budget delivered some great news to assist business is the expansion of the instant asset write off.
There are two aspects to this measure:
First, the cost of an asset that can be subject to the instant asset write off has increased from $25,000 to $30,000
The eligibility criterion for the benefit has increased from all businesses with annual turnover up to $10 million all businesses with annual turnover up to to $50 million
The second measure, in particular, expands the scope of businesses that are now eligible quite substantially, and it is important also to note that this benefit will be available on a per asset basis. Meaning one company can claim the instant asset write-off in respect of multiple assets.
These changes will come into effect at 7.30pm (EST) on 2 April 2019. Any asset acquired after that time by an eligible business will be entitled to the benefit.
It does, however, leave businesses in a tricky situation where they will have to wrangle with
three different thresholds in the 2019 income year in order to claim the offset.
In particular, the thresholds will apply in the following way in the 2019 income year:
$20,000 from 1 July 2018 to 28 January 2019 (turnover less than $10 million)
$25,000 from 29 January 2019 to 2 April 2019 (turnover less than $10 million)
$30,000 from 2 April 2019 to 30 June 2019 (turnover less than $50 million)
It is also important to note that the highest cost of the asset allowed, in order to take advantage of the offset, is actually $19,999.99, $24,999.99, and $29,999.99 respectively. Whether the Tax Office would take issue with anyone claiming the higher rounded figure remains to be seen, but we would suggest to not run that risk.
The measure is set to run out on 30 June 2020, so although it would be fantastic as a permanent feature of the tax system for small and perhaps medium-sized businesses at this stage this will not be the case.
There has also been a further change to the ever changing company tax rate, with the lower 25% company tax rate being available to companies on less than $50 million turnovers with effect from 2021-22.
One to the superannuation arrangements is that anyone up to the age of 67 will be able to make contributions to superannuation, whether or not they meet the work test. This is an important extension that will give greater opportunities for our ageing population to fund their own retirement and brings the age into line with the aged pension eligibility criterion.
4 - Division 7A
The changes to Division 7A which were mooted to start on 1 July 2019 have been deferred a full 12 months, giving valuable additional time for consultation. The proposed changes were highly controversial, including, in particular, the elimination of a requirement for a distributable surplus before Division 7A could apply. We welcome the extension as this will result in much debate over the coming 12 months.
BUDGET HIGHLIGHTS AT A GLANCE
Carly Thornton, Senior Tax Manager