Mr Scott Morrison, the Federal Treasurer, handed down his third Budget on 8 May 2018.
Mr Morrison said the Budget is focused on further strengthening the economy to "guarantee the essentials Australians rely on" and "responsibly repair the budget". With a deficit of $18.2b in 2017/18 and $14.5b in 2018/19, the Budget is forecast to return to a balance of $2.2b in 2019/20 and a projected surplus of $11b in 2020/21.
The government is proposing a three-step, seven-year plan to make personal income tax "lower, fairer and simpler". The Budget also contains additional measures to counter the black economy, particularly in response to the final report from the Black Economy Taskforce, including expanding the taxable payments reporting system. Additionally, the Budget contains a range of measures intended to ensure the integrity of the tax and superannuation system, including increases for the aged care sector and some new incentives for older workers to continue employment.
But the welfare sector and its supporters will be disappointed, with no increases in Newstart despite a vigorous campaign for an improvement, backed by business. However the welfare sector will take some comfort that the Budget contains none of the draconian changes directed at welfare recipients of recent Budgets.
The Government says, "The 2018–19 Budget brings a further improvement to Australia's fiscal position, reflecting the Government's focus on fiscal discipline to achieve budget surpluses and improved receipts from stronger economic growth. "This outcome recognises the benefits of the Government sticking with its plan to build a stronger economy. To ensure sustainable budget outcomes continue, the Government will continue to strengthen the economy by:
• providing tax relief to encourage and reward working Australians;
• continuing to back business to invest and create more jobs;
• guaranteeing the essential services on which Australians rely;
• keeping Australians safe; and
• ensuring that the Government lives within its means."
The full Budget papers are available at www.budget.gov.au and the Treasury ministers' media releases are available at ministers.treasury.gov.au.
The tax and superannuation highlights are set out below.
• 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. This Personal Income Tax Plan lowers taxes so that 94 per cent of all taxpayers are projected to pay no more than 32.5 cents in the dollar in 2024–25.
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. This is illustrated in the table below.
||Thresholds in 2017/18
||New thresholds in 2024/25
||Up to $18,200
||Up to $18,200
||$18,201 – $37,000
||$18,201 – $41,000
||$37,001 – $87,000
||$41,001 – $200,000
||$87,001 – $180,000
Source: Budget Paper No 2, pp 33-34; Treasurer's media release "Tax relief for working Australians, low and middle income earners first", 8 May 2018; and Budget 2018-19 Glossy: Stronger growth to create more jobs, p 11.
• 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.
• 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 (for domestic brewers, distillers and producers of fermented beverages) 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 the three main sources of illicit tobacco in Australia (smuggling, leakage from licensed warehouses and domestic production), 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.
The major spending increases announced in – and immediately before – the Budget are increased health funding under the National Health Agreement with the states ($977 million over the four year Forward Estimates), $970 million for increases in the PBS, $478 million for the Great Barrier Reef program announced a week before the Budget and $440 million for Remote Indigenous Housing in the Northern Territory.
Aging and Aged Care
The Budget includes a big increase in the number of aged Care Home Care packages, to enable older people to receive increased services in their home rather than in residential aged care. It also includes a number of initiatives designed to encourage older people to remain engaged in the workforce, including changes aimed at older small business owners such as:
• Home-care packages: The Budget provides $1.6 billion to support 14,000 additional high-level home care packages by 2021– 22.
• Pension Work Bonus: Expanding the Pension Work Bonus. Age Pensioners will be able to earn up to $300 each fortnight, which is an additional $50 each fortnight; without reducing their pension payments.
• Pension Loan Schemes: The little-utilised Pension Loans Scheme is being expanded so eligible retirees can borrow a maximum of 150 per cent of the age pension. The loan is paid fortnightly, is tax-free and attracts compound interest of 5.25 per cent on the outstanding balance. Eligibility for the scheme is being expanded from pensioners and part-pensioners to include all people over Age Pension age.
• The Government is delivering its More Choices for a Longer Life Package which maximises the opportunities that a longer life brings. It includes measures which support Australians to be prepared to live a healthy, independent, connected and safe life.
• Retirement savings will be enhanced by the one-year work test exemption, allowing recent retirees to make voluntary superannuation contributions for a year after they are no longer working.
• myagedcare.gov.au website: The Government is making it easier for people to navigate the aged care system and access the care that suits them. This includes $61.7 million to improve the My Aged Care website and $14.8 million to streamline the assessment process for aged care services.
• The Government is investing in the health of older Australians by providing: $82.5 million for mental health services for people in residential aged care facilities; $20 million to pilot services for older Australians to help them remain connected to their communities; and $22.9 million to boost the physical activity of older Australians.
Other changes include:
• clarifying the Age Pension treatment of innovative income stream products, and introducing a retirement income covenant for superannuation trustees to formulate a retirement strategy for members and offer a wider variety of products. Retirees will be assisted in making decisions and comparing retirement income products through enhanced disclosure requirements on providers.
All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher.
No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is made available on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, for any error in or omission from this publication, and (2) the publisher is not engaged in rendering legal, accounting, professional or any other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.