See below the major items in the 2018 federal budget outlined by The Institute of Public Accountants and the National Tax & accountants’Association
The Government will introduce a seven-year, three-step, Personal Income Tax Plan, as follows:
The Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return. The benefit of the proposed Low and Middle Income Tax Offset is as follows:
• Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200;
• For taxpayers with 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;
• For taxpayers with taxable incomes from $48,000 to $90,000 a $530 offset applies; and
• 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 benefit of the Low and Middle Income Tax Offset is in addition to the Low Income Tax Offset.
The Government has also proposed an increase to the Low Income Tax Offset from $445 to $645 from 1 July 2022. This offset will reduce at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between $41,000 and $66,667.
In the third step of the Personal Income Tax Plan the Government will simplify and flatten the personal tax system by removing the 37% tax bracket entirely. From 1 July 2024, the Government will extend the top threshold of the 32.5% personal income tax bracket from $120,000 to $200,000. The 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000 and taxpayers with taxable incomes exceeding $200,000 will pay tax at the top marginal rate of 45%.
Continuation of small business tax concessions
Many of the existing tax concessions for small businesses over the past few years will continue, despite there being no further direct tax relief in the budget.
The government is extending the $20,000 instant asset write-off for a further 12 months to 30 June 2019.
It has also continued its existing commitments to a reduced corporate tax rate and an unincorporated small business tax discount, as well as an increase of the small business turnover threshold to $25 million.
In addition, the government has announced a tax integrity measure in clarifying that unpaid present entitlements will now come within the scope of Division 7A.
From 1 July 2019, unpaid present entitlements will come within the scope of Division 7A of the Income Tax Assessment Act 1936, in a move that 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.
Unchanged work-related deductions
The government has refrained from making any ad hoc changes to eligibility rules around work-related expenses.
Regardless, it has committed $130.8 million to the ATO from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents, in a bid to raise $1.1 billion over the forward estimates period.
The funding will go towards new compliance activities, including additional audits and prosecutions, improving education and guidance materials, pre-filling of income tax returns and improving real time messaging to tax agents and taxpayers to deter over-claiming of deductions.
Plans to battle the black economy
The government’s approach towards eliminating the black economy is part of a five-year implementation plan that will require co-operation between the states and government agencies.
Some of the tax-related measures, laid out in the budget in response to the Black Economy Taskforce final report, include:
– providing additional funding to the Tax Practitioners Board to take action against tax agents facilitating activity in the black economy
– removing deductions for non-compliant payments
– changing the government’s procurement procedures to incentivise tax compliance in supply chains
– consulting on reforms to the Australian Business Number (ABN) system
– introducing an economy-wide cash payment limit for large cash transactions of $10,000 to reduce the ability of black economy operators to use cash to avoid their tax and reporting obligations and launder the proceeds of crime
– expanding the taxable payments reporting system to contractors in industries with higher identified risks of not reporting their income