Federal Budget Overview 2018/19, Welcome to WNR Business Consulting’s analysis of the federal budget. In our report we highlight the key area’s of the budget which impact on Wage Earners & Business Owners.
Personal income tax cuts, incentives for small to medium-sized businesses, moves to keep older Australians working for longer and measures to curb the black economy are among the upside of the budget. The budget is forecast to move into surplus by 2019/20 from a A$18.2 billion deficit in 2017/18, and Gross domestic product is forecast to grow by 2.75 percent in 2017/18, accelerating to 3 per cent in 2018/19 and in 2019/20. Big spending on seniors and infrastructure, and plans for a personal tax cut are based on robust economic growth over the forward estimates.
Sectors which are supported and encouraged by the budget:
Federal Budget Overview – Wage earners
From 1 July 2018, the top threshold of the 32.5 per cent tax bracket will rise from A$87,000 to A$90,000 which will prevent about 200,000 people from entering the 37 per cent tax bracket in 2018/19.
A new, non-refundable tax offset, in addition to the Low Income Tax Offset (LITO), will provide tax relief of up to A$530 to low and middle-income earners from 2018/19. The offset will be received as a lump sum on assessment after individuals lodge their tax returns.
The benefits provided by the low income tax offset (LITO) will be locked in by increasing the top threshold of the 19 per cent bracket from A$37,000 to A$41,000 and increasing the LITO from A$445 to A$645.
Wage earners will also benefit from deferral of plans to increase the Medicare levy, currently 2 per cent of taxable income, by 0.5 per cent, as proposed in the 2017 budget but not legislated. The move was first raised in 2012.
The Treasurer announced an extension of the A$20,000 instant asset write-off for another year, allowing businesses with turnover of up to A$10 million a year to claim an immediate deduction for a purchase of below A$20,000.
The Federal Budget Overview contains measures aimed at keeping an ageing population at work
A raft of measures directed at older Australians will provide wage subsidies of up to $10,000 for employers who take them on.
The Federal Pension Loan Scheme makes non-taxable loans, paid fortnightly up to the amount of the age pension. It will be extended to full rate pensioners and self-funded retirees, so they can boost their retirement income by up to $17,800 for a couple, without impacting on their eligibility for the pension or other benefits.
A significant number of Australians are asset rich but cash poor and CPA Australia says any measure to assist in unlocking equity in the family home is welcome.
“However, even with the increase in the maximum, the Pension Loan Scheme remains limited in its scope and attractiveness,” said Drum.
“Recognizing and unlocking the equity in the family home is key piece of the retirement income puzzle. More needs to be done in this area.”
The Pensioner Work Bonus will be extended to encourage older people to stay in the workforce, so pensioners can earn an extra A$1300 annually within reducing their age pension payment. Self-employed individuals will be able to earn up to A$7800 a year.
In-home funding will be increased, with 20,000 extra care packages to help people stay in their homes rather than move into aged care.
Infrastructure spending increases in the Federal Budget:
Construction and engineering
The infrastructure spending boom continues with engineering and construction firms to benefit from major projects around the country.
A new A$1 billion Urban Congestion Fund will address “pinch points” to improve traffic flows in cities and a A$3.5 billion Roads of Strategic Importance initiative will upgrade key freight routes, adding to other previously-announced airport links and motorway upgrades.
The medical sector will benefit from a new medical industry plan with support for research and drug trials according to the Federal Budget.
There will be increased funding for mental health services and for doctors and nurses in regional and remote Australia.
Superannuation fund members
Changes include increasing the possible number of self-managed super fund (SMSF) members from four to six, caps on passive fees on small balance super funds, banning super fund exit fees, and changing the work test for those 65-74 years of age who make voluntary contributions to super.
The government will stop super funds from forcing people aged under 25 with low balances to pay for life insurance policies they did not ask for or need.
The government also announced a three-year audit cycle for SMSFs.
Low Support Sectors from the budget
The black economy
In the context of the government’s response to the black economy taskforce review, there will be new compliance obligations for some businesses by further extending the TPRS (Taxable Payments Reporting System) to security and investigation services, road freight transport and computer design and related services.
There will be a A$10,000 limit on cash payments across the economy, to reduce money laundering and tax evasion.
Employers and contractors who do not meet withholding obligations will be denied tax deductions.
Tougher rules for illegal phoenixing activities are proposed, including increased liabilities for directors.
Businesses using the research and development tax concession
There are potential losers from a crackdown on businesses using the concession, as the government forecasts savings of A$2 billion over four years by tightening access to the incentive.
At the top end of town there are changes regarding taxation of financial arrangements (TOFA), and extended definition of significant global entity (SGE) as well as changes to tax consolidation rules.
Changes to the thin capitalisation rules will ensure tax values are in accord with accounting financial reports also.
There are also changes proposed to remove access to CGT discount by managed investment trusts (MITs).
The Treasurer will release a discussion paper in a few weeks on how digital businesses should be taxed.
Changes are also proposed for stapled structures to prevent the conversion of trading income into more favorably treated passive income.
Federal Budget Overview
That’s a wrap on WNRs Federal Budget Overview for 2018/19. As always if the above raises more questions than it answers, please feel free to reach out to us for Advice and assistance. Book a consult today.
To visit the full report handed down by the Australian Tax Office, click this link https://www.budget.gov.au/2018-19/content/overview.html to download a copy of the ATOs report click this link https://www.budget.gov.au/2018-19/content/sections/overview/downloads/Budget_2018-19_Budget_Overview.pdf