self-managed superannuation fund administrators

FEDERAL BUDGET 2019 – EXCLUSIVE INSIGHTS AND REPORTS

INDIVIDUAL TAX RELIEF VIA INCREASED LMITO

What is the proposed measure? 

The previously proposed (and legislated) low and middle income tax offset (LMITO) will now be increased from a maximum amount of $530 to $1,080 a year for singles and the base amount will increase from $200 to $255 a year for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

As a result, the LMITO will now provide a reduction in tax of up to $255 for taxpayers with a 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 7.5 cents per dollar to the maximum offset of $1,080. As a result, taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. For taxable incomes between $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

The LMITO will be received on assessment after individuals lodge their tax returns for the relevant  income years.

Who will it affect? 
All individuals taxpayers

When will it apply? 
The 2018-19 to 2021-22 income years (inclusive)

Comment:

From 1 July 2018, individual tax relief or tax reduction will be effected by an increase in the LMITO (which was previously introduced and legislated following the 2018-19 Budget) and not by the anticipated changes in tax thresholds and/or marginal tax rates.

FUTURE CHANGES IN TAX THRESHOLDS AND RATES

What is the proposed measure? 

Reductions in individual thresholds and/or marginal tax rates will apply in future income years as follows:

From 1 July 2022, the top threshold of the 19% personal income tax bracket will be increased from the previously legislated $41,000 to $45,000.

From 1 July 2022, the Government will increase the low income tax offset (LITO) from $645 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000, instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 (as previously legislated). LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667. (Note that following these changes the proposed LMITO relief will be removed.)

From 1 July 2024-25, the 32.5% marginal tax rate will be reduced to 30%. Further, in 2024-25 the entire 37% tax bracket will be abolished.

Who will it affect? 
All individuals taxpayers

When will it apply? 
The 2022-23 to 2024-25 income years (inclusive)

Comment:

As a result of these proposed changes, the government states that by 2024-25 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

MEDICARE LEVY LOW-INCOME THRESHOLDS INCREASED

What is the proposed measure?

The Medicare levy low-income thresholds for singles and families, as well as seniors and pensioners, has been increased from the 2018-19 income year as follows:
• for singles, the threshold will be increased from $21,980 to $22,398;
• for families, the threshold will be increased from $37,089 to $37,794;
• for single seniors and pensioners, the threshold will be increased from $34,758 to $35,418;
• the family threshold for seniors and pensioners will be increased from $48,385 to $49,304.

Note also that for each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.

 Who will it affect?

Singles, families, and seniors and pensioners

When will it apply?

From the 2018-19 income year

 

INSTANT ASSET WRITE OFF INCREASED AND EXPANDED

What is the proposed measure?

The instant asset write-off threshold will be increased from $25,000 to $30,000 from Budget night to 30 June 2020.

The threshold applies on a per asset basis. As a result, eligible businesses can instantly write off multiple assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.

The instant asset write off will also be expanded to apply to both “small businesses” (those with an aggregated annual turnover of less than $10 million) and medium sized businesses (an aggregated annual turnover of $10 million or more, but less than $50 million).

Continuation of pooling arrangements for other assets
Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool (the pool) and depreciate those assets at 15% in the first income year and 30% each income year thereafter.

The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current “lock out” laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions of the tax law.

Who will it affect? 

Business taxpayers with turnover of less than $50 million

When will it apply? 
Budget night 2 April 2019 (7:30pm) to 30 June 2020

Comment:

Small businesses will still be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night (under the increase in the instant asset write-off threshold from $20,000 to $25,000 announced on 29 January 2019).

ABN OBLIGATIONS AND BLACK ECONOMY

What is the proposed measure?

​​The Government will make changes to the Australian Business Number (ABN) system to “disrupt black economy” behaviour by requiring ABN holders:
• from 1 July 2021, with an income tax return obligation, to lodge their income tax return; and
• from 1 July 2022, to confirm the accuracy of their details on the Australian Business Register annually.

According to the government, these new conditions will make ABN holders more accountable for meeting their obligations, while minimising the regulatory impact on businesses doing the right thing.

Who will it affect?

ABN holders

When will it apply? 
From 1 July 2021 and from 1 July 2022.

Comment:

Currently, ABN holders are able to retain their ABN regardless whether they are meeting their income tax return lodgement obligation or the obligation to update their ABN details.

INFORMATION EXCHANGE COUNTRIES – WITHOLDING TAX RATES

What is the proposed measure?

The government will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15%, instead of the default rate of 30%, on certain distributions from Australian managed investment trusts (MITs). To be listed, countries must have established the legal relationship enabling them to share taxpayer information with Australia.

This update will add Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates to the jurisdictions already on the list. Note that these new jurisdictions have entered into information sharing agreements since the previous update in 2018.


Who will it affect?

The countries of Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates

When will it apply?

The updated list will be effective from 1 January 2020.

 

LCT: INCREASED REFUNDS FOR PRIMARY PRODUCERS AND TOURISM OPERATORS

What is the proposed measure?

The government will provide relief to farmers and tourism operators by amending the luxury car tax refund arrangements.

For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000. It used to be $3,000.

The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.

 

Who will it affect?
Eligible primary producers and tourism operators

When will it apply?

From 1 July 2019

Comment: 

Currently, primary producers and tourism operators are eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000.

 

NORTH QUEENSLAND FLOODS – EXEMPTION FOR GRANTS

What is the proposed measure?

An income tax exemption will apply to qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods. The grants will be made non-assessable non-exempt income for tax purposes.

Qualifying grants include “Category C” and “Category D” grants provided under the Disaster Recovery Funding Arrangements 2018, and grants provided under the On-Farm Restocking and Replanting Grants Program and the On-Farm Infrastructure Grants Program.

 

Who will it affect?
Primary producers, small businesses and non-profit organisations affected by the January and February 2019 North Queensland floods.

When will it apply?

The exemption will apply where the grants relate to the monsoonal trough, which produced flooding that started on or after 25 January 2019 and continued into February 2019.

 

QUEENSLAND STORMS – EXEMPTION OF PAYMENTS TO PRIMARY PRODUCERS

What is the proposed measure?

The government will treat as exempt income payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018.
The tax treatment relates to payments distributed to affected taxpayers through a grant totaling $1.0 million to the Foundation for Rural and Regional Renewal, working with the Salvation Army and a local community panel.

 

Who will it affect?
Primary producers in the Fassifern Valley, Queensland

CLARIFYING OPERATION OF THE HYBRID MISMATCH RULES

What is the proposed measure?

The government will make a number of minor amendments to Australia’s hybrid mismatch rules to clarify their operation.

The purpose of the hybrid mismatch rules is to prevent multinational corporations from exploiting differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

Stipulating how the rules apply to MEC groups and trusts, limiting the meaning of foreign tax, and specifying that the integrity rule can apply where other provisions have applied will give greater certainty to taxpayers in complying with the rules.

 

Who will it affect?
Relevant multi-national corporations.

When will it apply?

This will extend, and roll into ongoing funding, the measure announced in the August 2013 Economic Statement Addressing the level of unpaid tax and superannuation in the community that would otherwise terminate on 30 June 2018

Comment: 

This measure will apply to income years commencing on or after 1 January 2019, with the exception of the amendments to the integrity rule, which will apply to income years commencing on or after 2 April 2019.

FURTHER CONSULTATION ON AMENDMENTS TO DIV 7A

What is the proposed measure?

The government will defer the start date of the 2018-19 budget measure, “Tax Integrity – clarifying the operation of the Division 7A integrity rule”, from 1 July 2019 to 1 July 2020.

The government issued a consultation paper in October 2018 seeking stakeholder views on the proposed implementation approach for the amendments to Div 7A of the Income Tax Assessment Act 1936.

Delaying the start date by 12 months will allow additional time to further consult with stakeholders on these issues and to refine the Government’s implementation approach, including to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.

 

 

 

REMOVAL OF WORK TEST FOR CERTAIN TAXPAYERS

What is the proposed measure?

The current superannuation work test will be removed for people aged 65 and 66 from 1 July 2020. This will enable an estimated 55,000 individuals to make concessional and non-concessional voluntary superannuation contributions even if they are not working. Under current rules, they can only make voluntary contributions if they meet the work test, which requires that they work a minimum of 40 hours over a 30-day period.

 Who will it affect?

Individuals aged 65 and 66

When will it apply? 
From 2020-21

Comment:

By removing the work test, clients in this age bracket who are no longer working, only working a few hours per week, or only undertaking volunteer work will, should this proposal be implemented, be able to contribute to superannuation and enjoy the concessional tax treatment that it provides. 

 

EXTENDING ELIGIBILITY FOR THE BRING-FORWARD CAP

What is the proposed measure?

Access to the bring-forward cap will be extended from taxpayers aged less than 65 years of age to those aged 65 and 66. This will enable these taxpayers to make up to three years’ worth of non-concessional contributions, capped at $100,000 a year, to superannuation in a single year.

Who will it affect? 
Individuals aged 65 and 66.

When will it apply? 
From 2020-21

Comment:

This will give older clients greater flexibility to save for retirement. Clients in this age bracket will be able to contribute large lump sums that they have on hand into superannuation more quickly; bringing forward the accompanying tax concessions – rather than $100, 000 per year under the current rules that apply.  

INCREASE TO AGE LIMIT FOR SPOUSE CONTRIBUTIONS

 

What is the proposed measure?

The age limit for spouse superannuation contributions will be increased from 69 to 75 years.
Who will it affect?

Individuals aged between 70 to 74.

When will it apply?

From 2020-21

Comment:

This provides clients with a greater ability to contribute on behalf of their spouse. Advisers should note that making spouse contributions is particularly useful where for instance:

• the contributing spouse has already reached their own $1.6 million total superannuation balance restriction

• where the recipient spouse is significantly older, as they can access a tax-free superannuation income stream whereas the younger spouse may not have yet met a condition of release, or

• the contributing spouse is eligible to claim a spouse tax offset of up to $540 as their spouse is a low-income earner.


REDUCING RED TAPE FOR SUPER FUNDS

What is the proposed measure?

Allow superannuation funds that have both an accumulation and retirement interests during an income year to choose their preferred method of calculating exempt current pension income (ECPI).
There is also a proposal to remove a redundant requirement for superannuation funds that are 100% in pension phase for all of the income year to acquire an actuarial certificate when calculating ECPI using the proportionate method.
Who will it affect?

Individuals and their SMSFs who are in superannuation pension mode

When will it apply?

From 1 July 2020

Comment:

The ability to choose between the segregated method or proportionate method to work out ECPI will simplify superannuation reporting for practitioners who have clients with SMSFs. The removing the requirement to obtain an actuarial certificate should reduce SMSF costs.

 

TAX RELIEF FOR MERGING SUPERANNUATION FUNDS

What is the proposed measure?

The current tax relief for merging superannuation funds that is due to expire on 1 July 2020 will be made permanent from that time. Therefore, superannuation funds will be able to continue to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.

 Who will it affect?

Clients whose superannuation funds merge.

When will it apply?

From 1 July 2020

Comment:

This will continue to encourage superannuation funds that are contemplating merging (including SMSFs). Advisers can inform clients that there will be no adverse consequences of mergers moving forward. Merging can reduce costs manage risks and increase scale, leading to improved retirement outcomes for members.

 

SUPER INSURANCE OPT-IN RULE –DELAYED START DATE CONFIRMED

What is the proposed measure?

The government confirmed that it will delay the start date to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis in respect of members with accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

 Who will it affect?

The above categories of superannuation fund members.

When will it apply?

The original start date of 1 July 2019 is delayed to 1 October 2019

 Comment:

The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover. Advisors should inform affected clients that they can still obtain insurance cover within their superannuation by electing to do so (ie. opting-in).

 

 

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