Federal Budget 2018…what does it mean for you?

It’s hard to find any losers this year with tax cuts handed out to everyone over the next decade and no shock announcements like the superannuation reforms that surprised most last year.

This year, there were plenty of initiatives for the health sector, aged care and education, with a blend of reforms that will make it easier to change superannuation funds, to ensure the $25,000 super concessional cap is not exceeded, stop foreign businesses evading taxes, improve the GPS accuracy and establish our very own space agency!

However, before we get too carried away, we need to remind ourselves that tax cut promises and reforms are largely dependent on a buoyant economy – we question how realistic the predictions about where our economy will head over the next few years?

In the past weeks, we have witnessed the fall out of the Royal Commission review and the impact this is having on businesses and properties, which we will discuss further in our next newsletter. Without access to borrowing and funding, we have to question whether our economy will have strength to support these tax cuts and initiatives.

In the meantime, we’ve listed the announcements that we thought worthy of a separate mention.  If you wish to read the detail on the announcements, please click on this link: Federal Budget Summary

Highlights:

Income tax cuts:  Low and middle income earners will receive a tax cut of around $5-$10 per week from tax offsets and a change to the tax brackets.  In a welcomed move, a flat tax rate of 32.5% will be introduced over next 7 years for all taxpayers earning between $41,000 and $200,00.

Company tax cuts: The already announced reduction in corporate tax rates will continue to be lowered to 25% by 2026-27.

Trusts: Limits will apply for distributions from deceased estates/testamentary trusts so that beneficiaries will be taxed at adult marginal rates only on income that the trust generates from assets that were from the deceased estate rather than from assets unrelated that were transferred into the trust separately.

Division 7A: The Government has announced that it will introduce new rules so that Unpaid Present Entitlements (UPEs) will fall within the deemed dividend rules (Division 7A).  To date UPEs arising on or before 16 December 2009 were quarantined from the Division 7A rules and therefore were not required to be repaid or cleared.

From 1 July 2019, a UPE will either be required to be repaid under a Complying Loan Agreement or will be subject to tax as a dividend.  At the time of writing, it is not known whether this will apply to new UPEs or to existing arrangements in some form.  We early await further details and will keep you up to date with any changes as they are announced.

“deemed dividend rules may now apply to UPEs”

R&D tax incentive: As expected, the Government has announced measures that affect the application of the Research & Development (R&D) tax incentive.  From 1 July 2018, the system will be overhauled to prevent “business as usual” activities from being eligible.  The proposed changes result:

  • in the benefit being drastically reduced for claimants with at least a $20m turnover.
  • Smaller claimants will see their benefit reduced from 16% to 13.5%.
  • Overall cap of $4m as a cash refund with the excess to be carried forward as a non-refundable offset.
  • Medical research companies undertaking clinical trials will be the winners with their benefits largely unchanged.

Instant asset write-off: The provision for small businesses to instantly write off asset purchases of less than $20,000 is extended for a further year.

Assistance to small and medium exporters: The Government announced that it will establish Export Hubs program which will aim to enable co-operation and boost export capability of local and regional businesses with grant funds available to support access to international markets.

Superannuation: Some favourable measures were announced this year to protect superfund balances, in particular from 1 July 2019:

  • banning exit fees on all accounts,
  • an exemption from the work test for voluntary contributions for people aged 65 – 74 with super balances below $300,000,
  • increase number of members from 4 to 6.
  • The audit cycle for SMSFs with good record keeping and compliance extended to 3 years – need to have 3 consecutive years clean audit reports and on-time lodgements.

High earners and superannuation guarantee: From 1 July 2018, individual’s whose income exceeds $263,157 and have multiple employers will be able to nominate which employers will not be required to pay superannuation guarantee.  This will ensure the $25,000 concessional cap is not breached.

“A welcomed announcement that will ensure higher earners do not breach their $25,000 concessional cap”

Other measures:

From 1 July 2019:

  • Business seeking to tender for Australian Government procurement contracts over $4m will be required to provide a statement from the ATO indicating they are compliant with their tax obligations.
  • The tax payments reporting system is expanded to include security providers and investigation services, road freight transport and computer system design and related services. This is in addition to cleaning and courier services which are to be reported from 1 July 2018.
  • Reforms are to be put in place to combat illegal phoenixing activities which include limiting the ability of directors to resign and extending the Director Penalty Regime to include GST, luxury car tax and Wine Equalisation Tax – making directors personally liable for the debts!

If you have any questions, please contact the team who will be able to assist you.

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