Considered Value

Issue 122 - May 2018 (Budget Special Edition)

2018/19 Federal Budget Highlight

The Federal Budget for the 2018/19 year was handed down by the Treasurer on 8 May 2018. We will be considering how these affect each client's individual circumstances and have summarised below the main taxation and superannuation highlights.

These announcements are not yet legislated.

$20,000 Asset Immediate Deduction For Small Businesses Extended

Small business entities (those with a grouped turnover under $10 million) are currently eligible to claim an immediate deduction for depreciation of assets costing less than $20,000 (GST exclusive). This was due to reduce to $1,000 from 1 July 2018 but has been announced to continue until 30 June 2019.

Personal Income Tax

A 7-year plan was introduced to reduce the tax rates for individuals with the following steps:

Individual Tax Rate Bracket increase

The threshold for which the 37% marginal tax rate applies will be increased from $87,000 to $90,000 from 1 July 2018. The new proposed tax brackets are set out in the table below:
Tax Rate    Taxable income 2018-19 to 2021-22
 0%    $0 - 18,200
 19%   $18,201 - $37,000 
 32.5%    $37,001 - $90,000
 37%   $90,001 - $180,000 
 45%   $180,001+ 

Low and Middle Income Tax Offset

For the 2018-19 to 2021-22 financial years, a new low and middle income tax offset will apply.

A table of outlining the benefit is below:

Taxable income for the 2018–19 to 
2021–22 income years
  Offset Amount
$37,000 or less     Up to $200
 $37,000 to $47,999     Value increases by rate of three cents per dollar to maximum benefit of $530
 $48,000 to $90,000     $530 (maximum)
 $90,0001 to $125,333     offset phases out at rate of 1.5 cents per dollar


This benefit is on top of the current low income tax offset, therefore the total offset available for those with income of $37,000 or less will be $645.

Low Income Tax Offset

On termination of the offset above from 1 July 2022, there will be an increase to the current low income tax offset from $445 to $645. The maximum offset applies to individuals where their income is $37,000 or less.

Further Individual Tax Rate Bracket changes

The following changes in the individual tax brackets are proposed to occur on:

1 July 2022

Tax Rate   Taxable Income 2022-23 and 2023-24  
  0%     $0 - $18,200
  19%     $18,201 - $41,000
  32.5%     $41,001 - $120,000
  37%     $120,001 - $180,000
  45%     $180,001+

1 July 2024

Tax Rate   Taxable Income 2024-25 onwards  
  0%     $0 - $18,200
  19%     $18,201 - $41,000
  32.5%     $41,001 - $200,000
  37%     Removed
  45%     $200,001+


Superannuation Changes

These announcements are not yet legislated.

Member Limit Increase

From 1 July 2019, the Self Managed Super Fund (SMSF) member limit will increase from 4 to 6 members.

Work Test Changes

Currently, individuals aged 65 to 74 are required to meet the work test (40 hours in any 30-day period in the financial year) to make voluntary superannuation contributions. From 1 July 2019 there will be an exemption for recent retirees with superannuation balances below $300,000 in the first year that they do not meet work test requirements.

Higher Income Earning Employees

Individuals with income exceeding $263,157 and multiple employers will be able to nominate wages from certain employers to not be subject to the superannuation guarantee (SG) from 1 July 2018. This is to ensure they do not unintentionally breach the $25,000 concessional cap.

Audit Cycle Changes for Some

The annual audit requirement for SMSFs will be extended to a 3-yearly cycle for funds with a history of good record-keeping and compliance. The measure will apply to SMSF trustees that have clear audit reports and that have lodged the fund's annual returns in a timely manner. The measure is due to start on 1 July 2019.

However, this may not necessarily mean cheaper audit fees as an auditor will not be able to sign off on the third year without having a level of comfort as to what has transpired in previous years.

Fees for Superannuation Funds

Passive administration fees charged by superannuation funds will be capped at 3% for smalls accounts with balances below $6,000.  Exit fees will also be banned for all superannuation accounts from 1 July 2019.

Small Inactive Super Accounts

The government will strengthen the ATO-led consolidation by requiring the transfer of all inactive superannuation accounts with balance below $6,000 to the ATO to protect them from further erosion.

The ATO data matching processes will reunite lost and low balance super accounts with the member's active account where possible and aim to do so within a year of the ATO receiving the balance.

The changes are to take affect from 1 July 2019.

Insurance Changes

From 1 July 2019, insurance will move from a default setting to an opt-in basis for:

  • Members with low balances of less than $6,000
  • Members under the age of 25 years
  • Members with inactive accounts that have not received a contribution in 13 months

The measure seeks to protect the retirement savings of younger people from the erosion of paying insurance premiums they do not need or are not aware of. The changes also seek to reduce the incidence of duplicated cover so that individuals are not paying for multiple insurance policies which they may not be able to claim on in any event (such as Income Protection). Individuals affected by this measure will still be able to obtain cover if they wish.

Medicare Levy Low Income Threshold

For the current 2017-18 financial year, the following changes are proposed for the Medicare levy low-income thresholds:

    • Singles - increased to $21,980 from $21,655
    • Couples with no children – increased to $37,089 from $36,541
    • Each dependent child – additional increased to $3,406 from $3,356.

    Where an individual is eligible for the seniors and pensioners tax offset the proposed threshold changes are:

    • Singles - increased to $34,758 from $34,244
    • Couples with no children – increased to $48,385 from $47,670
    • Each dependent child – additional increased to $3,406 from $3,356.

    This is on top of the recent announcement that the proposed increase to the Medicare Levy from 2% to 2.5% starting 1 July 2019 has been withdrawn.

    Taxation Of Testamentary Trusts

    Trusts established under a will, known as testamentary trusts, are able to distribute income to minors and be taxed at adult marginal rates including the tax-free threshold. The Government has announced that from 1 July 2019, they will limit this concessional tax treatment to income derived from assets transferred from deceased estates and from the disposal of those assets. This will prevent taxpayers injecting unrelated assets into the testamentary trust.

    Deductions For Vacant Land

    From 1 July 2019, deductions such as interest expenses will not be allowed for holding vacant residential and commercial land that is not genuinely being used to earn assessable income. 

    Deductions will still be allowed once the properties are developed and ready for rental or if used in a business (such as primary production land). 

    Company Loans (Division 7A) Changes Delayed

    Following recommendations from the Board of Taxation, changes to Division 7A were due to commence from 1 July 2018 including requiring repayment of trust entitlements owing to companies prior to 2009 (which were previously quarantined). The Government has delayed the commencement of these changes to 1 July 2019. 

    The amounts owing are expected to be repaid over 10 years with interest charged.

    Extension Of The Director Penalty Regime

    The Director Penalty Regime currently applies to directors of companies to make them personally liable if the company does not meet its PAYG withholding or Superannuation Guarantee obligations. From 1 July 2019, this will be extended to GST, luxury car tax and wine equalisation tax. 

    Cash Payments Limit

    From 1 July 2019, the Government will introduce a $10,000 limit on cash payments to business for goods and services. Any transaction greater than this amount will need to be made through the banking systems i.e. electronic payment or cheque.

    The measures do not include transactions with financial institutions or non-business transactions.



    Research & Development Tax Incentive Changes

    From 1 July 2018, there will be changes into the research & development (R&D) tax incentives.

    For companies with less than $20 million aggregated turnover, the company will receive a refundable tax offset which is 13.5% above their applicable company tax rate. Cash refunds from the offset will now be capped to $4 million per annum however any refundable offsets which are as a result of     clinical trials will not count towards this cap.

    For companies with aggregated turnover of $20 million or greater, their non-refundable tax offset will be determined by the level of R&D expenditure it incurs as follows:

    R&D expenditure as a percentage of total expenditure (R&D Intensity)   The marginal R&D premium will be the company's tax rate plus
      Between 0% and 2%    4%
      Above 2% to 5%    6.5%
      Above 5% to 10%    9%
      Greater than 10%    12.5%

    Note this is a sliding scale so if a company has 6% R&D intensity, the first 2% gets a 4% premium, the next 3% gets 6.5% with the final 1% getting 9%.

    The maximum R&D expenditure threshold has been increased from $100 million to $150 million per annum.

    Taxable Payments Reporting System Extended Further

    The following industries are being added to the taxable reporting system:

    • Security providers & investigation  services;
    • Road freight transport; and
    • Computer system design and related services.

    Businesses in these industries will need to provide the ATO with details of all   payment made to contractors every    financial year starting from 1 July 2019, with first annual report due August 2020.

    These rules already apply to the building and construction industry, couriers and cleaning industry. 

    Non-deductible Payments To Employees And Contractors

    Businesses are required to withhold tax for employees (subject to the tax withholding rates) and for contractors who do not provide an ABN (at the top marginal tax rate). If they fail to do so, they will not be allowed a tax deduction for the applicable payment to the employee or contractor. 

    This rule will apply from 1 July 2019. 


    These announcements are not yet legislated.

    We will monitor these announcements as they progress and will update details in future newsletters.




    The information provided in this newsletter does not constitute advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances. Brentnalls is not a partnership or a joint venture. Instead, the business of Brentnalls SA is independently owned and operated and it is an independent member of the Brentnalls Affiliation of Accounting Firms. Individual member firms do not accept responsibility or liability for the actions or inactions of any other individual member firm.
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