This year’s Federal Budget – Mr Morrison’s third as Treasurer – has been feverishly anticipated, given the level of speculation on the run-up to last night’s announcement.
There is no doubt this is an ‘election budget’. The treasurer has taken just under half of the $35 billion of improved revenue and turned it into tax cuts targeted to benefit all Australians.
The first round of personal income tax cuts will start on 1 July 2018 and include:
- A temporary tax offset for low and middle income earners of $200 pa (for individuals earning up to $37,000 pa) increasing to $530 pa (for those earning from $48,000 to $90,000 pa) then phasing out from $90,000 to $125,333 pa
- Raising the 32.5% tax threshold to $90,000.
- These temporary tax concessions will end on 30 June 2022.
We will have to wait until 1 July 2022 before we get the second round of tax cuts:
- An increase to the low income tax offset from $445 pa to $645 pa
- A further increase to the 32.5% tax threshold to $120,000.
- Finally, from 1 July 2024, the 37% marginal tax rate will be abolished and the 32.5% tax threshold will be increased to $200,000.
Good news for businesses
The good news for businesses across the board is the promise of “extended instant tax deductions” in keeping with the Government’s 10-year plan to reduce company taxes from 30 to 25 per cent.
The downside is that with lower taxes, comes tighter tax rules and tougher enforcement for some.
Addressing Parliament in his Budget speech, Mr Morrison said: “Taxes should be lower, simpler and fairer, but taxes must also be paid.
“Honest and fair businesses and taxpayers are being ripped off by those who think they are above paying tax.”
Low to middle income tax earners stand to benefit immediately, albeit in a small win. The same bracket will also benefit from fairer rules around low super balances that have previously been chewed up by fees.
For those running small businesses, the instant asset tax write has been extended for another year. The 27.5 per cent company tax rate for small companies has also increased to cover revenues of less than $50 million.
The budget extended a tax break for small business owners to immediately deduct spending on eligible assets of up to $20,000. Also, the streamlining of GST reporting for around 2.7 million small businesses is expected to save them an average of $590 each per year.
The Budget also outlined plans for rewarding businesses who invest in new technology and equipment. However, there will be a pullback in the level of funding for new research and development projects.
Increased reporting to ATO
Businesses will also be required to report to the ATO payments to security providers, road freight transporters and computer system design and services, in addition to the previously announced requirement to report payments to cleaning and courier contractors, and the existing requirement to report payments to building contractors.
The Government expects to raise nearly $550 million in extra revenue from this measure.
On the expenditure side, the Government has rolled out the bucks for aged care, and rightfully so. However, 14,000 new aged care places is way short of the 100,000 places currently needed.
All Australians of Age Pension age will have access to the improved Pension Loan Scheme. The Pension Work Bonus will be increased and extended to the self-employed.
Attention for SMSFs
Superannuation got some attention with a series of integrity reforms, changes to self-managed super funds (SMSFs) and small APRA funds (SAFs).
From 1 July 2018, SMSFs and SAFs can increase to six members and SMSFs with good track-records can move from annual to three-year audits.
From 1 July 2019:
- Members over age 65 will not have to meet the work test to make contributions to super in the first year after they stop working. This is so long as their super savings are less than $300,000.
- Exit fees will be abolished on all super accounts.
- For super accounts under $6,000, administration and investment fees will be limited to 3%, measured half-yearly, and capped at $90 per six months.
- Inactive accounts under $6,000 will be transferred to the Australian Taxation Office (ATO) to be consolidated with the member’s active account.
- Opt-out insurance will be banned for those under 25 or if there is less than $6,000 in the super account.
The ATO will undertake a review of the section 290-170 Notice system (Intent to claim forms, required for voluntary deductible super contributions) to ensure that members put in their notice before getting a tax deduction for personal contributions.
All-in-all there are big ticket tax cuts and a lot of little reforms hidden in the woodwork. It isn’t a glamorous budget and there’s likely to be plenty more left in the tank for an election later this year.