The following is a brief rundown on the key tax related announcements included in the 2019-20 Federal Budget handed down last night (2 April) by the Treasurer, Josh Frydenberg.
As usual, the Budget includes quite a volume of announcements with limited detail. We will be taking the time to digest those announcements and will be monitoring for the release of further detail. Look out for updates from us in the coming weeks and months.
Low & Middle Income Offset (LMITO) Increase
The Government intends to increase the LMITO from the current maximum of $530 to $1,080 with effect from the 2019 financial year.
- The LMITO will provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.
- Between taxable incomes of $37,000 and $48,000, the value of the LMITO will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
- Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum LMITO of $1,080.
- From taxable incomes of $90,000 to $126,000 the LMITO will phase out at a rate of 3 cents per dollar.
The LMITO forms part of an individual’s annual income tax assessment. Should the proposal be legislated, the benefit of the increased LMITO will be included in tax assessments for the financial year ending 30 June 2019.
Changes to Personal Income Tax Rates
The Government has proposed a number of changes to personal income tax rates, including:
- Increasing the maximum threshold for the 19% tax bracket from $37,0000 to $45,000 from 1 July 2022;
- Reducing the 32.5% tax bracket to 30% and abolishing the 37% tax bracket from 2024-25; and
- Increasing the Low Income Tax Offset from a maximum of $645 to $700 from 1 July 2022.
The following tables summarise the proposed changes.
|Tax rates and income thresholds|
|Rate||2017-18||2019 to 2022||2023 to 2024|
|Nil||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – 37,000||$18,201 – 37,000||$18,201 – 45,000|
|32.5%||$37,001 – $87,000||$37,001 – $90,000||$45,001 – $120,000|
|37%||$87,001 – $180,000||$90,001 – $180,000||$120,001 – $180,000|
|45%||$180,001 +||$180,001 +||$180,001 +|
|Low and middle income tax offset||–||Up to $1,080||–|
|Low income tax offset (LITO)||Up to $445||Up to $445||Up to $700|
Proposed rates and thresholds from 2024-25 onwards
|Tax rates and income thresholds 2024-25 onwards|
|Rates from 2024-25||New thresholds from 2024-25|
|Nil||$0 – $18,200|
|19%||$18,201 – 45,000|
|30%||$45,001 – $200,000|
|LITO||Up to $700|
Source: Budget Paper No 2 [pp 17-18]
Medicare Levy Low-Income Thresholds to Increase
For the financial year ending 30 June 2019, the Medicare levy low-income thresholds are proposed to increase as follows:
- Singles – Increase to $22,398 up from $21,980;
- Couples – Increase to $37,794 up from $37,089. The additional amount for each dependent child/student will increase to $3,471 up from $3,406;
- Single seniors & pensioners eligible for the SAPTO – Increase to $35,418 up from $34,758; and
- Senior & pensioner couples eligible for the SAPTO – Increase to $49,304 up from $48,385. Plus $3,471 for each dependent child or student.
Changes to the Instant Asset Write-Off
The budget includes a proposal to extend access to the write-off to medium sized businesses (turnover $10m – $50m) and to further increase the write-off threshold from $25,000 to $30,000.
Currently only “small businesses” with turnover of less than $10m have access to the write-off.
As such, the thresholds are intended to be:
|Period:||Write-Off Threshold:||Available To:|
|1 July 2018 to 28 January 2019||$20,000||Small Businesses|
|29 January 2019 2 April 2019||$25,000||Small Businesses|
|2 April 2019 to 30 June 2020||$30,000||Small & Medium Businesses|
The increase from $20,000 to $25,000 was announced earlier this year with a Bill to legislate the increase having been introduced to Parliament on 13 February 2019. This Bill remains before the House of Representatives.
Whilst the changes have been announced to have application now, they remain subject to the passage of the amending legislation.
Changes to Division 7A
Division 7A governs the tax treatment of loans taken by shareholders (& their associates) from private companies.
In the 2018-19 Federal Budget it was announced that there would be a number of amendments to Division 7A that would take effect from 1 July 2019. To date, none of these amendments have been legislated.
Broadly, the proposed amendments will:
- simplify Division 7A loan rules to make it easier for taxpayers to comply;
- introduce a self-correction mechanism to assist taxpayers to promptly rectify breaches of Division 7A;
- introduce safe harbour rules for the use of assets to provide certainty and simplify compliance for taxpayers;
- make technical amendments to improve the integrity and operation of Division 7A while providing increased certainty for taxpayers;
- clarify that unpaid present entitlements (UPEs) come within the scope of Division 7A; and
- amend rules affecting complying Division 7A loans, including having a single loan duration of 10 years and better aligning calculation of the minimum interest rate with commercial transactions.
In October 2018 a consultation paper was released and the Government has received feedback highlighting important implementation issues that warrant further consideration.
Consequently, it has been announced that the amendments will be delayed by 12 months to 1 July 2020 so that the Government can undertake further consultation around the approach to implementation.
Personal Superannuation Contributions
It has been announced that the age limits will be amended such that persons aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 without having to satisfy the work test.
The age limit for making spouse contributions will also be increased from 69 to 74.
Further information on the Budget announcements can be found on the official Budget Website.
And of course, we encourage you to contact us if you have questions about how any of the announcements may apply to your specific circumstances.
Lastly, we note that there is speculation that a Federal Election will very soon be called with election day likely to be in May.
As a matter of procedure, any Bills before Parliament when the election is called lapse. This means that those Bills will need to be re-introduced after the election and will be subject to the usual Parliamentary process.
Currently, there is a significant volume of Bills before Parliament to legislate previous announcements, including many from the 2018-19 Federal Budget. It would appear unlikely that these Bills will be passed into law prior to the calling of the election. It would also appear unlikely that the Government will be able to get much (if any) of their 2019-20 budget announcements through Parliament prior to the election being called.
As such, it seems that we are in for a wait to obtain certainty on the implementation of measures announced. Should the ALP take Government, as many are predicting, it also remains to be seen how much of the current Coalition Government’s agenda they will seek to advance.
Given this uncertainty, readers are urged to exercise caution in responding to any of the current announcements that are waiting to be legislated.