On Tuesday, 2 April 2019, Treasurer Josh Frydenberg handed down the 2019- 20 Federal Budget headlined by bringing forward and increasing personal income tax cuts for low to middle income earners, achieving the previous commitment to return the Budget to a $7.1 billion surplus in 2019-20 and announcing significant infrastructure expenditure.
An Election Budget This year’s Budget was brought forward by a month to make way for the next Federal election widely predicted to be held in May. The election announcement is now expected after tomorrow night’s Budget reply speech by Opposition Treasurer Chris Bowen. We will compare both parties’ proposals after their final policies are released. Please remember that the measures discussed below are not yet LAW.
There may be significant differences between the proposals announced last night and the final reforms if and when implemented. Please consult us before making financial decisions based on the material in this newsletter.
- From 1 July 2018 to 30 June 2022, the maximum Low and Middle Income Tax Offset (LMITO) is increased to $1,080. This will take effect upon lodgement of an individual’s income tax return for the year ending 30 June 2019. The impact is outlined below:
- From 1 July 2024, there will be three tax rate brackets, being 19%, 30%, and 45%.
- From now until 30 June 2020, the instant asset write-off is increased to $30,000 per asset and is available to businesses with turnover of up to $50M.
- A summary is below:
- From 1 July 2020, the age limit for making certain superannuation contributions will generally increase. Please seek professional advice before making voluntary superannuation contributions as severe penalties can apply for exceeding relevant contribution limits.
- From 1 July 2020, the 40 hours in 30 days “work” test will not apply to individuals aged 65 or 66 making voluntary concessional (i.e. tax deductible up to $25,000 in total) or non-concessional (i.e. after tax) superannuation contributions.
- From 1 July 2020, individuals aged 65 and 66 will be able to use the superannuation “bring-forward” rules to allow non-concessional contributions of up to $300,000 where all relevant criteria are satisfied.
- From 1 July 2020, the age limit for spouse contributions of up to $540 will increase from 69 to 74 years (conditions apply).
- From 1 October 2019, insurance within superannuation will be offered on an opt-in basis to new members aged under 25 and existing members with balances under $6,000 (a three month deferral to previous announcements).
Changes to Division 7A Private Company Loan Rules Deferred Again
- Start date for introduction of significant proposed changes further delayed to 1 July 2020.
- Changes will simplify compliance but significantly increase most loan repayments.
- Benchmark interest rate to rise from 5.2% to 8.3%.
- Maximum loan term for registered mortgages to be reduced from 25 years to 10 years – this includes existing loans.
- Life of current 7 year loans not extended.
- No grandfathering of “old” (i.e. pre-1997) loans.
- Unpaid present entitlements (“UPEs”) from trusts to private companies to be brought clearly within Division 7A.
- 14 year income tax assessment amendment period.
- 6 month period to correct errors once detected.
Snapshot of Opposition Labor Party Proposals – What we Know So Far
- Quarantining of negative gearing losses for investment assets acquired from 1 January 2020 – new build residential properties to be excluded.
- Long term capital gains tax discount rate for qualifying individuals to be reduced from 50% to 25% for assets acquired on or after 1 January 2020.
- Increase the top marginal rate from 47% to 49% (including Medicare levy).
- Further personal tax cuts for those earning up to $125,000.
- Minimum tax rate of 30% on discretionary trust distributions to resident adult individuals.
- Denying refunds of excess dividend imputation franking credits to individuals and superannuation funds (unless aged pension recipient members as at 28 March 2018).
- Remove personal superannuation deductions for concessional (i.e. pre-tax) superannuation contributions for most employees.
- Reducing the non-concessional (i.e. after tax) superannuation contribution cap from $100,000 to $75,000 (or from $300,000 to $225,000 if the three year “bring forward” rules apply). Please note that strict eligibility criteria apply and severe penalties are imposed for breaching these rules No change to the 30% company tax rate for “large” companies (i.e. turnover over $50M). Small company tax rate cut to 25% retained.
- $3,000 cap on tax agent fee deduction for individuals.
- Investment guarantee to apply to new business assets from 1 July 2021 – 20% of cost written off in first year and remaining 80% depreciated normally.
Please note that some of these proposals lack sufficient detail to allow you to make informed investment decisions. We will provide an update after tomorrow night’s Budget reply speech and release of associated election policies.
This newsletter is for general information purposes only and should not be used as a substitute for consultation with professional advisers. Liability limited by a scheme approved under Professional Standards Legislation.
Parts of this newsletter were prepared by CE Super Advisory Pty Limited acting as Corporate Authorised Representative of Chairmont Capital Pty Limited AFSL 285043. This newsletter is not considered to be financial advice.