Last night’s budget was straight from the pre-election political textbook.
There was individual tax cuts, tick. There was big spending on infrastructure, tick. There was even a promise of a return to surplus in 2019/20, tick.
Outside of the individual tax cuts, there were a few keys items which business owners should be aware of.
We have outlined the key announcements below:
new non-refundable low and middle income tax offset
The cornerstone of this budget was 7 year plan to reduce personal income tax. The first step in this plan is a new non-refundable low and middle income tax offset. This offset will be applied as a lump sum on lodgement of your tax return for the 2018/19, 2019/20, 2020/21 and 2021/22 financial years. The offset applies as follows:
|Taxable income||Offset amount|
|$37,000 or less||$200|
|$37,001 to $47,999||$200 plus three cents per dollar over $37,000|
|$48,000 to $90,000||$530|
|$90,001 to $125,333||offset phases out at rate of 1.5 cents per dollar over $90,000|
This offset will apply in addition to the existing low income tax offset of $445. This offset will increase to $645 from 1 July 2022.
changes to personal tax rate thresholds
In addition to the new tax offset, the government also laid out a plan to reduce the personal income tax thresholds over the coming years.
|Rate||2017/18||2018/19 to 2021/22||2022/23 and 2023/24||2024/25 onwards|
|0%||$0 – $18,200||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – 37,000||$18,201 – 37,000||$18,201 – 41,000||$18,201 – $41,000|
|32.5%||$37,001 – 87,000||$37,001 – 90,000||$41,001 – 120,000||$41,001 – $200,000|
|37%||$87,001- $180,000||$90,001 – $180,000||$120,001 – $180,000||N/A|
medicare levy no longer increasing to 2.5%
The government is no longer proceeding with the planned increase in the Medicare Levy which will remain at 2%. This was announced prior to the budget.
company tax rate
The company tax rate reduction for small to medium businesses will continue as currently legislated. This means the company tax rate will reduce to 27.5% for companies with turnover less than $25 million for the 2017/18 year. This will expand to companies with a turnover of less than $50 million from 1 July 2018.
The government intends to pursue its policy of expanding these tax cuts to companies with turnover exceeding $50 million. This legislation is still being negotiated in the Senate.
immediate deduction for assets costing less than $20k extended to 30 June 2019
Businesses with turnover of less than $10 million are able to claim an immediate deduction for depreciable assets worth less than $20,000. This measure has been extended for a further year until 30 June 2019.
directors to be personally liable for unpaid gst
The director penalty regime will be expanded to include unpaid GST. This is simply an expansion of the existing regime that currently applies to unpaid PAYG withholding and superannuation. This means that directors can be made personally liable for any of these debts in the event that the company cannot pay it.
It is anticipated that this will apply from 1 July 2019.
no deductions allowed for payments to certain employees or contractors
Businesses who fail to comply with their PAYG withholding obligations will be denied a tax deduction for payments to those employees. For example, if you pay an employee a weekly wage of $2,000 but fail to withhold any tax then you will not be able to claim a tax deduction for the $2,000 in wages as you have not complied with your PAYG withholding obligations.
Similar rules will apply for payments made to contractors who fail to provide an ABN and you do not deduct ABN withholding. In these situations you will be denied a tax deduction for these payments.
This measure will apply from 1 July 2019.
changes to r&d tax incentive
The government announced a series of changes to the research and development tax offset from 1 July 2018.
For companies with a turnover less than $20 million the tax offset rate will be 13.5% on top of the company’s tax rate. In practice this will be 41% (27.5% plus 13.5%) for companies in this category. A cap of $4 million will be placed on the refundable offset with any excess being carried forward to future years.
For companies with a turnover greater than $20 million the rate of the non-refundable tax offset will be tied to an intensity factor. This factor is determined on a tiered structure based on the R&D expenditure as a proportion of the total expenditure for the year.
extension of taxable payments reporting systems to more industries
The existing taxable payments reporting requirements for the building and construction industry will be expanded to additional industries. This regime requires businesses in the relevant industry to report certain payments to the ATO on a yearly basis.
This will apply to businesses in the cleaning and courier industries from 1 July 2018 as announced in last year’s budget. The reporting requirements will be expanded further to security providers and investigation services, road freight transport and computer system design industries from 1 July 2019.
$10,000 limit on cash payments
From 1 July 2019 there will be a limit of $10,000 placed on cash payments made to businesses for goods and services. Transactions exceeding this amount must either be made electronically or by cheque.
This will not apply to financial institutions or to private non-business transactions.
There is a lot of finer detail always hidden within the budget documents and post budget announcements … please do not rely on these highlights from the budget in isolation.