Top 10 Budget Takeaways

Apart from the promised phased personal income tax cuts and the “overhaul” of the R&D tax incentive, the 2018 Federal Budget did not contain many measures that resembled significant tax reform. This may be the last budget before next federal election and major tax reform may be deferred until the next parliament.  The Budget did however contain a raft of changes and tweaks to existing tax rules including several changes targeting businesses and individuals operating in the “black economy”.

10 tax and super changes you need to know about:

  1. A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle-income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
  2. The calculation of the research & development tax incentive will depend on an entity’s an “R&D intensity percentage”, based on the amount an entity spends on R&D as a percentage of its total expenditure. The lower the R&D intensity percentage for the entity, the lower the maximum available tax offset. A maximum cash refund for “smaller” R&D claimants will also apply, capped at $4m per financial year.
  3. Last year’s Federal Budget proposal to increase the Medicare levy from 2% to 2.5% from 1 July 2019 will not proceed.
  4. An exemption from the existing “work test” for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements, providing more flexibility for recent retirees to make voluntary contributions.
  5. The small business capital gains tax concessions will not be available to partners alienating rights to future partnership income.
  6. Small businesses will be able to continue claiming an immediate deduction for assets that cost less than $20,000 for another year up to 30 June 2019.
  7. Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied from 1 July 2019.
  8. Businesses will no longer be able to claim deductions for payments to their employees where they have not met their PAYG obligations or for certain payments to contractors which have not met PAYG obligations.
  9. Business seeking to tender for Australian government contracts above $4m will need to provide a statement of compliance with their tax obligations, from 1 July 2019.
  10. The maximum number of members in a self-managed superannuation fund will be increased from four to six.

Promoting tax compliance

The measures in the budget have a positive vibe about them e.g. tax cuts for individuals, additional support for small business investment, helping retirees build their superannuation and the Medicare Levy remaining at 2% and changes that target taxpayers who are not doing the right thing by their employees. Measures promoting tax compliance and punishing non-compliance or poor compliance will be supported by the wider community.

Some measures that were hoped for not included in the budget included the introduction of a standard deduction for employees (the ATO instead being provided with funding of $130m to increase compliance activities targeting individual taxpayers and their tax agents). No additional tax or super measures to boost housing affordability were included in the budget either, other than to deny deductions for expenses associated with vacant land in a bid to discourage “land banking”.