An increased and expanded small business instant asset write-off and an expansion to single-touch payroll are some changes announced in last night’s budget that may affect your business. For small businesses there is also assistance with managing tax disputes.
Your employees may be affected by changes to superannuation contribution rules and income tax cuts.
Here’s a brief round-up of what the budget will mean for you and your employees.
Remember that the proposals may change or be withdrawn as the legislation passes through parliament and may be affected by the outcome of the pending federal election.
Single-touch payroll expansion
The Government will increase funding to the ATO to expand single-touch payroll (STP) capability.
STP data will be expanded to include more information about gross pay amounts and other details. The changes will reduce the compliance burden on employers/payroll departments and individuals reporting information to multiple government agencies.
Increasing and expanding access to the instant asset write off
Effective immediately the instant asset write-off threshold is increasing from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
Small businesses (i.e. those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.
Medium sized businesses (i.e. those with aggregated annual turnover of $10 million or more but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.
However, medium sized businesses must also acquire these assets after Budget night to be eligible.
These changes interact with changes announced on 29 January 2019 whereby small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.
Supporting small businesses with tax disputes
The Government will provide funding to the Department of Jobs and Small Business, the Administrative Appeals Tribunal (AAT), and the ATO to provide access to a fast, low cost review process for small businesses in dispute with the ATO.
Tax relief for merging super funds
The Government will make tax relief for merging superannuation funds permanent. This tax relief, which was due to expire on 1 July 2020, allows superannuation funds to transfer revenue and capital losses to a new merged funds, and to defer taxation consequences on gains and losses from revenue and capital assets.
This tax relief ensures that member balances are not affected by tax when funds merge.
Super contribution ‘work test’ age raised to 67
Currently, people aged 65 to 74 must be in paid work for a minimum of 40 hours in any consecutive 30-day period in the financial year to make voluntary super contributions. This ‘work test’ requirement does not apply to super contributions made before age 65.
The Government is proposing that, from 1 July 2020, the work test will only be necessary where contributions are made by clients aged 67 to 74.
The Government has said that this is to align the work test requirement with the eligibility age for the Age Pension, which is due to be raised to 67 from 1 July 2023.
This proposed change means that people aged 65 or 66 who don’t meet the work test will be allowed to make voluntary super contributions.
This change will enable people to make contributions from their before and after-tax income. The standard contribution caps will apply.
After-tax contribution cap ‘bring-forward’ extended to age 67
The Government is proposing to extend the after-tax contribution ‘bring-forward’ rules from 1 July 2020.
These bring-forward rules currently allow people aged under 65 at the start of the financial year to make up to three years’ worth of after-tax contributions to their super in a single financial year.
From 1 July 2020, the bring-forward rules will be extended so they also apply to people aged 65 and 66 at the start of the financial year.
Spouse super contributions – increased age limit
Currently, those aged 70 years and over cannot receive contributions made by their spouse on their behalf. The Government is proposing to increase the age limit for spouse super contributions from 69 to 74 years from 1 July 2020.
It is expected that the receiving spouse will be required to continue to meet the work test from the work test age (see above). Spouse super contributions are counted towards the receiving spouse’s after-tax contribution cap.
This may be particularly useful for couples seeking to make their superannuation balances even before commencing retirement income streams.
Personal income tax cuts
The Government announced a comprehensive seven-year personal income tax plan in the 2018 Federal Budget, which was subsequently legislated.
The Government is now proposing to provide further personal income tax cuts over the same period. These cuts will be achieved through a combination of changes to tax offsets, adjustments to personal income tax brackets and marginal rates.
Increasing Low and Middle Income Tax Offset (LMITO)
- For the 2018-19 to 2021-22 tax years, this will provide tax relief of up to $1,080 per year to low and middle income earning individuals.
- LMITO is currently legislated at up to $530 per person.
Increasing Low Income Tax Offset (LITO)
- From 1 July 2022, LITO is proposed to increase to $700 from the currently legislated $645.
Changing tax thresholds and marginal tax rates
- From 1 July 2022, the top threshold for the 19% marginal tax bracket is proposed to increase to $45,000 from the $41,000 currently legislated.
- From 1 July 2024, the Government proposes to reduce the current 32.5% marginal tax rate to 30%.
LMITO is available in addition to the LITO. The savings realised through these tax offsets will be received following lodgement and assessment of the individual’s tax return.
Neither LITO nor LMITO are refundable tax offsets, so they can reduce tax liability to nil but not reduce liability to Medicare levy.
The Low Income Tax Offset (LITO)
Currently, a maximum tax offset of $445 is available, shading out at 1.5 cents per $1 above taxable income of $37,000 and ceasing at an income level of $66,667.
From 1 July 2022, LITO is proposed to increase to $700. The increased LITO will be reduced at a rate of 5 cents per $1 for income between $37,500 and $45,000 and 1.5 cents per $1 for income between $45,000 and $66,667.
Low and Middle Income Tax Offset (LMITO)
The maximum benefit for those earning up to $37,000 is $255.
Between $37,000 and $48,000, the offset will increase at the rate of 7.5 cents per $1 above $37,000 to a maximum offset of $1,080.
Those earning between $48,000 and $90,000 will be eligible for the maximum LMITO benefit of $1,080.
For income above $90,000, the offset phases out at a rate of 3.0 cents per $1 and is not available when taxable income exceeds $126,000.
LMITO is only available from 1 July 2018 and up to 30 June 2022.
The table below summarises the new proposed personal tax rates and thresholds.