2019/20 Federal Budget Tax Brief

Mr Frydenberg said the Budget is “back in the black”, announcing a budget surplus of $7.1b, and forecasting continued surpluses into the future, building towards 1% of GDP with the aim to pay off Government debt by 2030.

Being a pre-election budget, the Treasurer continually stressed throughout delivery of his budget speech which included announcements of a record $100 Billion of infrastructure spend over the next decade, that all of the budget measures were achieved ‘without increasing taxes’.

The Government proposes various changes to further lower individual taxes, including increasing the low and middle income tax offset (LMITO), and lowering the 32.5% rate to 30% in 2024/25. More businesses will have access to immediate deductions for asset purchases, with the expansion of the instant asset write-off to businesses with an annual turnover of less than $50m.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers' media releases are available at ministers.treasury.gov.au.

Mazars summary of the key budget announcements affecting our client base is based on our review of the Budget papers and Government announcements at the date of publishing.  The measures announced are not law and should not be relied upon until legislated.  

A Federal election is expected to be called soon and will be held in May 2019 before any of these measures can be put before Parliament.  The current Government will need to be voted back in and introduce and pass Bills to include these measures before they can be relied upon.

Income tax

INDIVIDUALS

When is a tax cut, not a tax cut? – when it’s a LMITO

The Low and Middle Income Tax Offset (LMITO) will be changed such that the reduction in tax it provides will increase from a maximum amount of $530 to $1,080 pa, and the base amount will increase from $200 to $255 pa for the 2018/19 to 2021/22 income years.

While not a ‘tax rate cut’, it provides a non-refundable tax offset to reduce overall tax payable at certain income levels.

In addition to the increases in LMITO, the tax thresholds will change in 2022/23 to change the already legislated increase in the 19% bracket from $41,000 to $45,000.

The individual tax rates and thresholds of the next few years are as follows:

Then in 2024, the lower end of the top tax bracket has already been legislated to change to $200,000 (up from $180,000).  However, the new tax bracket from $45,000 to $200,000 will reduce from 32.5% to 30%.

Medicare levy — low income thresholds to increase

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2018/19 income year as follows:

Income tax exemption for payments to Queensland storm affected primary producers

Payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018 will be treated as exempt income.

Income tax exemption for North Queensland flood grants

An income tax exemption will be provided for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods.

Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, grants provided under the On-Farm Restocking and Replanting Grants Program, and the On-Farm Infrastructure Grants Program.

The exemption will apply where the grants relate to the monsoonal trough, which produced flooding that started on or after 25 January 2019 and continued into February 2019. The grants will be made non-assessable non-exempt income for tax purposes.

One-off Energy Assistance Payment

The Government announced ahead of the Budget that four million Australians will receive a non-taxable cash handout from the Federal Government to help cover the cost of rising power prices .  The handout, part of the Budget, will be $75 for eligible singles and $125 for eligible couples, with those eligible comprising:

• Australians receiving the Age Pension;
• Recipients of the Disability Support Pension;
• Carers receiving the Carer Payment;
• Parenting Payment Single recipients; and
• Veterans and their dependants receiving eligible payments from the Department of Veterans’ Affairs.

BUSINESS

Instant asset write-off threshold increased and expanded to medium sized businesses

The small business vote buyer, the Instant Asset write-off allows an immediate deduction for the purchase of assets by a small business (turnover < $10 Million) where the asset falls below a certain threshold.  This threshold has increased over recent years from $1,000 to $20,000. 

In January 2019, the Government announced this would increase to $25,000 and on Budget night, the Government announced a further increase to $30,000 for any assets purchased between Budget night and 30 June 2020. It was further announced that this measure will also extend the write-off to all businesses with a turnover below $50 Million for assets purchased from Budget night until 30 June 2020.

Consequently, the changes proposed to the instant asset write-off thresholds are listed in the table below.

Instant asset write-off threshold

Further consultation to Div 7A amendments; reforms delayed again

The start date of amendments to Div 7A of the Income Tax Assessment Act 1936 will be delayed by 12 months to 1 July 2020. The proposed amendments announced in the 2018 and 2016 Federal Budgets will undergo further consultation with stakeholders following feedback from stakeholders to a consultation paper issued in October 2018.

The amendments in the consultation paper included replacing the existing seven-year and 25-year model with a single 10-year model without a requirement for a formal written loan agreement and clarification as to when unpaid present entitlements come within the scope of Div 7A.  

Many of the suggestions within the consultation paper were not well received, so these measures have been postponed for further consultation.

Sham contracting unit to be established

A dedicated sham contracting unit will be established within the Fair Work Ombudsman to address sham contracting behaviour engaged in by some employers, particularly those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations such as superannuation guarantee and other employment entitlements.

Increased luxury car tax refunds for primary producers and tourism operators

Luxury car tax refund arrangements will be amended to provide further relief to farmers and tourism operators.  For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.

Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000. The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.

Income from forced sale of livestock invested into farm management deposit

From 1 July 2019, net income generated from the forced sale of livestock will be exempted from Farm Household Allowance (FHA) payment assessment, when that income is invested into a farm management deposit.

The measure is to ensure that FHA recipients who are destocking retain access to income support and are able to make long-term financial plans for their future.

Black (Cash) Economy - Requirements for Australian Business Number (ABN) holders to confirm their status and lodge returns

To disrupt black economy behaviour, Australian Business Number (ABN) holders:

• with an income tax return obligation will be required to lodge their income tax return, from 1 July 2021, and
• will be required to confirm the accuracy of their details on the Australian Business Register annually, from 1 July 2022.

We anticipate if this does not occur, then the ABN will be revoked, thus forcing more ABN holders to be compliant and pay their fair share of taxes.

INTERNATIONAL BUSINESS

International tax — list of information exchange countries to be updated

The government will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15%, instead of the default rate of 30%, on certain distributions from Australian managed investment trusts (MITs). To be listed, countries must have established the legal relationship enabling them to share taxpayer information with Australia.

This update will add Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates to join 114 other jurisdictions already on the list. These new jurisdictions have entered into information sharing agreements since the previous update in 2018.

The updated list will be effective from 1 January 2020.

Tax integrity — clarifying the operation of the hybrid mismatch rules

Minor amendments will be made to the hybrid mismatch rules to clarify their operation.

The hybrid mismatch rules are intended to prevent multinational corporations from exploiting differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

Amendments will be made to stipulate how the rules apply to multiple entry consolidated (MEC) groups and trusts, and to limit the meaning of foreign tax, for income years commencing on or after 1 January 2019.

Amendments will also be made to specify that the integrity rule can apply where other provisions have applied for income years commencing on or after 2 April 2019.

Other International News

Australia has recently passed a free trade agreement with Hong Kong providing $nil tariffs on imports and exports. 

Australia has also recently signed a Double Tax Agreement with Israel.

Extension and expansion of Tax Avoidance Taskforce - $1 Billion funding for ATO

The ATO will be given an additional $1 Billion of funding to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce's programs and market coverage.

The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It will use the additional funding to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

Tax integrity — ATO to focus on recovery of tax and super from large businesses

The ATO will receive additional funding to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.

OTHER MEASURES

Export Market Developments Grant (EMDG) – Additional $60 Million of funding

The EMDG scheme reimburses 50% of eligible expenditure above $5,000, promoting your business overseas where the business has spent more than $15,000 in a calendar year. Businesses can apply for up to 8 such EMDG grants.

Mazars can assist businesses to apply for the EMDG and deal with the EMDG audit which accompanies the application process.

Green Grant Program

The government is seeking to build its green credentials, announcing a $3.5 billion package to deliver on Australia’s 2030 climate commitments. This will include $61.2 million over four years to establish the Energy Efficient Communities Program, which will provide grants to businesses and community organisations to improve energy efficiency practices and technologies to better manage energy consumption and $100.0 million to establish an Environment Restoration Fund to provide grants for on-ground restoration and protection projects. 

Mazars can assist organisations to identify and apply for Government Grant programs.

Seasonal Worker Program

A pilot program will improve farmers access to workers though the existing seasonal worker program.  This will make it easier for labour hire approved workers to recruit and move seasonal workers between farms.

Reform of Harvest Labour Services Program

$24 Million over four years will be spent on reforming the Harvest Labour Services (HLS) program to encourage more Australian jobseekers to take up seasonal harvest jobs.  The program will include expanding the HLS regions and providing incentives to HLS providers.

Agriculture Stewardship and Biodiversity Program

$34 Million over 4 years will be provided to grow stewardship and biodiversity practices in the agriculture sector including $30 Million to develop a policy and trial a grants program to increase adoption of biodiversity practices and deliver business production improvements.  A further $4 Million will be used to develop and trial a farm biodiversity certification scheme.

A further $29.4 Million will be provided to enhance agricultural exports and trade including further assistance as part of the ‘Assisting small exporters program’.

National Labour Hire Registration Scheme

A National Labour Hire Registration Scheme will be established to protect vulnerable and migrant workers.  Labour hire operators in certain industries will be required to register and meet certain requirements in order to supply labour in those industries. This program is expected to drive industry behaviour and protect vulnerable workers.

Apprenticeships Scheme – Up to $8,000 of incentives per apprentice

Employers will be able to obtain additional funding to hire apprentices with an increase of $4,000 over the existing scheme.  Apprentices will also be rewarded with incentive payments of $2,000 over time.

Small Business Tax Court

While announced ahead of the Budget, the Government has introduced a Small Business Tax Court as part of the Administrative Appeals Tribunal.  This will allow small businesses to appeal ATO decisions in a cost effective manner.  If the ATO use external counsel in this jurisdiction, the taxpayer will also be able to apply for Government funding for their own counsel.

WHAT WE DIDN’T SEE

• There was no introduction of changes to Thin Capitalisation rules to introduce a safe-harbour - capping interest deductions at a set percentage of EBITDA.  This has been introduced in other countries and discussed at the OECD.
• There was no digital services tax.  The Government has decided to await the OECDs recommendations before pressing ahead with such a tax.
• There were no GST measures announced in the Budget.

If you have any questions please speak to your usual Mazars advisor or alternatively contact the following:

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

2019/20 FEDERAL BUDGET SUPERANNUATION BRIEF