Reward for work is a dominant theme in the 2018 Budget. The seven year personal income tax plan initially targets low to middle income earners before making significant changes to the tax brackets.
Innovation continues to be the Government’s mantra with the medical industry a clear winner. The Government has dedicated a total of $1.3 billion to fund genomic research projects investigating medicines that can be tailored to individual patients, clinical trials of new drugs and development of new medical technologies.
As you would expect from an election budget, there is not a lot of bad news or serious cuts. The black economy however features consistently with a multiagency taskforce and all manner of programs including the imposition of a limit of $10,000 on cash payments.
There are also a number of tax changes to close loopholes and while not presented in the budget, the Treasurer has flagged the release of a discussion paper that will explore options for taxing digital business in Australia. There will be more to come – just not this year.
- $20k accelerated depreciation extended until 30 June 2019
- Research & development incentive shake-up
- Black economy – new initiatives and more industries rolled into the taxable payments system
- Seven year personal tax cut plan
- Major innovation funding
$20k Accelerated Depreciation Extended
The ability for small business entities to claim an immediate deduction for assets costing less than $20,000 has been extended until 30 June 2019.
From 1 July 2019, the immediate deduction threshold will reduce back to $1,000.
There are no limits to the number of times you can use the immediate deduction assuming your cashflow supports the purchases.
If your business is registered for GST, the cost of the asset needs to be less than $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
Second hand goods are also deductible. However, there are a number of assets that don’t qualify for the instant asset write-off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
If you purchase assets costing $20,000 or more, the immediate deduction does not apply but small businesses have the ability to allocate the purchase to a pool and depreciate the pool at a rate of 15% in the first year and 30% for each year thereafter.
Research & Development Incentive Shake-Up
Applying to income years starting on or after 1 July 2018, the way the research and development (R&D) tax incentive applies will change to focus on ‘more intensive’ R&D activities, particularly in medical and clinical development. The changes attempt to refocus the incentive on activities that go well beyond what companies would normally do to improve.Companies under $20m
For companies with an aggregated annual turnover less than $20 million:
- An annual $4 million cap will be introduced on cash refunds for R&D claimants. Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years;
- Clinical trials will be excluded from the $4 million cap on cash refunds, to encourage development in this area; and
- The refundable R&D tax offset will be amended and will become a premium of 13.5 percentage points above the company’s tax rate for that year.
No More Salary & Wage Tax Deductions For Late Paying Employers
The Government really wants employers focussed on their tax obligations to the point where employers that fall behind will lose the right to claim employment related tax deductions.
Employers who do not keep up with their PAYG obligations will not be able to claim a tax deduction for payments to employees (such as wages).
Businesses will also lose the ability to claim deductions for payments made to contractors where the contractor does not provide an ABN and the business does not withhold PAYG.
$10k Limit On Cash Transactions
A limit of $10,000 will be introduced for cash payments made to businesses for goods and services from 1 July 2019. Payments above the threshold will need to be made through an electronic payment system or by cheque.
The measure does not impact on transactions with financial institutions or non-business consumer to consumer transactions. But, if you run a business, from 1 July 2019 you will not be able to accept cash transactions above $10,000.
Personal Income Tax Cuts
The anticipated personal income tax cuts will be delivered as part of a seven year plan culminating in the removal of one tax bracket from 1 July 2024. The Government states that the end result will be that around 94% of taxpayers will be subject to a marginal tax rate of 32.5%.
The focus right now however is the low and middle tax income brackets with changes to the tax brackets and the introduction of the Low and Middle Income Tax Offset.
|Tax rate||Current||From 1 July 2018||From 1 July 2022|
|0%||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – $37,000||$18,201 – $37,000||$18,201 – $41,000|
|32.5%||$37,001 – $87,000||$37,001 – $90,000||$41,001 – $120,000|
|37%||$87,001 – $180,000||$90,001 – $180,000||$120,001 – $180,000|
|Low and middle income tax offset||Up to $530||–|
|LITO||Up to $445||Up to $445||Up to $645|
From 1 July 2018:
- The top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
From 1 July 2022:
- The top threshold of the 19% personal income tax bracket will increase from $37,000 to $41,000.
- The top threshold of the 32.5% personal income tax bracket will again increase from $90,000 to $120,000.
- The Low Income Tax offset will increase from $445 to $645. The increased Low Income Tax Offset will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667.