Federal Budget 20189/2019

A summary of the key items released in last night’s 2018 Federal Budget.

Scott Morrison’s 2018/19 Federal Budget promises a significantly reduced deficit of $18.2 billion next financial year and a path to surplus in 2019/2020.

The key revenue measures comprise:

  • Staged reductions in personal income tax rates
  • Medicare Levy to remain at 2.0%
  • No significant changes to the taxation of superannuation
  • Various changes designed to make superannuation more “user friendly”
  • Continued crackdown on multi-national tax avoidance

It is important to remember that what follows is a series of proposals that must be passed by Federal Parliament before they become law. The closely balanced Federal Parliament with a number of minor parties may make implementation of some Budget measures more difficult.

PERSONAL TAX MEASURES EXCLUDING SUPERANNUATION

Seven Year Personal Income Tax Cut Plan

The income tax rates for resident individuals will be progressively lowered over 7 years to minimise bracket creep and simplify the personal tax rates scale.

Step 1 – Low and Middle Income Tax Offset

From 1 July 2018 a non-refundable annual tax offset of up to $530 will be available for resident individuals. The benefit will be calculated as follows:

Taxable income up to $37,000 –  $200
Taxable income $37,000 to $48,000 –  increases at 3 cents per dollar
Taxable income $48,000 to $90,000 –  $530
Taxable income $90,000 to $125,333 –  phases out at 1.5 cents per dollar

The offset will not be incorporated into the Pay As You Go Withholding tables, instead it will be paid as a lump sum on the annual income tax assessment.

Step 2 – Protection from Bracket Creep

From 1 July 2018 the point at which the personal income tax rate increases from 32.5% to 37% will rise from $87,000 to $90,000. This equates to an annual tax cut of $135 for those with incomes over $90,000.

From 1 July 2022 the Government will:

  • Increase the existing Low Income Tax Offset from $445 to $645 – an annual saving of $200 for those on incomes up to $37,000 – above this the offset phases out at 6.5 cents per dollar on incomes up to $41,000 after which it phases out at 1.5 cents per dollar and ceases at $66,667
  • Extend the 19% personal income tax bracket from $37,000 to $41,000
  • Increase the top threshold of the 32.5% tax rate from $90,000 to $120,000

Step 3– Making the Tax System Simpler

From 1 July 2024 the Government will:

  • Increase the top threshold of the 32.5% tax rate from $120,000 to $200,000
  • Eliminate the 37% marginal tax rate
  • The threshold at which the current 45% top marginal tax rate commences to apply will increase from $180,000 to $200,000

No changes are proposed for non-resident individuals.

Medicare Levy to Remain at 2%

Overturning a previous Budget proposal, the Medicare Levy will remain at 2.0% and the National Disability Insurance Scheme will be funded from other sources.

There will be the usual indexation of the Medicare Levy low income thresholds.

Tighter Scrutiny on Children Receiving Income from Testamentary Trusts

From 1 July 2019 the concessional tax rates applying to minors who receive income from testamentary trusts will be limited to income derived from assets that are transferred to the trust from a deceased estate or the proceeds on the disposal or investment of those assets. Income from assets injected into a testamentary trust will no longer qualify for concessional tax treatment.

Image Rights Tax Schemes to Stop

Currently high profile individuals, such as sportspeople and actors, can split income by selling their “image rights”. This practice will cease from 1 July 2019.

Other Personal Tax Measures

  • From 1 July 2019, the first $300 of fortnightly income from employment will not count against age pension entitlements. The current limit is $250
  • Additional funding to the Australian Taxation Office of $131 million to enable it to further combat tax avoidance by individuals and their tax agents
  • Tax exemption for certain Veteran Payments from 1 May 2018
  • Introducing an anti-avoidance rule designed to prevent tax avoidance opportunities from “circular” trust distributions.