All talk about Budget 2018 has been in relation to the proposed tax cuts for Australian workers in 2024, but a number of important initiatives were also announced to encourage business growth.
The biggest announcement in this budget was the extension of the $20k accelerated depreciation, which has been extended till 30 June 2019.
Innovation continues to be the Government’s mantra with the medical industry a clear winner.
The black economy, however, features consistently with a multi-agency task force 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.
Key initiatives of Budget 2018
- $20k accelerated depreciation extended until 30 June 2019
- Research & development incentive shake-up
- Crackdown on the Black Economy
- Introduction of a 3-year cycle for SMSF audits for compliant funds
- Seven-year personal tax cut plan
- Major innovation funding
$20k Accelerated Depreciation Extended
Date of effect: Current until June 30 2019
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 cash flow 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.
Research & Development Incentives
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.
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.
Companies over $20m
For companies with aggregated annual turnover of $20 million or more, an R&D premium will be introduced that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
The marginal R&D premium will be the company’s tax rate plus:
- · 4 percentage points for R&D expenditure between 0% to 2% R&D intensity;
- · 6.5 percentage points for R&D expenditure above 2% to 5% R&D intensity;
- · 9 percentage points for R&D expenditure above 5% to 10% R&D intensity; and
- · 12.5 percentage points for R&D expenditure above 10% R&D intensity.
The R&D expenditure threshold – the maximum amount of R&D expenditure eligible for concessional R&D tax offsets – will be increased from $100 million to $150 million per annum.
The Black Economy
Budget 2018 paid special attention to the black economy. The taxable payments reporting system requires businesses in certain industries to report payments they make to contractors (individual and total for the year) to the ATO. ‘Payment’ means any form of consideration including non-cash benefits and constructive payments.
From 1 July 2019 the following industries will be required to lodge annual reports to the ATO:
- Security providers and investigation services;
- Road freight transport; and
- Computer system design and related services.
No More Salary & Wage Tax Deductions For Late Paying Employers
Date of effect July 1 2019
The Government 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.
As a result of Budget 2018, 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.
Significant Global Entity Rules
Date of effect 1 July 2018
Significant global entities (SGE) face an increased level of compliance. From 1 July 2018, the definition of an SGE will be expanded to include:
- Members of large multinational groups headed by private companies, trusts and partnerships; and
- Members of groups headed by investment entities.
If an entity is treated as an SGE then it could be exposed to:
- Increased penalties, including for situations where returns etc., are not lodged on time;
- Country-by-country reporting obligations; and
- The need to provide general purpose financial statements to the ATO if these have not already been provided to ASIC.
$10k Limit On Cash Transactions
Date of effect 1 July 2019
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.
Thin Capitalisation Rules Tightened
Date of effect 1 July 2019
The thin capitalisation rules are designed to place a limit on the level of interest and other debt deductions that can be claimed in Australia when Australian operations are heavily funded by debt rather than by equity.
These rules will be tightened after Budget 2018 by requiring entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.
Partnerships And The Small Business CGT Concessions
Date of effect 8 May 2018
This measure seeks to close a loophole that provides access to the small business CGT concessions by partners in large partnerships.
Partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership (often referred to as Everett assignments) will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.
Regulators Target Phoenixing
Corporation and tax laws will be reformed after Budget 2018 in an attempt to target phoenix activity. Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. The reforms:
- Introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
- Extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts;
- Expand the ATO’s power to retain refunds where there are outstanding tax lodgements;
- Prevent directors improperly backdating resignations to avoid liability or prosecution;
- Limit the ability of directors to resign when this would leave the company with no directors; and
- Restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator.
GST ‘Hit’ For Online Hotel Room Resellers
Date of effect 1 July 2019
The GST will be extended to offshore sellers of hotel accommodation in Australia to ensure they calculate the GST in the same way as local providers.
The Budget 2018 measure will apply to sales made on or after 1 July 2019. Sales that occur before 1 July 2019 will not be subject to the measure even if the stay at the hotel occurs after this date.
Tax carve out for craft brewers
Date of effect: July 1 2019
The alcohol excise refund scheme cap will be increased to $100,000 per financial year and the concessional draught beer excise rates will be extended to 8 litre or greater kegs from 1 July 2019.
The measures set out in Budget 2018 help to level the playing field for smaller craft beer producers.
Stapled structures package
Date of effect: 1 July 2018 Thin Capitalisation Changes, 1 July 2019 additional measures
A package of measures has been introduced to address risks to the corporate tax base posed by stapled structures and similar arrangements. The package will also limit access to concessions for passive income utilised by foreign governments and foreign pension funds.
Many of the reforms in superannuation impact on administration of funds, particularly large APRA funds.
3-Year Cycle For SMSF Audits
Date of effect 1 July 2019
SMSFs with a history of good record‑keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.
The Government has flagged consultation with key stakeholders on this measure (with no further details available at present).
Personal Income Tax Cuts
The anticipated personal income tax cuts in Budget 2018 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||From 1 July 2024|
|0%||$0 – $18,200||$0 – $18,200||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – $37,000||$18,201 – $37,000||$18,201 – $41,000||$18,201 – $41,000|
|32.5%||$37,001 – $87,000||$37,001 – $90,000||$41,001 – $120,000||$41,001 – $200,000|
|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||Up to $645|