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Highlights of the 2018 Australian Federal Budget

On 9 May 2018, the Australian Federal Budget 2018 was announced. Some of the key tax announcements (as they relate to individuals, small businesses and corporates) are highlighted below.

Changes for individuals

A seven-year Personal Income Tax Plan commencing from 1 July 2018 has been announced.  The Tax Plan will focus on providing relief to low to middle income earners by introducing a new Low and Middle Income Tax Offset to provide targeted tax relief to low and middle income earners, gradually increasing the top threshold at which the 32.5 per cent personal tax bracket applies (from the current bracket of A$37,001 - $87,000 to A41,001 - $200,000 by 1 July 2024), and eventually abolishing the 37 per cent personal income tax bracket from 1 July 2024.  Minor adjustments will also be made to extend the top threshold of the 19 per cent and 45 per cent personal tax brackets.

Other changes announced for individuals include:

  • Limiting the concessional tax rates available for minors receiving income from testamentary trusts to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
  • New rules to tax income derived from an individual's fame or image, to ensure that all remuneration, including non-cash benefits, derived from the exploitation of a person's fame or image as assessable income to the individual, will be taxed at that person's respective personal marginal tax rate.
  • Incremental changes to the Medicare levy low income threshold. 

Changes for private businesses

A variety of changes have been announced, including the following:

  • Measures will be introduced to ensure that unpaid trust distributions to private companies (referred to as "'unpaid present entitlements') will come within the scope of Division 7A and will either required to be repaid to the private company over time as a complying loan or be subject to tax as a deemed dividend.
  • The immediate deductibility of assets costing less than $20,000 for small business entities (those with an aggregated annual turnover of less than $10 million) will be extended to 30 June 2019.  From 1 July 2019, the immediate threshold for deduction will reduce back to $1,000.
  • The Trustee Beneficiary Reporting rules will be extended to family trusts that engage in circular trust distributions so as to avoid any tax being paid on the amount distributed.  This will then allow the ATO to impose a tax on such distributions at a rate equal to the top personal tax rate (plus Medicare levy).
  • Deductions for expenses incurred in relation to vacant residential or commercial land will be denied where the land is not genuinely held for the purpose of producing assessable income (e.g. where the land has been land banked for possible future development or resale).
  • Integrity measures relating to accessing the small business CGT concessions for partners in partnerships will also be introduced.

Changes for corporates

A variety of changes have been announced, including the following:

  • Changes will be made to the definition of "significant global entity", which will increase the number of multinational entities that are subject to Australia's existing reporting obligations and anti- avoidance and integrity rules.
  • Further tightening will occur on cross-border financing and thin capitalisation, including changes as to how assets can be valued for thin capitalisation purposes.
  • Amendments to legislation will be made to prevent 'double gearing' structures to prevent foreign investors from using multiple layers of flow-through entities
    (i.e. trusts and partnerships), to convert trading income into interest income that is taxed at a lower rate.
  • The research and development (R&D) tax incentive is to be wound back and refocused on 'more intensive' R&D activities, particular in medical and clinical development.
  • We note that in in the 2016/17 budget, the Government had announced a ten-year enterprise tax plan to progressively reduce the corporate tax rate to 25% by the 2026-2027 income year.  Whilst this has now been implemented for companies with an aggregated turnover of up to $50 million, it remains to be seen whether this reduced tax rate will be extended to other corporates over time.

Other announcements which may be of interest:

  • GST will be extended to offshore sellers of Australia hotel accomodation to ensure that the same GST treatment will apply to Australian hotel accommodation, regardless of whether the accommodation is supplied by an Australian or offshore company.
  • Additional funding will be provided to the ATO from 1 July 2018 to assist in the following compliance activities:
    • $133.7 million to enable the ATO to continue to deliver on a range of strategies that sustain both an increase in debt collections and an improvement in the timeliness of debt collections
    • $130.8 million to increase compliance activities targeting individual taxpayers and their tax agents, and
    • $15 million over three years to support the modernisation of payroll and superannuation fund reporting.

The latest Budget contains a wide range of announcements which should be favourably received by Australian individuals and businesses, and is likely to be the last Budget to be delivered before the next Federal election. The next step will be to navigate the Senate, and secure cross-bench support for any measures which are not waved through by the Opposition.

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