What CST clients need to know about the Budget announcements

April 3, 2019

The big tax announcement in this week’s budget centred around:

  • Further personal income tax cuts;
  • Increased asset write offs for small business;
  • Increased funding for the ATO to tackle tax avoidance and evasion.

Updates to previous announcements included:

  •  A delay in changes to Division 7A which deals with loans from private companies to shareholders;
  •  No mention of the Proposed Removal of CGT Main Residence Exemption for non-residents (including Australian Expatriates).

Personal Income Tax Cuts

What is changing?

The government will be increasing the Low and Middle Income Tax Offsets (LMITO). Under the changes, the reduction in tax provided by LMITO will increase from a maximum amount of $530 to $1,080 per annum and the base amount will increase from $200 to $255 per annum for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

The Government will also progressively reduce the number of income tax brackets to 3 by 2024-2025 by which time there would only be 3 personal income tax rates – 19%, 30% and 45% (abolishing the 37% bracket).

What does this mean?

Low to medium income earners (those earning less than $125,333) will pay less tax when the LMITO offset is applied.

The objective of the tax bracket changes is to have 95% of Australia’s population paying no more than 30% on income tax by 2024-2025.

Increased Asset Write offs for small business

What is changing?

The instant asset write-off threshold for businesses with an aggregated turnover of less than $10m will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.

What does this mean?

Small businesses are able to completely write-off assets worth up to $30,000 in the financial year that they started using them rather than depreciating them provided the expenditure is incurred after 2 April 2019 and before 30 June 2020.

ATO to receive $1 Billion of funding to tackle tax avoidance and evasion

What is changing?

The Government will provide $1.0bn over 4 years from 2019-20 to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs.

What does this mean?

The Taskforce will undertake compliance activities not only targeting multinationals and large public companies, but also private groups, trusts and high wealth individuals.

Delay in changes to Division 7A (Loans from private companies to shareholders)

The government has been undertaking consultation in relation to changes that it wishes to introduce to Division 7A which would include, among other things, eliminating the possibility of 25 Year Division 7A loans.

The Government issued a Consultation Paper in October 2018 seeking views on the proposed implementation approach for the amendments to Division 7A of the ITAA 1936.

The Government said it received valuable feedback which highlighted that Division 7A is a complex area and changes being considered in the Consultation Paper warrant further consideration.

The Government has agreed to delay the start date for proposed changes by 12 months to allow additional time to further consult with stakeholders and to refine the Government’s approach, to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.

Proposed Removal of CGT Main Residence Exemption for non-residents (including Australian Expatriates)

There was no mention in the Budget of the Government’s intention in relation to the widely criticised Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.

Although there is no official comment, we do not expect that the Bill will proceed in its current form although depending on the outcome of the election, it may be re-introduced in a modified form. The Bill still has major and well documented shortcomings as we indicated in a previous article.

Author: Matthew Marcarian

Dianne Lee

Dianne Lee

Dianne has over 15 years of business tax experience and has experienced the expat lifestyle having worked in New York and studied in South Korea. Her areas of specialty include tax residency, capital gains tax planning, employee share schemes and family trusts.

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