Tax Insight: 2019-20 Federal Budget

On Tuesday night, Treasurer Josh Frydenberg released the 2019-2020 Federal Budget (Budget). In his speech, the Treasurer set out three key principles which underpin the Government’s Budget:

1. Restore Australia’s finances;
2. Strengthen Australia’s economy and create more jobs; and
3. Guarantee essential services while tackling the cost of living.

Please click here for the full budget papers.

We outline an overview of the key tax initiatives and changes that have been proposed by the Government below. We will also provide a comparison of various initiatives after the Opposition Leader has handed down the Budget-in-reply speech.

Business

• Instant asset write-off: The instant asset write-off threshold will increase from $25,000 to $30,000 and applies on a per-asset basis. Along with small sized businesses, medium sized business with a turnover of up to $50 million will now be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020;
• Black Economy: All Australian Business Number (ABN) holders who do not lodge an income tax return by the required time, or who do not confirm the accuracy of their ABN details on the register may have their ABN cancelled;
• Corporate tax rates: Companies with less than $50 million of aggregated turnover will have a tax rate of 25 percent from 2021-22; and
• Division 7A: The proposed changes to Division 7A will be delayed and are now scheduled to commence from 1 July 2020 to enable further consultation on transitional measures.

International

• Australia-Israel Tax Treaty: A tax treaty between Australia and Israel was signed on 28 March 2019, and will be implemented from that date. The treaty provides relief from double taxation in certain circumstances;
• Information exchange countries: Residents whose countries have recently entered into information sharing agreements will now gain access to a reduced rate of withholding tax of 15% (instead of 30%) on distributions from Australian Managed Investment Trusts;
• International Tax Agreements Act: Amendments will be made to deem that certain income covered by a tax treaty has Australian source; and
• Hybrid mismatch rules: Minor amendments will be made to Australia’s hybrid mismatch rules, including amendments to integrity measures.

Compliance

• Tax Avoidance: The ATO will be provided with $1.0 billion over four years from 2019-2020 to extend the operation of the Tax Avoidance Taskforce. This will also assist to increase the ATO’s staff numbers by over 500 in the next year. The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals;
• Unpaid liabilities: The ATO will be provided with $42 million over four years to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals; and
• Dispute Resolution with the ATO: $57.5 million will be provided to the Department of Jobs and Small Business, the Administrative Appeals Tribunal and the ATO to improve the access and efficiency of independent review mechanisms for small businesses in dispute with the ATO.

Superannuation

• Voluntary contributions: The work test for individuals aged 65 and above will be abolished from 1 July 2020 making it simpler to gain access to concessional treatment of personal superannuation contributions. Individuals aged over 65 will also be able to access the 3 year ‘bring forward’ rule for non-concessional contributions;
• Merging of superannuation funds: Tax relief for merging superannuation funds will be made permanent from 1 July 2020. Superannuation funds can access tax relief when transferring revenue and capital losses to a new merged fund, and they can defer taxation consequences on gains and losses from revenue and capital assets;
• Active and inactive superannuation accounts: There have been changes to protect accounts held by individuals which remain inactive for a period of time, including giving the Tax Office the power to consolidate active accounts;
• Insurance products: The Government will delay changes to the opt-in insurance regime for low value and new accounts; and
• Red tape: Superannuation funds will have streamlined reporting requirements for exempt current pension income.

Personal

• Tax rates: The Government has brought forward changes to personal income tax rates. These include:
  • from 1 July 2022, the 19 percent personal income tax bracket will be increased from $41,000 to $45,000;
  • from 1 July 2024 25, the 32.5 per cent marginal tax rate will be reduced to 30 per cent;
    in 2024-25 the 37 percent tax bracket will be abolished, and a single 30 percent tax rate will apply to taxable income from $45,000 to $200,000;
• Tax offsets: There are significant changes to personal tax offsets. There will be an increase in the maximum and base amounts for non refundable low and middle income tax offset (LMITO). Broadly, the LMITO will increase from a maximum amount of $530 to $1,080 per annum. Generally, the LMITO can apply up to an income of approximately $67,000; and
• Medicare: The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased.

Excise and indirect

• Luxury car tax: Eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax that they have paid on luxury vehicles acquired after 1 July 2019. This applies up to a maximum of $10,000.

These measures have not yet become law and may be open to further negotiation in the Senate. The HWL Ebsworth National Taxation Group will keep you updated on major developments in these areas as they occur.

Please contact a member of our tax team to discuss any aspect of the above further.

This article was written by Yan Li Wang, Partner, Nima Sedaghat, Partner, Vincent Licciardi, Senior Associate and Ellis Rigby, Solicitor.