Federal Budget 2019-20

Overview – Federal Budget

This is a Federal Budget that is designed to showcase the return to surplus. Some of the budget highlights include:

Personal income tax cuts
Low and middle income tax offset increased
Business income tax cuts
Superannuation work test watered down
Instant asset write off increased
Flood grants to be tax free
Division 7A changes postponed
ABN status stripped for non-compliance

Personal income tax cuts

The personal tax changes mean a tax saving of $855 for someone on an annual taxable income of $45,000 per annum until 2022, then $1,080 until 2024 onwards. This round of tax cuts includes the following:

Increases the top threshold of the 19% personal income tax bracket to $45,000 from 1 July 2022
Reduces the 32.5% marginal tax rate to 30% from 1 July 2024-25

Please download Federal Budget 2019-20 for further details of the personal income tax cuts.

Low and middle income tax offset increased

The low and middle income tax offset (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.

The LMITO will provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

The LMITO is received after you have lodged your tax return.

Business income tax cuts

The company tax rate for small and medium-sized companies with an annual turnover of less than $50 million will be lowered initially to 27.5%. This rate will be lowered further to 25% by 2021-22.

Superannuation work test watered down

As previously announced, from 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions (concessional and non-concessional) without meeting the Work Test.

Currently, voluntary contributions can only be made if the individual has worked a minimum of 40 hours over a 30 day period (Work Test). Those aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule.

In addition, the age limit for spouse contributions will be increased from 69 to 74 years. Currently, those aged 70 years and over cannot receive contributions made by another person on their behalf.

Instant asset write-off increased

The threshold for the popular $20,000 instant asset write-off will increase to $30,000* from Budget night until 30 June 2020 when it will potentially return to its original $1,000 level on 1 July 2020. We say ‘potentially’ because the threshold has been at or above $20,000 since 12 May 2015.

The Government had previously announced an increase to the threshold for the instant asset write-off to $25,000 from 29 January 2019 but this measure was not legislated prior to the release of the Budget. The Government however intends to honour the announced rate increase.

In addition, the number of businesses that can access the instant asset write-off will increase. Currently, to qualify for the write-off, only businesses with an aggregated turnover under $10 million qualify. From Budget night, businesses with an aggregated turnover under $50 million will also be able to access the write-off.

This initiative is subject to the passage of legislation so don’t go out on a spending spree just yet!

Flood grants to be tax-free

The Government will ensure that qualifying grants paid to primary producers, small businesses and non-profit organisations affected by the North Queensland floods will be treated as non-assessable non-exempt income, which means that they should be tax-free.

Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, and grants provided under the On-Farm Restocking and Replanting Grants Program and the On-Farm Infrastructure Grants Program.

Division 7A changes postponed

Division 7A captures situations where shareholders access company profits in the form of loans, payments or the forgiveness of debts. The rules are drafted broadly and have become more complex as amendments close perceived loopholes.

Division 7A treats certain events as triggering “deemed” dividends for tax purposes. Where a private company makes a payment or loan to a shareholder or associate, the amount may be treated as a dividend for tax purposes. Where a debt owed by a shareholder or associate to a private company is forgiven, these amounts may be subject to the same treatment.

Significant changes to the way Division 7A works were intended start taking effect from 1 July 2019. These reforms have now been pushed back to 1 July 2020.

ABN status stripped for non-compliance

From 1 July 2021, Australian Business Number (ABN) holders will be stripped of their ABNs if they fail to lodge their income tax return. In addition, from 1 July 2022, ABN holders will be required to annually confirm the accuracy of their details on the Australian Business Register.

Currently, ABN holders are able to retain their ABN regardless of whether they are meeting their income tax return lodgement obligations or the obligation to update their ABN details.