The Federal Government handed down the 2019/20 Federal Budget on Tuesday 2 April, 2019. Please note that due to the May election and a hostile Senate, not all of these budget announcements have been legislated at this stage. We will examine the major announcements in the budget for individuals, businesses, superannuation funds and also some additional miscellaneous changes.
Personal Income Tax Changes
A major focus of Treasurer Josh Frydenberg’s budget was tax cuts for those earning up to $126,000. Additional changes to the personal income tax rates, with the 19% personal income tax bracket increased to $45,000 have been proposed for implementation from 1 July 2022. Some of the more relevant changes affecting individuals for the 2019 financial year include:
- Increase to the Low and Middle Tax Offset
The Low and Middle Income Tax Offset (’LMITO’) is a non-refundable tax offset that is intended to benefit Australian resident low and middle income taxpayers. Currently, the LMITO applies from the 2019 income year to provide tax relief of up to $530, with a base amount of $200.
The Government has announced that it will increase the LMITO, with effect from the 2019 income year, to provide tax relief of up to $1,080 per annum, as well as an increased base amount of $255 per annum. The (increased) LMITO will be available for the 2019 income year up until the 2022 income year (inclusive) and will be received on assessment after individuals lodge their income tax return.
The current and proposed LMITO apply as follows:
|LMITO (current)||LMITO (proposed)|
|$0 – $37,000||Up to $200||$0 – $37,000||Up to $255|
|$37,001 – $48,000||$200 + 3% of excess over $37,000||$37,001 – $48,000||
$255 + 7.5% of
excess over $37,000
|$48,001 – $90,000||$530||$48,001 – $90,000||$1,080|
|$90,001 – $125,333||$530 – 1.5% of excess over $90,000||$90,001 – $126,000||
$1,080 – 3% of
excess over $90,000
|$125,334 +||Nil||$126,001 +||Nil|
The LMITO applies in addition to the Low Income Tax Offset (‘LITO’).
The maximum LITO is currently $445.
From 1 July 2022, both the LMITO and LITO will be replaced by a single LITO. In the 2018/19 Federal Budget, the Government announced that the \maximum single LITO will be $645.
In the 2019/20 Federal Budget, the Government has now announced that the maximum single LITO will be increased to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
- Increasing the Medicare Levy for Low-income Thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2019 income year, as follows:
- The threshold for singles will be increased from $21,980 to $22,398.
- The family threshold will be increased from $37,089 to $37,794.
- The threshold for single seniors and pensioners will be increased from $34,758 to $35,418.
- The family threshold for seniors and pensioners will be increased from $48,385 to $49,304.
For each dependent child or student, the family income thresholds increase by a further $3,471, up from the previous amount of $3,406.
Changes for Business Taxpayers to the Instant Asset Write-Off
The Government announced that it is increasing and expanding access to the instant asset write-off and this budget measure has now been enacted. The threshold has increased to $30,000 and been extended to 30 June 2020.
The instant asset write-off now also includes businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction of up to $30,000 for the business portion of each asset (new or second hand), purchased and first used or installed ready for use from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.
Businesses with a turnover of up to $10 million can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:
- $30,000 from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
- $25,000 from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
- $20,000 before 29 January 2019.
Please note that both small and medium businesses cannot immediately claim a deduction for individual assets that cost $30,000 or more. Such businesses can continue to deduct these over time using the small business pool or the general depreciation rules, depending on business turnover.
Superannuation Related Changes
Important changes to the area of superannuation announced in the 2019/20 Federal Budget include:
- Changes to the Superannuation Contribution Rules
(a) Removing the work test for those aged 65 and 66 years
The Government has announced that it will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 years without meeting the work test from 1 July 2020 (i.e., from the 2021 income year).
Currently, people aged 65 to 74 years can generally only make voluntary superannuation contributions if they satisfy the work test.
An individual satisfies the work test in a particular income year where they are ‘gainfully employed’ on at least a part-time basis during the income year in which the contributions are made. For these purposes, this will be the case where the member was gainfully employed for at least 40 hours in
a period of not more than 30 consecutive days in the income year in which the contribution is made.
Note however, the current law does provide a limited ‘work test exemption’ for recent retirees wishing to make voluntary superannuation contributions in 2020 and later years (i.e., from 1July 2019).
This exemption applies where all of the following requirements are satisfied:
- The member does not meet the work test in the contribution year.
- The member met the work test in the previous income year.
- The member had a total superannuation balance (‘TSB’) below $300,000 on 30 June of the previous income year.
- The individual has not previously relied on the work test exemption to make contributions.
(b) Access to the ‘bring-forward rule’ for those aged 65 and 66 years
The Government has announced that it will allow those aged 65 and 66 to make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).
Under current law, broadly, those aged 65 and over cannot access bring-forward arrangements.
(c) Increasing the age limit for spouse contributions
Individuals up to and including the age of 74 will be able to receive spouse contributions (with those 65 and 66 no longer needing to meet a work test).
Currently, those aged 70 and over cannot receive spouse contributions.
- Insurance on an Opt-in Basis
The Government will delay the start date for ensuring that insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years to 1 October 2019.
These changes, if legislated, will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of.
- Reducing Red Tape for Superannuation Funds
The Government will streamline the following administrative requirements for the calculation of exempt current pension income (‘ECPI’) from 1 July 2020:
- The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method (i.e., the segregated method or the proportionate method) of calculating ECPI.
- The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for the entire income year.
Additional Budget Announcements
There were some additional budget announcements made by the Morrison Government that directly affect various groups of taxpayers. Please note some of the more important proposed changes below:
- Increased Refunds for Eligible Primary Producers and Tourism Operators
The Government will provide further relief to farmers and tourism operators by amending the luxury car tax refund arrangements. For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000.
The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.
- Concessional Treatment for the Forced Sale of Livestock
Over two years from 2018/19, farmers receiving Farm Household Allowance (‘FHA’) will be able to exempt income from the forced sale of livestock from the FHA income test when that income is invested in a farm management deposit.
This measure will ensure that FHA recipients who are destocking retain access to income support, while making long-term financial plans.