2018 Federal Budget Wrap Up

2018 Budget.png

Your Guide to the Federal Budget 2018

The Federal Treasurer Scott Morrison handed down his third Federal Budget on Tuesday 8 May 2018. With an upcoming election, this year’s Budget contains a few apparent sweeteners to woo voters.

But what does this actually mean for us? How does this affect the pockets of 24 million or so Australians who pay taxes in one of the highest taxed countries in the world?

Here we give you a breakdown of some of the Budget measures, what you need to know and how it impacts you.

This special edition 2018 Budget Newsletter will cover:

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

But first, an overview…

This year's Budget is a blend of some 37 measures, but no single big-ticket item such as the bank levy of last year.

The measures range from those that impact individuals (personal tax cuts over the next 7 years; tightening ATO oversight of deductions claimed) and small businesses (extension of the current $20,000 instant asset write-off for small business entities) through to big businesses (broadening the definition of ‘significant global entity’ to ensure that Australia’s multinational tax integrity rules operate as intended).

For those wondering about superannuation, mercifully there were no major changes this year.

Major Tax Measures At-A-Glance

Budget Table.png

Key Financial Outcomes

  • Budget expected to return to a modest surplus of $2.2 billion by 2019-20 and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
  • Budget deficit forecast to drop to $14.5 billion in 2018-19, after hitting $18.2 billion in 2017-18.
  • Unemployment will be 5.25% in 2018-19, down from 5.5% in 2017-18 and projected to fall to 5% in 2021-22.
  • Inflation will be 2.25% in 2018-19, up from 2% in 2017-18 and projected to hit 2.5% in 2020-21.
  • Revenue is estimated to be $486.1 billion in 2018-19, up from $456.2 billion in 2017-18 and projected to reach $537.9 billion in 2020-21.

What is the Government Focusing On?

This year’s Budget was all about building a stronger economy, more jobs and guaranteeing essential services that all Australians rely on.

Here is a list of the Government’s to-do’s and what actions they have promised to carry out.

Budget to dos table.png

Laughing.png

The Budget Sweetener: Lowering Personal Taxes

Low and middle-income earners have emerged as the winners from the Budget. The Government unveiled their 7-year 3-phase plan, focusing on reducing the tax burden on individual taxpayers from 1 July 2018.

The sweetener is clearly a plan to introduce what the Government hopes will entice voters – adjustments to personal income tax rates. 80% of the taxpaying population (all those earning up to $87,000) will get some benefit from this change from 1 July 2018.

Change to Personal Income Brackets

In later years, the number of brackets will be reduced from five to four with the elimination of the 37% rate. The top rate of 45% will only cut in at $200,000.

Change personal income table.png

Note! What remains unclear is the position for foreign residents and how they will be taxed.

New Low and Middle-Income Tax Offset

The Government has introduced a new Low and Middle-Income Tax Offset to deliver lower personal income taxes for low to middle-income earners through a 3-phase plan.

The benefit of the Low and Middle-Income Tax Offset is in addition to the existing Low-Income Tax Offset. This may result in a combined offset of up to $975 per year for some taxpayers from 1 July 2018.

Low mid income tax offset.png

What Are Your Savings Per Year?

Savings per year.png

Work-related expenses: hidden target in Budget

A strong theme in the narrative accompanying the revenue measures in this year’s Budget is the additional boost to funding being allocated to the ATO and related organisations. This is evident from a number of measures, including:

  • Personal income tax measures to ensure individuals meet their tax obligations ($130.8 million)
  • Delivering on debt collections and improvement in timeliness of debt collections ($133.7 million)
  • Enhancing ATO enforcement against the Black Economy ($318.5 million)
  • R&D measure providing additional funding to the ATO and the Department of Industry, Innovation and Science (amount not specified)
  • Assorted other measures relating to aspects of superannuation and payroll and superannuation fund reporting.

The measure seeking to ensure individuals meet their tax obligations alone is estimated to raise some $1.1 billion over the forward estimates. This could be read principally as a reference to ensuring that taxpayers do not over-claim work-related expenses.

Medicare Levy Untouched

The Medicare levy will remain at 2%. In last year’s Budget, the Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019 but has decided not to go ahead with this.

Medicare Levy Low-Income Thresholds

The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase for the 2018-19 year.

Meidcare lev thresholds.png

What About Older Australians?

The Government will introduce a range of measures to enhance the standard of living of older Australians. These measures will commence on 1 July 2019.

  • Expanding the Pension Work Bonus from $250 to $300 per fortnight (ie up to $7,800 a year)
  • Pension Loans Scheme opened to all older Australians to include self-employed retirees who will be able to earn up to $300 per fortnight without impacting their eligibility for the pension
  • Expanding the Pension Loans Scheme so that older Australians can use the equity in their homes to increase their incomes
  • Changes to pension means test rules to help older Australians manage their life savings.
Cafe.png

Small Business $20,000 Instant Asset Write-Off Extended

The $20,000 instant asset write-off is being extended for another 12 months for businesses with an aggregated turnover of less than $10 million so that it will now expire on 30 June 2019.

The measure will improve cash flow for small businesses, providing a boost to small business activity and investment for another year.

The threshold amount was originally due to return to $1,000 on 1 July 2018. However, as a result of the Budget announcement, small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible (such as horticultural plants and in-house software).

On 1 July 2019, the threshold will reduce to $1,000.

Note! Don’t forget that purchases will only qualify if they total $19,999.99 or less!

The $20,000 Instant Asset Write-Off Explained

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it.

What About Assets Valued at $20,000 Or More?

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.

Working & windmills.png

Changes to Research and Development Incentives

The Government is reforming the Research and Development Tax Incentive (R&DTI) to reward additional investment in R&D while also ensuring the integrity and fiscal affordability of the R&DTI.

For companies with aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.

The changes will apply for income years starting on or after 1 July 2018.

The measures include:

R & D Incentives.png

The R&D expenditure threshold — the maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will be increased from $100 million to $150 million per annum.

For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate.

Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.

Refundable R&D tax offsets from R&D expenditure on clinical trials will not count towards the cap.

Money.png

Major crackdown on the Black Economy

The Government will introduce 3 new key measures targeting Black Economy activities and illegal phoenixing. These are:

  • Limiting cash payments within Australia to $10,000
  • Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
  • Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry

These measures will be reinforced by the $318 million being given to the ATO over 4 years to implement new strategies targeting the Black Economy and phoenixing activities.

With the boost in funding from the Government, the ATO plans to improve data analytics and data matching, implement new "mobile strike teams", increase information sharing between government enforcement agencies and increase its audit presence.

The funding will commence on 1 July 2018.

Why the Crackdown?

This measure is in response to the Black Economy Taskforce findings that contractors in these industries have been identified by the ATO as being at higher risk of not complying with their tax obligations.

Under the taxable payments reporting system (TPRS), businesses are required to report payments to contractors to the ATO. This brings payments to contractors in these industries into line with wages which are reported to the ATO.

Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020. A new online form will make the reporting process easier.

Stay Compliant!

It is expected that the Government’s revenue bottom line will be better off by $3 billion over the forward estimates period and there will be an extra $2.5 billion in underlying cash receipts. These numbers suggest some robust enforcement from the ATO is coming to the Black Economy. All taxpayers need to ensure they are fully compliant with the law or they may find themselves entangled in these enforcement strategies.

Reforms to Combat Illegal Phoenixing

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. This illegal phoenix activity impacts the business community, employees, contractors, the Government and environment.

The Treasurer reinforced in his Budget speech that the Government is making sure small businesses don't get ripped off by other businesses who deliberately go bust to avoid paying their bills, with tough new anti-phoenixing measures.

Additional funding will be given to the ATO from 1 July 2018 to bolster compliance activities and better target those who participate in illegal phoenixing.

Cafe working.png

One Last Thing!

Talk to us about any questions you may have regarding what impact the Budget measures will have on your personal circumstances!

Dates.png

Key Tax Dates

Key Tax Dates.png

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. "Tax Wise News- May 2018 Budget Edition", Tax Wise Business News e-newsletter, May 2018.

 

 

Comment

Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.

2018 May Newsletter

Welcome to our quarterly Tax Newsletter!

The race is on to get your 2017 financial year tax sorted, so if you haven't dropped by to see us please make it a priority. We have some great reminders below on what you can and can't claim for work- related expenses and what repair costs you can and can't claim on a rental property. Make sure you check them out to ensure you get your tax right.

Also in this newsletter, we have the basics on the tax implications of investing in Bitcoin, a reminder that dodgy arrangements could cost you your retirement savings and a few upcoming key tax dates to note. 

Please be aware that there have been some of changes to law and legislation that have been announced recently that applies now or is set to change come the new financial year. These changes may change your obligations and requirements for your business and/ or your personal tax and we feel it is important to give you the heads up.

Make yourself a cuppa, release your inner tax nerd and read on.

In this issue:

If you have any queries or need to book an appointment, as always, please do not hesitate to holler!

ATO Cracking Down on Your Work Related Expenses

Money.jpg

Did you know that the ATO scrutinises every tax return?

This year, the ATO is cracking down on taxpayers claiming incorrect ‘other’ work-related expenses. It’s important to make sure you don’t claim more than you are entitled to!

The ATO uses real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.

4 Quick Points to Remember When Claiming Work- Related Expenses

To claim work-related expenses, keep in mind these 4 points:

1.    You must have spent the money yourself.

2.    You were not reimbursed for the money spent.

3.    The expense must be directly related to earning your income.

4.    You must have a record to prove it.

Work expenses reimbursed to you by your employer are not deductible in your personal income tax return. The ATO can seek information from your employer if it suspects you have claimed as a deduction an expense for which you have already been reimbursed.

Tip! If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

11 Deductions You (Probably) Can't Claim

1.    Trips between home and work. Generally, you can’t claim a deduction for these because they’re considered private travel.

2.    Car expenses for transporting bulky tools or equipment, unless:

  •   You need to use your bulky tools to do your job
  •   Your employer requires you to transport this equipment
  •   There is no secure area to store the equipment at work.

3.    Car expenses that have been salary sacrificed.

4.    Meal expenses for travel, unless you were required to work away from home overnight.

5.    Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.

6.    Everyday clothes you bought to wear to work (e.g. a suit), even if your employer requires you to wear them.

7.    A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.

8.    Higher education contributions charged through the HELP scheme.

9.    Self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count.

10.  Private use of phone or internet expenses – only the work-related portion counts.

Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years, which is called depreciation.

Claiming the Cost of Repairs on a Rental Property? What You Can and Can't Claim

Rental Property Graffitti.jpg

Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.

The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.     

Repairs vs Maintenance

Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).

Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).

Tip!

  • If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax  deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
  • If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim

Expenses that You Can Immediately Deduct

You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.

If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.

Expenses for which you may be entitled to claim an immediate deduction include:

  • Advertising for tenants
  • Body corporate fees and charges
  • Council rates
  • Water charges
  • Land tax
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance (building, contents, public liability)
  • Interest expenses
  • Property agent's fees and commission
  • Repairs and maintenance
  • Some legal expenses

Note! From 1 July 2017, travel expenses relating to a residential investment property are no longer deductible. Under new laws, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property.

You can only claim deductions if you are carrying on a business of property investing or are a corporate tax entity, public unit trust, managed investment trust, unit trust or partnership or super fund that is not an SMSF.

 

Expenses That You Can't Immediately Deduct

You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).

These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

Note! Improvement means work that:

  •   Provides something new
  •   Furthers the income-producing ability or expected life of the property
  •   Changes the character of the item you have improved
  •   Goes beyond just restoring the efficient functioning of the property

How this works!

Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.

The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure.

However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used.

Tip!  If you invest in a rental property, you'll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return.

Investing in Bitcoin? Know the Tax Implications

Coins.jpg

A bit confused about Bitcoin? What is it and what does tax have to do with it?

Here, we share a few key facts and the tax consequences that may arise if you are thinking about investing (or have already invested) in Bitcoin.

Note! Any reference to Bitcoin in this newsletter refers to cryptocurrency, or other crypto or digital currencies that have the same characteristics as Bitcoin.

Cryptocurrency (and Bitcoin) Explained

Bitcoin was the first cryptocurrency but now, it is just one of many types of cryptocurrencies. As at 2017, there were around 1,100 different cryptocurrencies in existence.

Cryptocurrencies are a type of global digital currency that uses encryption techniques to buy or sell items. Where traditional currencies are regulated by a central bank, Bitcoin is an unregulated currency. Each transaction is registered on a shared public ledger called a ‘blockchain’.

Tip! Be aware of tax scammers impersonating the ATO and demanding Bitcoin or other cryptocurrency as a form of payment for fake tax debts. Cryptocurrency operates in a virtual world, and once the scammers receive payment, it is virtually impossible to get it back.

Is Bitcoin Money or an Asset?

The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is treated as an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes.

Capital Gains Tax Implications

CGT ‘events’ are the different types of transactions that may result in a capital gain or capital loss. A CGT event happens when you dispose of your cryptocurrency.

Disposing of your cryptocurrency means:

  •  Selling, trading or exchanging your cryptocurrency;
  •  Converting it to Australian dollars; or
  •  Using it to obtain goods or services.

If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

What if You Acquire Bitcoin as a Personal Use Asset?

Personal use of cryptocurrency is not subject to income tax or GST in Australia.

Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Note!

  •   Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
  •   All capital losses you make on personal use assets are disregarded.

What if You Acquire Bitcoin as an Investment?

If you acquire Bitcoin as an investment, it means you have kept or used your cryptocurrency in a profit-making scheme or in the course of carrying on a business.

The tax consequences are:

  •   You may have to pay tax on any capital gain you make on disposal of the cryptocurrency;
  •   You will not be entitled to the personal use asset exemption;
  •   If you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.

 Tip! You must keep records of:

  •   The date of transactions
  •   The value of the cryptocurrency in Australian dollars at the time of the transaction
  •   What the transaction was for and who the other party was.

Claiming Deductions if You Are Carrying on a Business

Examples of businesses that involve cryptocurrency include:

  •   Cryptocurrency traders
  •   Cryptocurrency mining businesses
  •   Cryptocurrency exchange businesses (including ATMs).

In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you receive money or property in the ordinary course of your business.

If these gains or profits are ordinary income, you may be able to claim deductions. Any capital gains you make are reduced to the extent that they are also ordinary income.

Note! Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income.

A Reminder to SMSF Trustees Investing in Bitcoin

While self-managed superannuation funds (SMSFs) are not prohibited from investing in Bitcoin and other cryptocurrencies, trustees are reminded that the investment must:

  •   Be allowed for under the fund’s trust deed
  •   Be in accordance with the fund’s investment strategy
  •   Comply with regulatory requirements concerning investment restrictions

Are You Risking Your Retirement Savings?

Nest Egg.jpg

If you’re planning for your retirement, don’t risk your nest egg by getting involved in arrangements that are at odds with tax and superannuation laws!

The ATO has identified a range of new arrangements that are directed towards minimising or avoiding tax. They are designed to help individuals and other related entities to minimise their tax bill by channelling money inappropriately through SMSFs.

If you are involved in an illegal arrangement, you can face severe penalties under tax and super laws. You could lose your retirement savings or your rights, as a trustee, to manage your own super fund.

Often these arrangements are structured in a way so that they appear to satisfy regulatory rules while minimising tax or even providing a tax refund. You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting.

Tip! Book in an appointment to get some independent advice from us before entering into ‘too good to be true’ arrangements!