Both Party Budgets are written to target the elections next year. They attempt to soothe some of the financial concerns of the lower to middle income earners as well as cater to the business appetite for lower taxes. The LNP Budget contains tax reductions of $140bn over the next 10 years plus other incentives including additional funding for infrastructure activities. Overall this is intended to help stimulate economic recovery conducive to businesses creating jobs in various parts of the economy

Individuals:                                  

Tax relief                                                                                                                                           

The relief is spread between 2018 and 2022. It is applied in 3 stages and is basically capped at $530 for most individuals. The rate of offset is dependent upon an individual’s income up to $90,000. At the top level of $200,000 the offset is phases out for those higher income earners.                   

The catch here is that the offset is decided by the ATO post the receipt of personal tax returns…

The new intermediary level of 32.5% tax rate is also phased between 2018 and 2022. The current 37% tax level will be abolished in the process. The top marginal rate of 45 % will remain for high income earners above $200,000.

This would appear to be a reasonable move for business and it removes ‘bracket creep’ stress for a large number of employees

Medicare   

The proposed move on the Medicare levy from 2% to 2.5% will be abolished.

Govt now says the NDIS guarantee can be fulfilled without the further .5% levy

Personal Fame

Change for individuals claiming the costs of Fame and Image under business structures.

The tax change is that they can no longer claim tax advantages via a business structure (or similar) – the individuals involved are now directly liable for the taxes.

SMSF

Management Fees have been imposed at 3%. Exit Fees are abolished.   A ban will be introduced for fee charging on low level Funds plus a ban on automatically charging persons under 25 for Insurance Policies.

There has been much complaining to Govt about these practices and some regulation was badly needed. This is intended to dampen high fees taking by Fund Managers and will win votes!                                                                                                        

SMSF member limit in a single fund now raised from 4 persons to 6.

A sensible move…this will allow more family members to be beneficiaries in Family Trusts.

Business Owners:                                                                                         

A higher threshold of $2m to $10m in turnover now created for SME’s to gain access to a range of business tax concessions that were previously unavailable.

Tax reform for SMEs

The Budget has doubled the turnover threshold for the 27.5% tax rate from $25M to $50M.  More small businesses numbers are now included in the new rate.

Welcome relief for small business operators as the rate phases in.

Easier pathway to export markets

Government has allocated $20M for SME Export Hubs which are intended to foster co-operation between companies wanting to tackle larger export opportunities.

This is to encourage companies to band together in order to have the resources to cater to desirable export opportunities.

Business support for 45+ entrepreneurs

$18M is being allocated to expand the Entrepreneurship Facilitators Program (EFP) to more locations across the country. EFP will provide support to business owners aged 45+.

Older Australians and their employers will be eligible for up to a $2000 matched incentive for undertaking suitable training (accredited or non-accredited).

Seems like a good move to help older persons move onto independent businesses.

GST reporting streamlined

The ATO’s ‘Simpler BAS’ returns have been reduced to 3 major questions and are estimated to save businesses approx. $590 per year.

This is basically an offset to the average accounting charges of around $2000.

 Asset Write-off

The existing $20,000 has been retained for small businesses with revenues below $10m and applies for year 30/6/2019.

The businesses of course, have to have the $20,000 to spend in the first place!

Vacant land costs                                                                                                                                          

Write-offs of holding costs for unused land will no longer be permitted.

This is to discourage the activity of Land Banking i.e. holding back housing development by not releasing land that could otherwise be available. It is a long standing practice amongst larger property developers, especially around the fringes of expanding suburbs.

Black Economy

Cash transactions now to have a limit of $10,000 – transactions above that level must be done by transparent evidence e.g. credit /debit card. Personal transactions between individuals can be exempted.

Probably means more transactions of $10,000 will take place! I am not sure how this practice can be tightly controlled but hopefully it’s a step in the right direction to help limit cash payment activity.

Offshore GST charges

Offshore organisations are escaping the GST charge when booking forward accommodations in Australia.

This move will catch offshore sellers doing so. The practice is growing rapidly amongst offshore Agencies who have found the loophole.

Multinationals  

Multinational companies will be stopped from shifting profits to lower-taxing countries by loading up local operations with debt, saving the budget $240 million over four years.

Illegal Phoenixing                     

Reforms to be passed that eliminate illegal phoenixing i.e. creation of new companies in order to avoid the responsibilities to creditors of the failed entities.  

This has been a source of avoidance where failing companies defeat prosecution by going into bankruptcy. They create new companies to continue trading and avoid responsibilities to creditors in the old company. It is especially true in the property development arena.

R&D tax offsets available to organisations under $20m.                                        

Applications have to be approved and innovative organisations are the target. The assistance is to help the development of smart companies which are short of funding at critical points during development. In some cases Govt funding assistance may also be available.

Film Industry incentive                                                       

A pool of $140m has been created to incentivise film industry Directors to decide to undertake film making activities in Australia.

Obviously, a welcome incentive to keep our film making industry alive and well!

Infrastructure:                                                                            

The projects that have been announced are strategically targeted to win votes. The delivery of the funding of $24bn is spread over the next 10 years. Some it may be used in projects already underway. Some examples:

• New South Wales has smallest share at $1.5 billion for infrastructure projects
• $400 million will be spent on upgrading the Port Botany rail link
• $50 million will go towards investigating the business case for the proposed Badgerys’s Creek airport rail
• The Pacific Highway will be upgraded with a new $1 billion bypass at Coffs Harbour, bringing a windfall to the Nationals-held seat of Cowper
• Scott Morrison’s own electorate will get $25 million for a new monument commemorating the 250th anniversary of Captain Cook’s landing
• The M1 motorway capacity will be upgraded between Brisbane and Gold Coast – much needed!

Summary

The LNP is balancing its longer-term planning on Government stability together with targeted Budget Surpluses. To some extent in response to the public’s impatience with short term Governments post the Howard era. The seemingly inevitable changes and unpredictable amendments made to policies on Superannuation, Pensions, Taxes, Wages, Education and Health have now become key political issues.

Budget-wise they are sensibly targeting modest surpluses sooner rather than later. Their longer-term planning is under question when they have to be voted in three times in a row to deliver the full benefits of their promises. The LNP must win popularity in the polls to have a good chance at being returned which will lead to critical tussles between opposing Party leaders over the next 6 months.  Public opinion is that both leaders lack the statesmanship so badly needed at this time.

Labor is offering bigger tax cuts, a return to surpluses targeted at the same time as the LNP and will produce ‘guarantees’ used to prove their budgeting accuracy.  There are other shorter-term benefits also aimed at winning the next election. For example, Labor will win workers votes by restoring Penalty Rates to their former levels plus providing higher personal tax rebates. However, they will eliminate the tax benefits to large Corporations and direct the ‘savings’ into higher expenditures on Pensions, Aged Care, Education (especially to TAFE’s) and Health Services including diagnostic equipment for regional hospitals.  Their policy on Infrastructure spending will be similar to that of the LNP.  They promise more positive action on rising environmental issues.

The ‘slanging’ matches between the two Parties will now commence and the coming By-Elections may be used as a gauge on Party popularity… all will be revealed in due course!

Written by SBAA Advisory Board Member Colin Coverdale