By now you have probably read many of the outcomes of the 2018-19 Federal Budget. However, you may still be wondering how exactly these outcomes are going to affect you as a small business owner? Below, we summarise some of the relevant key announcements and provide our own ‘lucent insight’ into what it all means for your business.
Personal Income Tax
- The threshold for the 37% tax bracket will increase from $87k to $90k
- Due to the new tax offset, if you earn less than $37k then you will be entitled to $200 when you lodge your 2019 tax return, and if you earn between $48-$90k you will be entitled to $530.
- A decision to increase the Medicare Levy from 2% to 2.5% has been scrapped and will not be going ahead.
- Personal income tax brackets will change effective from 1 July 2022. The 19% tax bracket will increase from $37k to $41k and the 32.5% tax bracket will increase from $90k to $120k with a proposed further increase to $200K in the next seven years.
Tax relief for individuals was the primary focus for this year’s federal budget, so it comes as no surprise that we have seen perhaps the greatest changes in this area, albeit some of these are still years away.
The new tax offset will provide wage earners relief with a lump sum at tax assessment time and low and middle-income earners will be protected from rising tax brackets.
If the above tax cuts are passed, the savings will be fantastic as many of us will be paying less tax. It would mean 94 per cent of Australian taxpayers would be at a 32.5 per cent rate or less compared to the current 63 per cent. Although, these benefits may not be seen until a few years’ time, particularly the increase of the 32.5% tax bracket which could still take seven years to come into play.
These changes have the potential to take tremendous pressure off small business owners who are earning in the $87K to $180K bracket but are forced to retain profits in companies or filter out distributions through Trust’s to avoid being slugged with ridiculously high personal marginal tax rates.
Any initiative to bring the personal income tax rates more closely aligned to company tax rates is a very big win for business owners and employees alike. Combined with the state government’s proposed increase to the payroll tax threshold, there may just be some incentive for small business owners to continue in what is for many, a really tough slog these days!
And of course, the scrapping of the Medicare Levy increase is a welcome relief for taxpayers.
Instant Asset Write-off
- An extension of the instant asset write-off for another year will be implemented, which was initially due to reduce to $1000 in June 2018. Now, businesses with a turnover of up to $10 million a year can still claim immediate deductions for purchases under $20,000, up until 2019.
This is a good incentive for businesses that are asset heavy, however it doesn’t do a lot for service businesses whose significant investment is their staff.
Whilst this provides a boost to the economy, it is only a timing difference in terms of the tax benefit this provides a small business.
- The possible number of self-managed super fund members permittable will be increased from four to six.
- Super funds will no longer be allowed to force people under 25 with low balances to pay for unwanted life insurance policies. This will now be an opt-in.
- The ATO will be given greater control in merging lost super accounts into active accounts.
- To protect smaller balances, e.g. those lower than $6000, a ban will be placed on all exit fees as well as a cap on account fees of a maximum of 3 per cent.
- Those aged 65-75 with Super balances below $300k will no longer need to meet the work test to make voluntary contributions in the first year they stop working.
- For those who earn more than $263,157 with multiple employers, you will now be able to nominate your employers not to pay super. By doing so, you will no longer breach the super contributions cap and have to pay additional tax when each employer is required to pay 9.5% super.
Unlike the last two years, no major changes were announced this year regarding Superannuation. The changes that have occurred are basically to ensure the system operates as intended and to enable greater flexibility.
Other Changes Impacting Small Business
- The government will allocate $20 million towards SME Export Hubs, enabling better access to offshore markets and export opportunities.
- The GST reporting process will be streamlined for small businesses. Now, businesses only need to respond to three questions, rather than the previous 20 question Business Activity Statement GST worksheet.
- The government has proposed an allocation of $17.7 million to go towards expansion of its Entrepreneurship Facilitators Program, which provides training, support and mentoring services.
- The government will place a $10,000 limit on transactions of cash in an effort to reduce tax evasion.
- Protection around unfair contract terms will be improved as well as the provision of improved dispute resolution mechanism for small businesses.
- The taxable payments reporting system will be expanded to contractors working in industries that are deemed to be high-risk in failing to report income.
- The ATO intend to crackdown further on unpaid GST, PAYG and Super by dedicating $133.7 million toward strategies to pursue tax debts.
We would have liked to have seen more new initiatives introduced for small businesses this year as we are not convinced that these changes are enough to make a real difference.
Backing small to medium businesses to invest and create more jobs was said to be the government’s second priority in this year’s Federal Budget.
However, it seems that much of these changes are continuations of existing positions from previous years. For example, the extension of the instant asset write-off. While this was certainly welcome, it needs to be made permanent to encourage businesses to invest and create jobs.
Overall, we think the Federal Government could have done more for small businesses, however, we will welcome the proposed increases to the personal income tax brackets over the coming years.
It is important to remember that at this stage, these changes are announcements only and are not yet set in stone. The information provided in these announcements may or may not apply once legislation passes through parliament.
If you have any questions regarding any of the above information, do not hesitate to give us a call on 08 8471 7007 or send us an email.