Author: Carlos

PERSONAL TAXATION

• Personal tax cuts: Immediate major low-mid tax offset increase, other rate changes from 2022 to result in only 3 rates by 2024-25
• Medicare levy low-income thresholds for 2018-19
• Extending FTB to ABSTUDY recipients aged 16 and over who study away from home
• Concessional FHA treatment for income from forced disposal of livestock

BUSINESS TAXATION

• Instant asset write-off extended to more taxpayers, threshold up
• Tax Avoidance Taskforce on Large Corporates etc: more funding
• Tax exemption for North Queensland floods grants
• Tax exemption for primary producers affected by Queensland storms
• Tax integrity focus on unpaid tax and super by larger businesses

SUPERANNUATION

• Super contributions work test exemption extended to age 66; spouse contributions age limit increased
• Exempt current pension income calculation to be simplified for super funds
• Tax relief for merging superannuation funds to be made permanent
• Super insurance opt-in rule for low-balances – delayed start date confirmed

OTHER MEASURES

• EMDG scheme – extra $60 million in funding
• Skills package – new apprenticeships, incentive payment, training
• Seasonal Worker Programme – pilot to address regional workforce shortages

 

In an address to the Financial Services Council BT Political Series on 29 March 2019, Shadow Treasurer Chris Bowen announced that Labor’s reforms to negative gearing and the CGT discount [ie halving it] would commence from 1 January 2020. “This of course means that any investment undertaken prior to 1 January 2020 will be fully protected by our grandfathering arrangements. That is, all investments made before the 1 January 2020 will continue to enjoy the current negative gearing and capital gains tax concession arrangements. This gives investors adequate time to plan and invest this year before the new rules come into force.” Mr Bowen said the negative gearing changes “will buttress some of this weakness by targeting tax concessions at new residential construction”. Mr Bowen said a 1 January 2020 start date allows for around 7 months, “a less but we think sufficient amount of time to get the legislation in place before the changes are due to come into effect”. He said Labor announced its reforms to negative gearing over 3 years ago and has “withstood the shrill scare campaigns and the apocalyptic warnings”. Build to rent There are currently around 2.7 million renters in Australia. Labor announced last year that an incoming Labor Government would introduce a 10-year national plan to build 250,000 houses – “Australia’s biggest ever investment in affordable housing”. But Mr Bowen made further announcements on 29 March. He said Labor would reform the tax treatment for “Build to Rent” “to ensure it’s a viable part of the housing market in Australia, just as it is in several comparable countries”. This would be done by ensuring Build to Rent housing can be included within a Managed Investment Trust when they meet requirements that are currently in place for commercial property assets, basically where they are a passive investment held primarily for the purpose of deriving rent. This means that eligible Build to Rent investments would pay a 15% tax rate, not the 30% rate proposed by the Government, which would be double the rate for investments in shopping centres and office buildings. Mr Bowen said the central benefits of build to rent is “it provides more stable long term tenancies and more housing in desired locations close to public transport and close to employment opportunities”. Superannuation Labor will ensure women get paid the superannuation guarantee on Paid Parental Leave and Dad and Partner Pay payments and it will also gradually abolish the $450 a month SG threshold. Labor will also change the law to include a right to superannuation within the National Employment Standards, which will give all employees the power to pursue their unpaid superannuation through the Fair Work Commission or Federal Court.

On 24 May last year, the government announced a superannuation guarantee (SG) amnesty which would give employers an opportunity to rectify past SG non-compliance without penalty.

The SG amnesty measure was originally intended to apply from 24 May 2018 till 23 May 2019, but has yet to be legislated, with just two sitting days left before a federal election is called.

The Tax Office has now confirmed it has waived the Part 7 penalty in full for those who have made a voluntary disclosure.

Employers will still have to pay the SG they owe to their employee, the interest amount, and the $20 administration component per employee per quarter.

“Consistent with our existing approaches in other instances where people come forward voluntarily, when we receive these SG notifications, the fact that they have come forward to the ATO is a strong consideration in the level of discretional penalty applied,” an ATO spokesperson told Accountants Daily.

“In relation to SG, the ATO only has the discretion to remit the Part 7 penalty. With regard to those taxpayers who made a voluntary disclosure in anticipation of the proposed amnesty, we will remit the Part 7 penalty in full.”

The benefits of the proposed amnesty was set to include a waiver of the administration component, Part 7 penalty, and allowing all catch-up payments during the 12-month amnesty period to become tax-deductible.

Accountants Daily had earlier reported that several accounting firms had noticed examples of the ATO granting the amnesty, despite the agency clarifying that it would be applying the existing law before the law was enacted.

The Institute of Public Accountants (IPA) general manager of technical policy, Tony Greco earlier told Accountants Daily that accountants should consider advising clients to make a voluntary disclosure despite the hold up.

“At the end of the day, if you have an SG obligation and you get caught up in audit activity, you’re going to face the full penalty regime so that is the issue if you wait,” said Mr Greco.

Since 1 July 2018, the ATO have completed 17,917 compliance cases around SG payments, raising raising liabilities of $451 million.

Tax Commissioner Chris Jordan delivered his 7th address as Tax Commissioner to The Tax Institute’s 34th National Convention in Hobart on 14 March 2019. He has been Tax Commissioner for 6 years now and said he is roughly halfway through his tenure at the head of the ATO.

Mr Jordan reminded the audience of measures that have been put in place to support small businesses eg:

• The ATO has introduced or enhanced a range of services aimed at earlier and fair resolution of disputes for small business, including In-house Facilitation, Dispute Assist, ATO Test Case Litigation and Fast Intensive Triage.
• The Government’s expansion of the Tax Clinics program. The tax clinics are independent from the ATO and will assist unrepresented taxpayers to understand and comply with their tax and super obligations. The Commissioner said the new tax clinics will soon enter pilot phase in 10 universities across the country and are set up to fill a niche gap in the market for unrepresented individuals and small businesses.
• From 1 March 2019, there is a new small business division at the AAT, offering a low-cost avenue for small businesses who dispute the ATO’s assessment of their tax position. Generally, these hearings will be without lawyers, but if lawyers are required, the ATO will cover the cost of equivalent legal representation for the small business. Applicants will also have a case manager to support them, pay a reduced application fee and, after the hearing process is concluded, decisions will be finalised within 28 days.

The ATO is warning taxpayers to be alert for scammers impersonating the ATO, as they may change tactics in 2019.

Assistant Commissioner Karen Foat said scammers have been developing new ways to get taxpayers’ money and personal information over the summer break.

“We are seeing the emergence of a new tactic, where scammers are using an ATO number to send fraudulent SMS messages to taxpayers asking them to click on a link and hand over their personal details in order to obtain a refund,” she said.

“Taxpayers should be wary of any phone call, text message or email asking you to provide login, personal or financial information, especially if you weren’t expecting it,” she also said.

While the ATO regularly contacts taxpayers by phone, email and SMS, there are some tell-tale signs that it isn’t the ATO. The ATO will not:

• send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
• use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
• request payment of a debt via iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
• request a fee in order to release a refund owed to you.

APRA has released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for June 2018. As at 30 June 2018, superannuation assets totalled $2.7 trillion (up 7.9% from $2.5 trillion in June 2017). Of which, total assets in MySuper products amounted to $676 billion (up 13.6% from $595 billion in June 2017). Self-managed super fund (SMSF) assets totalled $750 billion (up 6.4% from $705 billion in June 2017).

There were $34.1 billion of contributions in the June 2018 quarter (down 17% from the June 2017 quarter). Total contributions for the year ending June 2018 were $109.4 billion. Outward benefit transfers exceeded inward benefit transfers by $200 million in the June 2018 quarter. There were $19 billion in total benefit payments in the June 2018 quarter (down 12% from June 2017). Total benefit payments for the year ending June 2018 were $70.4 billion. Net contribution flows totalled $14.1 billion in the June 2018 quarter (down 23% from the June 2017 quarter). Net contribution flows for the year ending June 2018 were $34 billion.

The Government’s 7-year personal income tax reform plan has passed Parliament intact after the Senate on 21 June 2018 did not insist on its earlier amendments that would have removed step 3 from the plan. The Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018 then received Royal Assent on 21 June 2018 as Act No 47 of 2018. The story unfolded like this. The Bill was passed on 20 June 2018 by the Senate with 3 Opposition amendments that removed step 3 of the Government’s Personal Income Tax Plan. Under step 3, from 1 July 2024, the top threshold of the 32.5% bracket would increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers would pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket would apply to taxable incomes of $41,001 to $200,000. Then the House of Reps on 21 June 2018 disagreed to the Senate’s amendments and the Bill immediately went back to the Senate which did not insist on its amendments. In effect, this means the Bill passed all stages without amendment. So, the Government’s 7-year 3-step plan to reform personal income tax announced in this year’s 2018 Federal Budget has now become law. The amendments in the Bill are as follows: Step 1 will see a new non-refundable Low and Middle Income Tax Offset from 2018-19 to 2021-22, designed to provide tax relief of up to $530 for each of those years. The offset will be delivered on assessment after an individual submits their tax return and will be in addition to the existing low income tax offset (LITO). The Low and Middle Income Tax Offset will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000, the value of the offset will increase at a rate of 3 cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. From $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar. The benefit of the Low and Middle Income Tax Offset is in addition to the existing Low Income Tax Offset. Step 2 will increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018. In 2022-23, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645. The increased LITO will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000 from 1 July 2022. Step 3 – from 1 July 2024, the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000. Tax rates and thresholds for 2018-19 onwards The following table reflects the now legislated personal tax threshold and rate changes (highlighted in bold), excluding the 2% Medicare levy: Tax rates and thresholds Rate 2018-19 to 2021-22 2022-23 and 2023-24 2024-25 onwards 0% $0 – $18,200 $0 – $18,200 $0 – $18,200 19% $18,201 – 37,000 $18,201 – 41,000 $18,201 – $41,000 32.5% $37,001 – 90,000 $41,001 – 120,000 $41,001 – $200,000 37% $90,001 – $180,000 $120,001 – $180,000 N/A 45% $180,001+ $180,001+ $200,001+

Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018 was introduced in the House of Reps on 24 May 2018. It includes the following measures:

• Super Guarantee amnesty – the Bill includes amendments to give effect to a 12-month amnesty, announced by the Government on 24 May 2018 (see para [671] of this Bulletin) to enable employers to self-correct historical underpayments of Super Guarantee (SG) amounts without incurring additional penalties that would normally apply. Date of effect: The amnesty will run until 24 May 2019.
• Super Guarantee opt-out – high-income employees with multiple employers will be able to opt-out of the Super Guarantee regime to avoid unintentionally breaching the $25,000 concessional contributions cap. Date of effect: 1 July 2018.
• NALI to include expenses not incurred – the non-arm’s length income (NALI) rules in s 295-550 of the ITAA 1997 will be expanded so that super funds are taxed at 45% for related-party schemes involving non-arm’s length expenses not incurred (eg reduced interest rates). Date of effect: 1 July 2018, regardless of whether the scheme was entered into before that time.
• LRBAs and total superannuation balance – a member’s share of the outstanding balance of certain LRBAs will be included in the member’s “total superannuation balance” (TSB). Note that the Government has revised its original proposal so that the amendments will only apply to increase the TSB for members who have satisfied a Nil condition of release (eg permanently retired or attained age 65), or for a related-party LRBA between the SMSF and its “associate”. Date of effect: Will only apply to new LRBAs entered on or after 1 July 2018. Refinancing of existing loans entered into prior to that date will be excluded.

Super Guarantee – Govt amnesty for employers

The Superannuation Measures (No 1) Bill 2018 will amend the Superannuation Guarantee (Administration) Act 1992 (SGAA) and ITAA 1997 to give effect to the Government’s amnesty (see para [671] of this Bulletin) to enable employers to self-correct historical underpayments of Super Guarantee (SG) amounts without incurring additional penalties that would normally apply.

The Minister for Revenue, Kelly O’Dwyer, said employers will not be totally “off the hook” and must still pay all SG shortfall amounts owing to their employees, including the nominal interest and GIC (but not the administrative component). Rather, the amnesty will set aside the penalties and fees that are normally paid by employers for late SG payments. Employers that do not take advantage of the one-off amnesty will face higher penalties when they are subsequently caught, Ms O’Dwyer said.

Amnesty until 24 May 2019

The amnesty will start from 24 May 2018 and run until 24 May 2019. It applies to SG shortfalls as far back as 1 July 1992, and up until the quarter starting on 1 January 2018 (inclusive). It does not apply to SG shortfalls for quarters starting from 1 April 2018.

An employer will lose all benefits from the amnesty if they fail to pay, or enter into and comply with arrangements to pay, any SG charge imposed on the disclosed shortfall for the quarter. If the ATO identifies that an employer has an SG shortfall after the amnesty concludes, the ATO will take into account the employer’s ability to access the amnesty when determining any remission of the Part 7 penalty. While the ATO will consider the circumstances of each case, a minimum penalty of 50% will generally be applied to employers who could have come forward during the amnesty but did not do so.

Disclosure to ATO

To qualify for the amnesty, a disclosure about historical underpayments of superannuation by an employer must be made to the ATO in the approved form (and must not have been previously disclosed).

An employer that has come forward before the start of the amnesty on 24 May 2018 will not benefit from the amnesty by disclosing an amount of SG shortfall that has previously been disclosed to the Commissioner (ie an amount already included in an existing SG charge assessment). However, an employer may still qualify for beneficial treatment under the amnesty if the employer has previously made disclosures about a SG shortfall for a quarter but comes forward with information about additional amounts of SG shortfall for the quarter. This could be the case where an employer has previously lodged a SG statement for the quarter which understated the amount of SG shortfall.

Reduced penalties

An employer that qualifies for the amnesty in relation to their SG shortfall for a quarter:

• will not have to pay the administrative component in respect of employees for whom the employer has an individual SG shortfall identified because of a disclosure under the amnesty;
• will not be liable for the additional Part 7 penalty (up to 200%) for failing to provide an SG statement by the time they were required to do so; and
• can deduct payments made in relation to SG charge imposed on the SG shortfall, or contributions that are offset against the SG charge, that are made during the amnesty period.

Deduction for SG charge payments

As noted above, the Bill will amend ss 26-95 and 290-95 of the ITAA 1997 so that employers can claim a deduction for SG charge payments (and offsetting contributions) made during the amnesty period. Employers that already had an outstanding SG charge debt prior to making a disclosure under the amnesty will also be able to claim deductions for payments they make even though the ATO will first apply their payments to clear their existing debt.

Paying SG charge amount

To qualify for the amnesty, employers must pay an employee’s full SG entitlement, including the employee’s individual SG shortfall amount, nominal interest and any GIC. Where an employer has the capacity to pay on the day they make the disclosure and does not have an existing SG charge assessment for the quarter, the employer may choose to make contributions (of the employee’s individual shortfall and nominal interest) directly into an employee’s superannuation account and elect to offset these amounts against their liability for SG charge in accordance with s 23A of the SGAA.

Employers who have an existing SG charge assessment for the quarter, or are otherwise unable to contribute directly into their employee’s superannuation accounts, will need to pay the SG charge (or amounts equal to the SG charge) to the ATO. Employers must pay the components of the SG charge imposed on the disclosed amount that reflect their employees’ SG entitlements (individual SG shortfall for relevant employees and nominal interest), as well as any GIC. Employers that have difficulty paying SG charge by the due date can negotiate a payment plan with the ATO.

Date of effect

The amendments to the SGAA and ITAA 1997 will apply from 24 May 2018 – the start date for the amnesty which will run until 24 May 2019.

Previous announcement

The amnesty was not previously announced.

Personal income tax changes

 Personal Income Tax Plan

The Government will introduce a seven-year, three-step, Personal Income Tax Plan, as follows:

Targeted tax relief to low and middle income earners

The Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.

The benefit of the proposed Low and Middle Income Tax Offset is as follows:

• Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200;
• For taxpayers with taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530;
• For taxpayers with taxable incomes from $48,000 to $90,000 a $530 offset applies; and
• For taxpayers with taxable incomes from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.

The benefit of the Low and Middle Income Tax Offset is in addition to the Low Income Tax Offset.

LITO LAMITO

Current (2018 and 2019) Proposed (2019)

Protecting Middle Income Australians From Bracket Creep

The Government has proposed changes to the personal income tax rates:From 1 July 2018, the Government will increase the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000.

 From 1 July 2022, the Government will:

• extend the 19% personal income tax bracket from $37,000 to $41,000; and
• further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

The Government has also proposed an increase to the Low Income Tax Offset from $445 to $645 from 1 July 2022. This offset will reduce at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between $41,000 and $66,667.

Ensuring Australians Pay Less Tax By Making The System Simpler

 In the third step of the Personal Income Tax Plan the Government will simplify and flatten the personal tax system by removing the 37% tax bracket entirely.

From 1 July 2024, the Government will extend the top threshold of the 32.5% personal income tax bracket from $120,000 to $200,000.

The 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000 and taxpayers with taxable incomes exceeding $200,000 will pay tax at the top marginal rate of 45%.

Changes To The Medicare Levy Low-Income Thresholds

 The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2018 income year, as follows:

• The threshold for singles will be increased from $21,655 to $21,980;
• The family threshold for will be increased from $36,541 to $37,089;
• The threshold for single seniors and pensioners will be increased from $34,244 to $34,758; and
• The family threshold for seniors and pensioners will be increased from $47,670 to $48,385.

For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.

Medicare Levy To Remain Unchanged

 The Government has announced that it will not proceed with the previously announced increase in the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019.

 Changes Affecting Business Taxpayers

Extending the $20,000 immediate write-off for small business

The Government will extend the $20,000 immediate write-off for small business by a further 12-months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.

Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Only a few assets are not eligible (such as horticultural plants and in-house software).

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).

Removing Tax Deductibility Of Payments Where Withholding

Obligations Have Been Disregarded

 From 1 July 2019, businesses will no longer be able to claim a deduction for the following payments:

• Payments to their employees such as wages where they have not withheld any amount of PAYG from these payments (i.e., despite the fact the PAYG withholding requirements apply).
• Payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG (despite the withholding requirements applying).

introduction Of An Economy-Wide Cash Payment Limit

 From 1 July 2019, the Government will introduce a limit of $10,000 for cash payments made to

businesses for goods and services. Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. This measure will require transactions over a threshold to be made through an electronic payment system or cheque. Transactions with financial institutions or consumer to consumer non-business transactions will not be affected.

Expanding The Contractor Payment Reporting System

 The contractor payment reporting system was first introduced in the building and construction industry and extended to the cleaning and courier industries from 1 July 2018. Under the contractor payment reporting system, 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.

The Government has announced it will further expand the contractor payment reporting system to the following industries:

• security providers and investigation services;
• road freight transport; and
• computer system design and related services.

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.

Alienating Rights To Partnership Income (Everett Assignments)

From 7:30PM (AEST) on 8 May 2018, partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.

The small business CGT concessions assist owners of small businesses by providing relief from CGT on the disposal of assets related to their business. However, some taxpayers, including large partnerships, are able to inappropriately access these concessions in relation to their assignment of a right to the future income of a partnership to an entity, without giving that entity any role in the partnership.

Superannuation related changes

 Exemption From The Work Test For Voluntary Contributions

 From 1 July 2019, the Government will introduce an exemption from the work test for voluntary

contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements. Under current law, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who self-report as working a minimum of 40 hours in any 30 day period in the financial year.

The work test exemption will give recent retirees additional flexibility to get their financial affairs in order in the transition to retirement.

Three-Yearly Audit Cycle For Some Smsfs

 From 1 July 2019, the Government will change the annual audit requirement to a three-yearly

requirement for SMSFs with a history of good record-keeping and compliance. This measure will

reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.

Increasing The Maximum Number Of Allowable Members In An

SMSF And Small APRA Fund

 From 1 July 2019, the Government will increase the maximum number of allowable members in new and existing SMSFS and small APRA funds from four to six. This will provide greater flexibility for joint management of retirement savings, in particular for large families.

Preventing Inadvertent Concessional Cap Breaches By Certain Employees

 From 1 July 2018, the Government will allow individuals whose income exceeds $263,157, and who have multiple employers, to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG). The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions. Employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates.

Deductions For Personal Contributions

 The Government intends to improve the integrity of the ‘notice of intent’ (‘NOI’) processes for claiming personal superannuation contribution tax deductions. Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so.

This results in their superannuation funds not applying the appropriate 15% tax to their contribution.

As the contribution has been deducted from the individual’s income, no tax is paid on it at all.

The additional funding will enable the ATO to develop a new compliance model, and to undertake additional compliance and debt collection activities.

From 1 July 2018, the ATO will modify income tax returns to alert individuals to the NOI requirements with a tick box to confirm they have complied.

Capping Passive Fees, Banning Exit Fees And Reuniting Small And

Inactive Superannuation Accounts

From 1 July 2019, the Government will introduce a 3% annual cap on passive fees charged by

superannuation funds on accounts with balances below $6,000 and will ban exit fees on all

superannuation accounts.

The Government will also strengthen the ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts where the balances are below $6,000 to the ATO. The ATO will expand its data matching processes to proactively reunite these inactive superannuation accounts with the member’s active account, where possible.

Changes To Insurance In Superannuation

The Government will change the insurance arrangements for certain superannuation members.

Insurance within superannuation will move from a default framework to an opt-in basis for: members with low balances of less than $6,000; members under the age of 25 years; and members whose accounts have not received a contribution in 13 months and are inactive.

The changes will take effect on 1 July 2019 — affected superannuants will have a period of 14 months to decide whether they will opt-in to their existing cover or allow it to switch off.

Changes Affecting Companies

Division 7A changes

From 1 July 2019, the Government will ensure that unpaid present entitlements (‘UPEs’) come within the scope of Division 7A of the ITAA 1936. This will apply where a related private company is made entitled to a share of trust income as a beneficiary but has not been paid. This measure will ensure the UPE is either required to be repaid to the private company over time as a complying loan under S.109N of the ITAA 1936 or is subject to tax as a dividend.

The Government also announced that it will defer the start date of the Ten Year Enterprise Tax Plan — targeted amendments to Division 7A measure that was announced in the 2016-17 Budget from 1 July 2018 to 1 July 2019. Under this plan, the Government intends to make targeted amendments to improve the operation and administration of Division 7A of the ITAA 1936,

Reforms To Combat Illegal Phoenixing

 The Government will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt illegal phoenix activity. The package includes reforms to:

• extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts;
• expand the ATO’s power to retain refunds where there are outstanding tax lodgements;
• introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
• prevent directors improperly backdating resignations to avoid liability or prosecution;
• limit the ability of directors to resign when this would leave the company with no directors; and
• restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator.

Research And Development Tax Incentive

 The Government will amend the research and development (R&D) tax incentive to better target the program and improve its integrity and fiscal affordability with effect from 1 July 2018.

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.

Changes Affecting Trusts

Improving The Taxation Of Testamentary Trusts

 From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.

Currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors. However, some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust. This measure will clarify that minors will be taxed at adult marginal tax rates only in respect of income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).

Extending Anti-Avoidance Rules For Circular Trust Distributions

From 1 July 2019, the Government will extend a specific anti-avoidance rule to family trusts that applies to other closely held trusts that engage in circular trust distributions.

Currently, where family trusts act as beneficiaries of each other in a ‘round robin’ arrangement, a

distribution can be ultimately returned to the original trustee — in a way that avoids any tax being paid on that amount. This measure will better enable the ATO to pursue family trusts that engage in these arrangements by extending the specific anti-avoidance rule, imposing tax on such distributions at a rate equal to the top personal tax rate plus the Medicare levy.

Other Income Tax Changes

Deductions Denied For Vacant Land

From 1 July 2019, the Government will deny deductions for expenses associated with holding vacant residential or commercial land, including interest incurred to finance the acquisition of the land.

Deductions for expenses associated with holding the land will be available once a property has been constructed on the land, it has received approval to be occupied and is available for rent.

Denied deductions will not be able to be carried forward for use in later income years, however, denied deductions can be included in the cost base of the land (but only if the expense qualifies as an element of cost base under the usual rules).

This proposed measure is intended to apply to all entities (e.g., individuals, trusts, companies) however an exclusion applies for vacant land that is held by an entity that is carrying on a business, which would include a business of primary production.

Taxation Of Income For An Individual’s Fame Or Image

From 1 July 2019, high profile individuals are no longer able to take advantage of lower tax rates by licencing their fame or image to another entity.

High profile individuals (such as sportspeople and actors) can currently licence their fame or image to another entity such as a related company or trust. Income for the use of their fame or image goes to the entity that holds the licence.

GST Changes

Extended GST for offshore sellers of hotel accommodation

From 1 July 2019, the Government will extend the GST by ensuring that offshore sellers of hotel

accommodation in Australia calculate their GST turnover in the same way as local sellers.

Currently, unlike GST-registered businesses in Australia, offshore sellers of Australian hotel

accommodation are exempt from including sales of hotel accommodation in their GST turnover. This means they are often not required to register for and charge GST on their mark-up over the wholesale price of the accommodation. The exemption was introduced in 2005, when most offshore sales of Australian hotel rooms were to foreigners booking through offshore tour operators, and the online booking market was small.

Other Budget Announcements

 

Removing The CGT Discount At Trust Level For Managed Investment

Trusts

From 1 July 2019, the Government will prevent Managed Investment Trusts (‘MITs’) and Attribution MITs (‘AMITs’) from applying the 50% capital gains discount at the trust level.

ComplIance Activities Targeting Individuals And Their Tax Agents

The Government will provide $130.8 million to the ATO from 1 July 2018 to increase compliance

activities targeting individual taxpayers and their tax agents. The ATO has identified a number of

significant compliance issues for individual taxpayers. This measure will continue four income matching programs that would otherwise terminate from 1 July 2018 to allow the ATO to detect incorrect reporting of income, such as foreign source income of high wealth individuals. The measure will also provide funding for new compliance activities, including additional audits and prosecutions, improving education and guidance materials and pre-filling of income tax returns.

Tightening Concessions For Foreign Investors

 The Government will introduce a package of measures to address risks to the corporate tax base posed by stapled structures and similar arrangements. The package will also limit access to concessions for passive income utilised by foreign governments.