The Federal Government’s Personal Income Tax Plan is now officially law. For 2018/2019 (the financial year just gone) the centrepiece of this plan was an increase to the low and middle income tax offset (LMITO) from a maximum $530 to $1,060.
Taxpayers with a taxable income:
* of $37,000 or below can now receive a LMITO of up to $255
* above $37,000 and below $48,000 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080
* above $48,000 and below $90,000 are now eligible for the maximum LMITO of $1,080
* above $90,000 but is no more than $126,000 are now eligible for a LMITO of $1,080, less an amount equal to three per cent of the excess.
With Tax Time 2019 just over a week old, 810,000 individual tax returns have now been lodged, an 88% increase from the same time last year – an increase largely attributable to anticipated refund as a result of the increased LMITO.
Despite the increase, ATO commissioner Chris Jordan has sought to reassure taxpayers that returns will begin flowing through from the end of this week.
“We were able to work over the weekend to make changes to our systems once the legislation was passed last week,” Mr Jordan said on Tuesday.
“All safety nets have been lifted from our processing, so our processing is now working absolutely full bore, 100%.”
“People do not need to do anything special; they just put their return in, and we will calculate their offsets and money will be hitting people’s bank accounts by Friday this week.”
Now the law has been passed, you may wish to get your 2018/2019 records to your Tax Agent and instruct them to lodge early rather than in the first part of next year (which is the normal lodgement time if lodging with a Tax Agent). By doing so, all other things being equal, you will bring forward your LMITO entitlement with a potential additional refund of up to $1,080 (subject to the above income limits, and subject to not otherwise having underpaid tax during the year).
If you lodge your own tax return, then remember you do not need to claim the LMITO separately – rather the ATO will process your claim automatically upon lodgement.
Get set for a 3.0% wage increase – 2019 Annual Wage ReviewThe Fair Work Commission has announced a 3.0% increase to minimum wages. The new national minimum wage will be $740.80 per week or $19.49 per hour. The increase applies from the first full pay period starting on or after 1 July 2019. Link to the Commissions’ Annual Wage Review 2018–19 //www.fwc.gov.au/documents/wage-reviews/2018-19/decisions/2019fwcb3500.pdf
Following is a brief summary of some of the headline Budget measures.
BUSINESS
* Instant
Asset Write-Off Boosted and Expanded – Two key changes have been made:
o The write-off
has been extended to medium-sized businesses (those with an aggregated annual
turnover of less than $50 million.
o The threshold
has been increased to $30,000.
Therefore, subject to legislation, businesses with an
aggregated turnover of less than $50 million will be able to immediately deduct
purchases of eligible assets costing less than $30,000 that are purchased and
then first used, or installed ready for use, from Budget night (2 April 2019)
to 30 June 2020.
* Division
7A Changes Deferred – The Government’s proposed Division 7A changes will be
deferred by 12 months to 1 July 2020. To recap, Division 7A is designed to
prevent profits or assets being provided to shareholders or their associates
tax-free. You can read more about these proposed changes – which are not yet
even in draft legislative form – on the ATO website.<//www.ato.gov.au/General/New-legislation/In-detail/Other-topics/Targeted-amendments-to-Division-7A/>
* Crackdown
on Unpaid Tax and Super by Larger Businesses – The Government will provide more
than $40 million to the ATO to recover unpaid tax and Superannuation Guarantee
owed by larger businesses.
*
Strengthening ABN Rules – This measure imposes new compliance
obligations on ABN holders to retain their ABN. From 1 July 2021, ABN holders
with an income tax return obligation will be required to lodge their income tax
return and from 1 July 2022 confirm the accuracy of their details on the
Australian Business Register annually.
* Tackling
Sham Contracting – The Government will provide more than $9 million to
establish a dedicated unit within the Fair Work Ombudsman to address sham
contracting. This is where employers seek to avoid statutory obligations and
employment entitlements (such as paid leave and superannuation) by
misrepresenting employer/employee relationships as independent contracts.
PERSONAL TAX CHANGES
* Income
Tax Cuts by Increasing Tax Offset – Subject to the passage of legislation, tax
relief will be granted to individuals via the non-refundable low and middle
income tax offset (LMITO). The LIMTO will increase from a current maximum of
$530 per year to $1,080. Further, the base rate will increase from $200 to $255
per year for 2018/2019 through to 2021/2022. Depending on your level of income,
the changes will benefit individuals as follows:
o The LMITO will
now provide a reduction in tax of up to $255 for taxpayers with a taxable income
of $37,000 or less.
o Between
taxable incomes of $37,000 and $48,000, the value of the offset will increase
at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
o Taxpayers with
taxable incomes between $48,000 and $90,000 will be eligible for the maximum
offset of $1,080.
o For taxable
incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents
per dollar.
The LMITO will be enjoyed straight after individuals
lodge their income tax returns for the above years.
* Income
Tax Cuts via Rate and Threshold Changes – The following changes are slated for
future income years:
o From 1 July
2022, an increase to the top threshold of the 19% personal income tax bracket
from$41,000 to $45,000.
o From 1 July
2022, an increase in the low income tax offset (LITO) from $645to $700.
* New
Deductible Gift Recipients (DGRs) Approved – The following organisations have
been granted DGR status from 1 July 2019 to 30 June 2024: Australian Academy of
Law, China Matters Limited, Foundation Broken Hill Limited, Motherless
Daughters Australia Limited, Superannuation Consumers Centre Limited, and The
Headstone Project (Tasmania) Incorporated. The Government will also establish a
deductible gift recipient (DGR) general category to enable Men’s Sheds and
Women’s Sheds to access DGR status from 1 July 2020.
SUPERANNUATION CHANGES
* Removal of Work Test for Certain Taxpayers –
The current superannuation work test will be removed for people aged 65 and 66
from 1 July 2020.
* Extending Eligibility for the Bring-Forward
Cap – From 1 July 2020, access to the bring-forward cap will be extended from
taxpayers aged less than 65 years of age to those aged 65 and 66.
* Increase to Age Limit for Spouse
Contributions – The age limit for spouse contributions will increase from 69 to
75 from 1 July 2020.
The ATO Commissioner, Mr Chris Jordan, earlier this year
stated that following ATO efforts, for the first time in almost 25 years, the
average work-related claim decreased over the past 2 years.
The Commissioner said the ATO’s next focus is rental
income and deductions. To this end, as part of the ATO’s broader random enquiry
program, ATO auditors have now completed over 300 audits on rental property
claims and “found errors in almost 9 out of 10 tax returns reviewed”.
He said the most common errors the ATO is seeing are:
1. incorrect
interest claims for the entire investment loan where it has been refinanced for
private purposes
2. incorrect
classification of capital works as repairs and maintenance, and
3. taxpayers
not apportioning deductions for holiday homes when they are not genuinely
available for rent.
Regarding the first category of incorrect claims,
interest can still be claimed where a loan has been refinanced. However, the
borrowed funds must still be used for a deductible purpose (i.e. in relation to
the rental property). Where the refinanced amount is used for a non-deductible
purposes (for example, to buy a boat or car, or to make repayments towards the
family home), the interest that relates to that portion of the refinanced
amount will no longer be deductible.
In respect of repairs and maintenance, in a rental
property context, repairs generally involve a replacement or renewal of a worn
out or broken part, for example, replacing worn or damaged curtains, blinds or
carpets. Maintenance generally involves keeping the property in a tenantable
condition, for example repainting faded or damaged interior walls. By contrast
examples of capital expenditure include:
* replacing
an entire structure or unit of the property (e.g. an entire fence, kitchen
cupboards, stove etc.)
*
improvements, renovations, extensions
* initial
repairs to defects that existed when you first purchased the property.
These types of capital expenses are not immediately
deductible, but rather must be claimed over a number of years.
The finally category of mistakes, involves claiming a
deduction for expenditure relating to the property, even though it is not being
rented out, or it is not genuinely available for rent. During these periods,
expenses cannot be claimed. To be clear, expenses may be deductible for periods
when the property has no tenants and you are not occupying it, providing it is
genuinely available for rent. To evidence this, you would need to show that it
is being given broad exposure to potential tenants, such as online or
newspapers advertisements etc.
Last week (05/03/19), the Reserve Bank of Australia decided not to change the official cash rate of 1.5%. Two days later the December quarter economic growth figures showed that the economy had slowed considerably – growing by just 0.2% from October to December, and 2.3% over the previous 12 months. This is considerably less than the forecast 3% in the Federal Budget. As a result, many economists are now expecting the Reserve Bank to reduce interest rates even further in the coming year; which would represent record lows. It’s an opportune time therefore to review whether you are making the most of this low rate environment.
Have you considered the following?
* Fixed rate options. While rates are at an all-time low there may be opportunities to fix your loans for 3 or 5 years at under 5% per annum. Explore your options. Some borrowers may wish to fix just a portion of their loan.
* Review your position. Low interest rates offer an opportunity to refinance or revise your payment schedule to pay your loan off sooner. Talk to your broker to see if there’s a home or business loan that better suits your needs.
* Debt reduction. With lower rates, your monthly/fortnightly repayments will be less. Rather than pocketing the difference, if you put the difference into extra repayments, you can shave years off your loan and, in doing so, save thousands in interest. For example, a $500,000 home loan at an interest rate of 7% requires repayments of $3,078 per month over 30 years. At 4.5%, the repayments are $2,533, a difference of $545 a month. If you put that $545 into extra repayments, you can potentially take more than 9 years off the home loan term and save almost $140,000 in interest.
* Create an offset account. This is effectively a money source sitting beside your mortgage. Any savings inside this account are effectively offset against your loan, which in turn reduces the amount of interest you pay.
Of course, low rates will not be around forever. As a borrower it’s important not to become complacent and to make sure that you still have the capacity to meet your repayment obligations in the event that rates increase.
Smaller employers (those with 19 or less employees) must commence reporting via Single Touch Payroll (STP) from 1 July 2019 after legislation passed Parliament this morning (12/02/2019).
The STP regime revolutionises the way employers report payroll information to the ATO. In essence, STP is a new reporting mechanism whereby employers report employee payments (such as salary and wages, allowances etc.) and PAYG withholding to the ATO directly through their STP solution (e.g. upgraded Standard Business Reporting-enabled software) at the same time they pay their employees. To be clear, no additional reporting is required – just a new method of reporting.
Standard business reporting-enabled software (SBR-enabled software) is essential to reporting under STP. Employers must adopt an STP solution by the due date. Solutions will vary depending on an employer’s current payroll processes.
Accountant or Bookkeeper – Employers who use an Accountant or Bookkeeper to process their pays will simply rely on them to provide an STP solution (SBR-enabled software) by the deadline. Even where an Accountant or Bookkeeper does not process employer payroll, employers may turn to them for advice around how they can become STP-compliant.
Software Upgrades – If an employer uses commercial payroll software, then they should contact their software provider as the deadline nears and ensure that they offer an updated Standard Business Reporting-enabled version of the software. Major software houses have this software available.
In-House Method – If an employer uses an in-house method of payroll or manual method (such as paying employees by EFT and manually providing them with pay-slips and Payment Summaries)…then they will likely need to adopt STP-compliant payroll software. Such employers may lean heavily on their Bookkeeper or Accountant when installing this software, and may need upfront training. Alternatively, they may choose to outsource their payroll to a payroll service provider such as a payroll bureau, or an Accountant or Bookkeeper.
The ATO is acknowledging that there are a significant number of smaller employers who do not use any type of payroll software when processing the pays each week/fortnight etc. Consequently, micro businesses (employers with 1 to 4 employees) will not be required to adopt/buy payroll software in order to comply with Single Touch Payroll (STP) reporting. Whilst for most employers their STP solution will be adopting STP-compliant software, micro-businesses will according to the ATO be provided with different STP compliance options. Speaking on a recent ATO webcast, ATO Assistant Commissioner, John Shepherd confirmed this:
“You won’t need to buy payroll software, that’s why we’re looking for those alternate solutions- some of which might be an app, something that’s fit for purpose to get the STP information in but is easy to use, doesn’t take much time and doesn’t cost that business money to do so ,” said Mr Shepherd.
“We’ve spoken to some different banks and the possibilities around as people pay staff through internet banking being able to submit the single touch pay run information at the same time and we expect that to be part of the list of options that come forward over the next 12 months.
“There are obviously lots of other benefits from using payroll software but we’re not saying for STP that you need to go out and buy a product to do STP.”
MYOB and Xero and other major software houses have already developed these low cost STP-solutions for micro-business. You should contact your Accountant or Bookkeeper for further guidance in this area.
STP is finally here! From 1 July 2018, all employers with 20 or more employees (as at 1 April 2018), must report their payroll information to the ATO via Single Touch Payroll. STP is a reporting change for employers. Essentially, STP requires that each time an employer pays their employees, they will have to instantly report to the ATO information such as the salaries and wages, pay as you go (PAYG) withholding and superannuation. The information will need to be reported from software, which is STP-enables. Eventually this will mean:
Employers will not need to provide Payment Summaries to their employees for the payments reporter through STP.
Employees will be able to view their payment information in ATO online services, which they will access through their myGov account.
Some labels on Activity Statements will be pre-filled with the information already reported.
NB employers with less than 20 employees (as at 1 April 2018) your STP start date will be 1 July 2019.To finish reading this article – log into the Members Area and see your July/Aug Newsletter edition page 11Not a member – SIGNUP NOW and have access to this and many other tax planning & tax saving articles //mytaxsavers.com.au/plans/subscriptions/
2017/2018 is the first year that individuals can reduce their tax liability for the year by making a pre-1 July personal superannuation contribution.
To recap, new laws were introduced effective 1 July 2017 allowing all individuals up to age 75 to claim an income tax deduction for personal, after-tax superannuation contributions (pre-tax contributions, also known as salary sacrifice contributions, are deductible to your employer not you). Before this date, you could only claim a deduction for your personal contributions where less than 10% of (a) your assessable income (b) your reportable fringe benefits and (c) your reportable emaployer superannuation contributions (e.g. salary sacrifice contibutions) for the year were from being an employee – this was known as the “10% Rule”. This rule prevented most employees from claiming a tax deduction for their personal after-tax superannuation contributions.
To claim a deduction, the standard requirements that existed under the old rules must also be satisfied as follows:
Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 must meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more that 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75 . Older tax payers are ineligible.
Minors – If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.
Compying Fund – The contribution must be made to a complying superannuation fund.
Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form before you lodge your tax return in respect of that financial year.
Note that the maximum deduction that you can claim is $25,000. This is the amount of the concessional contributions cap. As well as your after-tax contributions, included in the $25,000 cap are:
Employer contributions (including the compulsory 9.5% Superannuation Guarantee (SG) and salary sacrifice), and
Certain amounts transferred from a foreign superannuation fund to an Australian superannuation fund (this won’t affect most taxpayers).
Fo example, if you earned $50,000 for the year from your job, and your employer contributed $4,750, then in effect the maximum amount you could contribute and claim as a deduction would be $20,250 ($25,000 cap, minus $4,750).
