On Tuesday 8 May 2018, The Treasurer handed down the Federal Budget 2018-2019. The budget sets the economic and fiscal outlook for Australia and includes expenditure and revenue estimates for the current financial year, the budget year and three forward financial years.
In this article, we have outlined some of the less known measures of the Federal Budget 2018.
Taxation of income for high profile individuals
The Government will ensure that high profile individuals will no longer be able to take advantage of lower tax rates by licensing their fame or image to another entity.
Currently, high profile individuals such as sportspeople or actors can license their fame or image to another entity (a related company or trust), and the income derived goes to the entity that holds the licence. This creates opportunities to take advantage of different tax treatments. This measure will ensure that all remuneration (including payments and non-cash benefits) provided for the commercial exploitation of a person’s fame or image will be included in the assessable income of the individual.
Date of effect: This measure will apply from 1 July 2019.
Minors and testamentary trusts: Concessional tax rates limit
The concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from deceased estates 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.
The Government is concerned that some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into testamentary trusts. This measure will clarify that minors will be taxed at adult marginal tax rates only in relation to income of a testamentary trust that is generated from assets of a deceased estate (or the proceed of the disposal or investment of these assets).
Date of effect: This measure applies from 1 July 2019.
Start date of other Div 7A measures deferred
The start date of the amendments to Div 7A that were announced in the 2016-17 Budget (see 2016 WTB 18 [559]) will be deferred from 1 July 2018 to 1 July 2019.
The 2016-17 Budget measures included:
• a self-correction mechanism providing taxpayers whose arrangements have inadvertently triggered Div 7A with the opportunity to voluntarily correct their arrangements without penalty;
• new safe harbour rules, such as for use of assets, to provide certainty and simplify compliance for taxpayers; and amended rules, with appropriate transitional
• arrangements, regarding complying Div 7A loans, including having a single compliant loan duration of 10 years and better aligning calculation of the minimum interest rate with commercial transactions.
Date of effect: These measures will apply from 1 July 2019, including the measures announced in the 2016-17 Budget. As a result, all the Div 7A amendments will form part of a consolidated package.
Deductions disallowed for holding vacant land
The Government will disallow deductions for expenses associated with holding vacant land. Where the land is not genuinely held for the purpose of earning assessable income, expenses such as interest costs will be denied. It is hoped this measure will reduce the tax incentives for land banking which limit the use of land for housing or other development.
The measure will apply to both land held for residential and commercial purposes. However, the “carrying on a business” test would generally exclude land held for a commercial development. It will not apply to expenses associated with holding land that are incurred after:
• a property has been constructed on the land, it has received approval to be occupied and available for rent; or
• the land is being used by the owner to carry on a business, including a business of primary production.
Disallowed deductions will not be able to be carried forward for use in later income years. Expenses for which deductions will be denied could be included in the cost base if it would ordinarily be a cost base element (ie borrowing costs and council rates) for CGT purposes. However, if the denied deductions are for expenses would not ordinarily be a cost base element, they cannot be included in the cost base.
Date of effect: This measure applies from 1 July 2019.
No tax deduction for non-compliant PAYG and contractor payments
Measures will be enacted to ensure that taxpayers will not be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying.
Similarly, the Government intends to remove deductions for payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG (again despite the withholding requirements applying).
This was recommended by the Black Economy Taskforce.
The revenue expectations linked with this expenditure is quite modest, ie “a small unquantifiable gain to revenue over the forward estimates period”.
Date of effect: The measure will commence on 1 July 2019 (ie next year).
SMSF member limit to increase from 4 to 6 – law to be amended
The Budget confirmed that the maximum number of allowable members in new and existing self-managed superannuation funds (SMSFs) and small APRA funds will be expanded from 4 to 6 members from 1 July 2019. This measure was originally flagged on 27 April 2018 by the Minister for Revenue and Financial Services, Kelly O’Dwyer.
The proposed increase to the maximum number of SMSF members seeks to provide greater flexibility for large families to jointly manage retirement savings. Given the growth in the sector to date, Ms O’Dwyer said the measure will ensure SMSFs remain compelling retirement savings vehicle. The Government is expected to ask the Tax Office to work with industry on the design and implementation of this measure. It is not expected to have a revenue impact.
Date of effect: 1 July 2019.
Superannuation work test exemption for contributions by recent retirees
The Government will introduce an exemption from the work test for voluntary superannuation contributions by individuals aged 65-74 with superannuation balances below $300,000 in the first year that they do not meet the work test requirements.
Currently, the work test in reg 7.04 of the SIS Regulations 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 measure will give recent retirees additional flexibilities to get their financial affairs in order in transition to retirement.
Date of effect: This measure will apply from 1 July 2019.
SMSF audit cycle of 3 years for funds with good compliance history
The annual audit requirement for self-managed superannuation funds (SMSFs) will be extended to a 3-yearly cycle for funds with a history of good record-keeping and compliance.
The measure will apply to SMSF trustees that have a history of 3 consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
Date of effect: This measure will start on 1 July 2019. The Government said it will undertake consultation to ensure a smooth implementation.
If you have any questions about how these less known budget measures may affect you, please contact us.
