The document provides a comprehensive update on the 2017/18 federal budget, detailing proposed tax changes including individual tax offsets, company tax rates, and superannuation updates. Key highlights include a return to budget surplus earlier than expected, an extension of the instant asset write-off for small businesses, and changes to low-income tax offsets. Additionally, it discusses implications for taxpayers and businesses, as well as potential changes anticipated from future elections.

1. 10th Annual
Pre Financial Year End &
Post Budget Update
Wednesday 16 May
Pre-Financial Yearexperience. new thinking

2. experience. new thinking
Agenda
 Tax Update – Jamie Towers, Partner
 Superannuation Update – Clive Todd, Partner
 Questions

3. experience. new thinking
2017/18 Federal Budget
Tax Update
Jamie Towers
Partner

4. experience. new thinking
 Budget returning to surplus earlier than expected
 Individual Tax Offsets and Tax Cuts
 Proceed with Company Tax Cuts
 R & D Caps
 Division 7A changes delayed
 Director Penalty regime extended
Tax Update

5. experience. new thinking
Tax Update
What didn’t Change?
 No – Standard Work Related Deductions
 No – Changes to Negative Gearing
 No – Changes to CGT Discount Rate

6. experience. new thinking
Budget Surplus
 2018-2019 – predicting a Smaller Deficit of
$14.5 Million
 2019-2020 – Surplus of $2.2 Billion

7. experience. new thinkingexperience. new thinking
Individual Tax Cuts
Proposed
% Current Tax Rate
(2017-2018)
2018-2019 - 2021-2022 2022-2023 - 2023-
2024
2024-2025 onwards
0 $0 - $18,200 $0 - $18,200 $0 - $18,200 $0 - $18,200
19 $18,201 - $37,000 $18,201 - $37,000 $18,201 - $41,000 $18,201 - $41,000
32.5 $37,001 - $87,000 $37,001 - $90,000 $41,001 - $120,000 $41,001 - $200,000
37 $87,001 - $180,000 $90,001 - $180,000 $120,001 - $180,000
45 $180,001 + 180,001 + $180,001 + $200,001 +

8. experience. new thinkingexperience. new thinking
Individual Tax Cuts
Low and Middle Income Tax Offset (LAMITO)
 In addition to Low Income Tax Offset (LITO)
 Non-Refundable
 Up to $200 for incomes up to $37,000
 $37,001 - $48,000 increases to $530 by 3 cents/$1
 $48,001 – 90,000 receive max benefit of $530
 $90,001 - $125,333 reduces by 1.5 cents/$1
 Applies from 1 July 2018 and will continue until 30
June 2022

9. experience. new thinkingexperience. new thinking
Individual Tax Cuts
Low and Middle Income Tax Offset (LAMITO)
 Applies to both individuals and trustees paying tax
on behalf of individuals
 Does not apply to minors
 Effective tax free threshold (with LAMITO) becomes:
$21,594
 Effective tax saving on income of $200,000 once all
cuts implemented: $7,225

10. experience. new thinkingexperience. new thinking
Individual Tax Cuts
New Low Income Tax Offset from 1/7/22
 Replaces LAMITO and current LITO
 Income < $37,000 - $645
 Income $37,001 - $41,000 – $645 but reduced by
6.5% of income above $37,000
 Income $41,000 - $66,666 - $385 but reduced by
1.5% on income above $41,000

11. experience. new thinkingexperience. new thinking
Individual Tax Cuts
 Medicare Levy – no Increase – remains at 2%
 Medicare Levy to commence at $21,980
(individual) and $37,089 (couple)

12. experience. new thinkingexperience. new thinking
Individual Tax Cuts
 Personal Image Rights – Taxed to Individual
 Sportsmen, Entertainers and other high profile
people can currently assign their image rights to
another entity (eg family trust or company) and
have income from exploitation of that image taxed
in that entity.
 From 1/7/2019 income from exploitation of image
to be taxed to the individual

13. experience. new thinkingexperience. new thinking
Individual Tax Cuts
 Everett Assignments (Assignment of Partnership
Income stream to another entity)
 No small business CGT benefits upon the
assignment of income stream to another entity.
(8/5/2018)

14. experience. new thinkingexperience. new thinking
Individual Tax Cuts
 Testamentary Trust Integrity Rule
 Minor beneficiaries can receive adult tax
treatment for distributions from a testamentary
trust
 Integrity rule introduced to ensure that only
income from assets transferred from a will can
receive adult tax treatment

15. experience. new thinkingexperience. new thinking
Business
 Instant Asset write-off for assets costing up to
$20,000 extended to 30/6/2019 for small
business

16. experience. new thinkingexperience. new thinking
Business
 ‘Carrying on a business’ test to be applied to
expenses associated with holding vacant land
 Deductions associated with holding land to be
disallowed
 Lost deductions cannot be carried forward, but
can add to cost base
 Will not apply to commercial development,
constructed buildings available for rent and land
used in a business of primary production
 Aimed at discouraging land banking

17. experience. new thinkingexperience. new thinking
Business
 Division 7A
 Promised changes delayed another year
 Certainty to be provided in relation to Unpaid
Present Entitlements (UPEs)

18. experience. new thinkingexperience. new thinking
Business
 Government persisting with tax cuts for large
companies
 Eventually tax rate is proposed to fall to 25% for
all companies
 Currently only Base Rate Entities (companies) get
a reduced tax rate
 (Note Base rate threshold differs to Small
business entity threshold which is fixed at $10M)

19. experience. new thinkingexperience. new thinking
Business
Current Company Tax Rates
Tax Rates
Year Threshold Base Rate Entity Other entity
2016/2017 $10 Million 27.50% 30%
2017/2018 $25 Million 27.50% 30%
2018/2019 $50 Million 27.50% 30%

20. experience. new thinkingexperience. new thinking
Black Economy
 No deduction for wages / contractor payments
where withholding rules not complied with
(1/7/2019)
 Taxable Payment rules to apply to security, road
freight and computer contracting industries from
1/7/2019
 Business payments of > $10,000 to not be made
in cash

21. experience. new thinkingexperience. new thinking
Black Economy
 Extend Director Penalty Rules to GST, WET and
LCT
 Limit directors from backdating resignations, or
resigning when it results in no directors

22. experience. new thinkingexperience. new thinking
Research & Development
Companies with < $20 Million turnover
 Cap of $4 Million refund
 Excess incentive over $4 Million to carry forward
to following year
 Clinical trials not counted in $4 Million cap
 R & D Tax Incentive = 13.5% above tax rate

23. experience. new thinkingexperience. new thinking
Research & Development
Companies with > $20 Million turnover
 Expenditure cap increased from $100M - $150M
 Tax Incentive linked to proportion of expenditure
spent on R & D:
 4% - 0-2% of total expenditure
 6.5% - 2-5% of total expenditure
 9% - 5-10% of total expenditure
 12% - > 10% of total expenditure

24. experience. new thinkingexperience. new thinking
Tax Planning
Key Tax Planning Concepts have not changed:
 Defer derivation of income until future periods
when tax rates are lower
 Bring forward expenditure if possible
 Consider bringing forward asset purchases to
take advantage of instant write-off for assets
less than $20,000

25. experience. new thinkingexperience. new thinking
Tax Planning
 Consider Pre-Payments of interest on
investment loans to further reduce income this
year (individuals or small business entities can
deduct prepayments)
 Concessional Contributions to super fund will
reduce taxable income ($25,000 concessional
cap) (seek advice from a registered financial
advisor)

26. experience. new thinking
Clive Todd
Partner
2017/18 Federal Budget
Superannuation Update

27. experience. new thinking
No Major Superannuation
Changes

28. experience. new thinking
• 2018/19 Budget Announcements
• What’s changing on 1 July 2018

29. experience. new thinking
2018/19 Budget
Announcements

30. experience. new thinkingexperience. new thinking
Increase to SMSF Members
 Max number increased from 4 to 6
 From 1 July 2019
 For SMSF & SAFs

31. experience. new thinkingexperience. new thinking
Implications
 Way to boost SMSF balance
 Large families can all be in one fund
 State Acts might need to change
 Added complexity
 Ability to optimise the use of franking credits

32. experience. new thinkingexperience. new thinking
Triennial Audits for SMSFs
 SMSFs can move to a three-yearly audit cycle rather
than annual
 From 1 July 2019
 Only if 3 years of clean audit reports & timely lodging
3yr

33. experience. new thinkingexperience. new thinking
Implications
 Less red tape & cost to SMSF trustees
 Issues may go undetected
 Or is it?
 Potential for deliberate manipulation

34. experience. new thinkingexperience. new thinking
Work Test Exemption
 Permits individuals to make voluntary contributions for
12 months after end of financial year they last met the
work test
 Work test is being gainfully employed for 40 hours in a
30 day period
 Applies to individuals aged 65-74 who have a Total
Superannuation Balance (TSB) of less than $300,000
 From 1 July 2019

35. experience. new thinkingexperience. new thinking
Preventing Inadvertent
Concessional Cap Breaches
 If total income exceeds $263,157 and have multiple
employers
 Can “opt-out” of receiving SG from certain
employers
 Ensures $25,000 concessional cap not
exceeded
 From 1 July 2018

36. experience. new thinkingexperience. new thinking
Protecting Low Balance
Superannuation
 3% cap on fees where super balance is less
than $6,000
 Ban on exit fees
 Inactive super accounts less than $6,000
transferred to ATO

37. experience. new thinkingexperience. new thinking
 Opt-in for insurance if under 25 or balance less
than $6,000
 Insurance to cease if no contributions for 13
months
 POTENTIAL TRAP!

38. experience. new thinkingexperience. new thinking
Older Australian Package
 The Government has introduced the following
measures to enhance the standard of living for older
Australians:
 Increase to the Pension Work Bonus from $250 to $300 per
fortnight
 Amendments to the pension phase means test rules to
encourage the take up of lifetime retirement income products
 Expansion of the Pensions Loan Scheme to allow more
Australians to use the equity in their home to increase their
incomes

39. experience. new thinkingexperience. new thinking
What’s changing on 1 July 2018
(Implementation of previously
announced changes)

40. experience. new thinkingexperience. new thinking
Catch-Up Concessional
Contributions
 Unused concessional contribution cap amounts can be
carried forward
 Calculated on a rolling basis over 5 consecutive years
 Restricted to individuals with TSB less than $500,000

41. experience. new thinkingexperience. new thinking
Downsizing Exemption
 Individuals aged 65 or over are able to contribute
$300,000 from proceeds of sale of family home
 Not subject to current age restrictions, work test, TSB
restrictions or contribution caps
 Home must have been owned for 10+ years
 Contribution cannot exceed total proceeds of sale
 No requirement to actually purchase another property

42. experience. new thinkingexperience. new thinking
Event Based Reporting
 SMSFs required to report events impacting their TBA
 Transfer Balance Account Report (TBAR)
 Includes commencing/commuting pensions, partial
commutations, some LRBAs
 If any member has TSB greater than $1m
 Reporting required within 28 days of end of quarter
 If all members have TSB less than $1m
 Reporting required when annual report due

43. experience. new thinkingexperience. new thinking
First Home Super Saver
Scheme
 Where individuals are able to make voluntary super
contributions up to $15,000 per year and $30,000 in
total to purchase first home
 Can be withdrawn from 1 July 2018 along with
associated earnings
 Withdrawals taxed at individual's marginal tax rate less
30% tax offset

44. experience. new thinkingexperience. new thinking
Where to now?
 LNP has flagged no major changes
 Labor has flagged a lot
= Election Battleground

45. experience. new thinkingexperience. new thinking
Proposed Labor Changes
 Reduce non-concessional contribution cap to $75,000
 Lower Div 293 income threshold to $200,000
 Remove catch-up concessional & greater deductibility of
personal contribution
 Abolish cash refunds of excess dividend imputation
credits

46. experience. new thinking
Questions?

47. experience. new thinking
This document contains information in summary form and discusses proposed but not legislated rules
and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research or the exercise of professional judgement. It
does not purport to be comprehensive or to render professional advice. The reader should not act on
the basis of any matter contained in this publication without first obtaining specific professional advice.
We believe that the statements made by us in this document are accurate but no warranty of accuracy
or reliability is given. Our conclusions are based on interpretations of accounting standards and other
relevant professional pronouncements and legislation current as at the date of this document. Should
the interpretations, accounting standards, other relevant professional pronouncements or legislation
change, our conclusions may not be valid.
© Hanrick Curran, 2018
All rights reserved
experience. new thinking
Disclaimers