2019/2020 Federal Budget Review

Federal Treasurer Josh Frydenberg has handed down his first Budget (and with the requirement to hold a Federal election by mid-May in mind, possibly his last), announcing several positive measures designed to appeal to small and medium sized businesses and superannuation fund stakeholders. The Budget announcements capitalise on stable economic growth by claiming the first Budget surplus in more than a decade for the 2019/2020 financial year, with further surpluses forecasted for the next 4 years.

Below is a summary of the key tax measures arising from the 2019/2020 Federal Budget.

Instant asset write-off

Cap changes

The cap for the current instant asset write-off regime will be lifted from $25,000 to $30,000, effective immediately. The revised cap applies on a per asset basis, which means that businesses can write off multiple assets instantly.

The $30,000 threshold will also be extended to apply to medium sized businesses with a turnover up to $50 million until 30 June 2020.

Lock out laws

The current “lock out” laws for the simplified depreciation rules (which permit small businesses to form a simplified depreciation pool at 15% in the first year and 30% each year thereafter and immediately deduct the balance of the pool if it is less than the instant asset write-off threshold) preventing small businesses from re-entering the simplified depreciation regime for 5 years if they opt out will continue to be suspended until 30 June 2020.

Timing

Any assets sought to be written off pursuant to the revised rules must be first used, or installed ready for use, between 2 April 2019 to 30 June 2020.

It is anticipated that the instant asset write-off rules will revert to a threshold of $1,000 and only apply to small businesses (medium sized business will be excluded) from 1 July 2020.

Division 7A

The Government confirmed the deferral of the start date for the proposed Division 7A amendments to 1 July 2020. These proposed amendments include the inclusion of unpaid present entitlements within the scope of Division 7A, simplified rules regarding complying Division 7A loans and new safe harbour rules. The deferral is speculated as being a response to strong concerns raised in submissions by stakeholders to the Governments’ consultation paper released in October 2018.

Australian Managed Investment Trusts (MITS)

The Government has announced that an update will be provided on the list of countries whose residence is able to access the reduced MIT withholding tax rate. This update includes the addition of the following countries to the existing 114 jurisdiction list:

  • Curacao;
  • Lebanon;
  • Nauru;
  • Pakistan;
  • Panama;
  • Peru;
  • Qatar; and
  • The United Arab Emirates.

The updated list will be effective from 1 January 2020.

Superannuation

Personal

From 1 July 2020, individuals aged 65 and 66 will be able to make voluntary concessional and non-concessional superannuation contributions without being required to meet the superannuation contributions work test (which requires individuals aged 65 to 74 to work at least 40 hours in any 30 days period in a year in order to be eligible to make voluntary superannuation contributions).

The “bring forward” rules, which allow individuals aged less than 65 years to contribute 3 years’ worth of non-concessional contributions (capped at $100,000 per year) in a single year will be extended to those aged 65 and 66.

The age limit for making contributions to a spouse’s superannuation fund will also be increased from 69 to 74 from 1 July 2020.

Superannuation funds

From 1 July 2020, superannuation funds with member interest that are in both the accumulation and retirement phases can choose whether to use the segregated method or the proportionate method to calculate exempt current pension income. There will also be no requirement to obtain an actuarial certificate when calculating exempt current pension income using the proportionate method if all members are in the retirement phase for the relevant income year.

Current tax relief for merging superannuation funds (which were due to expire on 1 July 2020) will be permanent. This will enable superannuation funds to transfer revenue and capital losses to a new merged fund and to defer any capital gains and losses that might otherwise be triggered in connection with the transfer of fund assets.

Hybrid mismatch rules

A number of technical amendments will be made to the hybrid mismatch rules (which address the difference in tax treatment of an entity under two or more tax jurisdictions) including to specify how the rules are to apply to trusts and MEC groups and to confirm that the integrity rule in Subdivision 832-J will apply where multinational groups use interposed entities as conduits to invest in Australia as an alternative to investing into Australia using hybrid instruments or entities. The amendments are effective immediately.

Foreign residents

The Budget was silent on the proposed removal of the CGT main residence exemption for foreign residents, which was originally announced in the 2017/2018 Federal Budget. Recent comments by the Assistant Treasurer have indicated that the measure (which is currently the subject of legislation before the Senate) is unlikely to be passed in the recent future.

International tax treaty – Israel

A double tax agreement (DTA) between Australian and Israel will be given the force of law in Australia. The DTA will implement reduced withholding rates for the following revenue receipts:

  • dividends (up to 15%);
  • interest (up to 10%); and
  • royalties (5%).

The new withholding tax rules are contingent on the DTA entering into force but are anticipated to apply from 1 January 2020. The tax treatment of all other income and profits will apply on the next 1 July following the date on which the DTA enters into force.

ABN rules

There will be new compliance obligations introduced for ABN holders in order to combat the black economy. From 1 July 2021, ABN holders will be required to lodge their income tax return and confirm their details on the ABR annually in order to continue to be eligible to hold an ABN.

Anti-avoidance/compliance

The Tax Avoidance Taskforce is to receive an extra $1 billion in funding over the next 4 years and will expand the scope of its anti-avoidance activities to include a focus on identifying tax avoidance schemes. The Tax Avoidance Taskforce is expected to continue to target multinational groups, large public and private groups, high net worth individuals and trusts.

You can read the full budget at: https://www.budget.gov.au/

Queries

Should you wish to discuss any of the above matters, please contact any member of our Tax team.

Disclaimer

This article does not constitute legal advice, it is commentary on a topical issue. If anything discussed in this article concerns you please seek legal advice.