By Melissa Browne
Most Australians look at the federal budget through the lens of “what’s in it for me”. As a nation that’s more than $600 billion in debt, it’s a habit we need to break or we’re only ever going to get the politicians (and budgets) we deserve.
But I digress.
My lens when approaching a budget is generally a tax and accounting one. It’s to decipher the changes that will affect my clients (both individuals and businesses) and the different entities they use to manage their affairs. This includes everything from sole traders to partnerships, companies, trusts and self-managed super funds.
The personal tax cuts have been widely reported and most of us understand we’re all receiving something over the next seven years. However, it’s important to understand what you should be doing as a result of these and other changes to ensure you’re maximising any tax savings both in the current year and the years to come.
Personal Tax Cuts
- From July 1, 2018, the 32.5 per cent personal income tax bracket will be increased from $87,000 to $90,000. Also introduced is the low and middle income tax offset, a non-refundable offset of up to $530 for those with taxable incomes up to $90,000.
- From July 1, 2022, the 19 per cent personal income tax bracket will extend from $37,000 to $41,000 and the 32.5 per cent bracket will increase from $90,000 to $120,000.
What you should consider:
- For the slice of population whose taxable incomes falls between $87,000 and $90,000, you might want to consider bringing forward any tax deductions to this financial year. That’s because your tax rate is higher this year and the tax deduction will be more valuable to you before June 30 than after.
- If you earn a tad over $90,000, you might want to consider delaying your tax deduction to next year. That’s because the low and middle income tax offset is worth $530 to you and if you can bring your income down under that $90,000 cap you’ll receive this benefit
- If you earn between $37,000 and $48,000 you might want to consider delaying your tax deductions to next year. That’s because the amount you’re receiving from them won’t change as your tax rate remains the same but the value of the low and middle income tax offset will increase at a rate of 3¢ per dollar to the maximum benefit of $530, so those deductions are worth more to you next year.
Rental property changes
- From July 1, 2019, deductions will be denied for expenses associated with holding vacant residential or commercial land including interest. Instead, deductions for expenses associated with holding the land will be available once a property has been constructed, it has received approval to be occupied and is available for rent.
What you should consider:
- If you are claiming interest deductions because you own land and are building with the intention of renting it out, consider bringing forward 12 months’ worth of interest deductions by prepaying this expense prior to June 30. That way, you can make the most of this claim in the current financial year before it’s lost to you.
Business tax changes
- The good news is the $20,000 immediate tax write-off will be extended for another year for businesses that fall under the small business umbrella.
- From July 1, 2019, businesses will no longer be able to claim a deduction for payments to employees such as wages where they have not withheld any amount of PAYG from payments to their employees, despite PAYG withholding requirements applying. They also will no longer be able to claim a deduction for payments made to contractors who do not apply an ABN and the business does not withhold any amount of PAYG.
What you should consider:
- If you were bringing forward asset purchases to take advantage of the immediate tax write-off and your cash flow is suffering or the tax benefits were marginal, you can delay the purchase and take advantage of this immediate deduction in the 2019 financial year.
- Start creating great processes now to ensure you’re aware if your contractors don’t have ABNs and communicate with them that you’ll be applying non-ABN PAYG withholding tax aggressively from July 1. That way they have time to react and fall in line as well. With your payroll, you should already be using great online accounting solutions so this will be sorted for you. If you’re not, look into Xero, Quickbooks or MYOB.
Source: The Age
