If you’re preparing to get stuck in to your tax return, it’s important you maximise your opportunities to reduce your tax in the last couple of weeks of the financial year.
Here are the key changes for this income year to give you a head start.
The 2019 Budget announcements made on 2nd April, by the Federal Treasury, that are now law, include:
• changes to income tax rate thresholds in the 2018–19, 2022–23 and 2024–25 income years
• a new low- and middle-income tax offset to reduce the tax payable by low- and middle-income earners in the 2018–19, 2019–20, 2020–21 and 2021–22 income years
• a new low-income tax offset from the 2022–23 income year (to replace both the new low- and middle-income tax offset and the current low-income tax offset)
This table outlines the rates and thresholds that apply, along with the offset entitlements related to these changes.[table id=5 /]
Increased income tax rate thresholds
There are a number of new income tax thresholds for the 2018–19, 2022–23 and 2024–25 income years. These changes apply to residents, foreign-residents and working holiday makers. Pay as you go (PAYG) withholding rates and schedules will be updated to include these changes.
The increased income tax thresholds are as follows:
• For 2018–19, 2019–20, 2020–21 and 2021–22, the top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000
• For 2022–23 and 2023–24, the top threshold of the:
– 19% tax bracket will increase from $37,000 to $41,000
– 32.5% bracket will increase from $90,000 to $120,000
• For 2024–25 income year on wards, the top threshold of the 32.5% tax bracket will increase from $120,000 to $200,000
New low- and middle-income tax offset
A new low- and middle-income tax offset applies for income years 2018–19, 2019–20, 2020–21 and 2021–22.
Australian resident individuals (and certain trustees) whose income does not exceed $125,333 are entitled to the new low- and middle-income tax offset. This is in addition to the existing low-income tax offset and is available on assessment after you lodge your income tax return.
If your income:
• does not exceed $37,000, you are entitled to $200
• exceeds $37,000 but does not exceed $48,000, you are entitled to $200 plus 3% of the amount of the income that exceeds $37,000
• exceeds $48,000 but not $90,000, you are entitled to $530
• exceeds $90,000, you are entitled to $530 less 1.5% of the amount of the income that exceeds $90,000
Income statements to replace Payment Summaries
• If your employer is reporting through Single Touch Payroll (STP), then you may not receive a payment summary
– You will continue to get a payment summary if your employer has not started STP reporting
• Your payment summary information will be available in ATO online services through myGov, it will be called an ‘income statement’
• If you use a registered tax agent, nothing changes – they will receive the information they need to complete your tax return
Your private health insurance statement
Your private health insurance statement gives you information about your premiums and private hospital cover. The law has recently changed the way health insurers give you information about your premiums.
Previously, your health insurer was required to send a private health insurance statement to each adult covered by the policy, by 15 July each year. It is now optional for them to send you this, but if they do it may be sent by mail or email.
If you lodge your tax return online, using myTax, or lodge using a registered tax agent, your health insurance details should be pre-filled. If your details are not pre-filled, or you lodge a paper tax return, you will need to get a statement from your health insurer so that you can complete your income tax return. This will also help you complete the Medicare levy surcharge related items.
WHAT’S NEW FOR SMALL BUSINESS?
Simplified depreciation rules
The instant asset write-off threshold has increased to $30,000 for each asset from 7.30pm (AEDT) 2 April 2019 and extended to 30 June 2020.
If you are a small business (with a turnover of less than $10 million), you can:
• immediately deduct the business portion of most assets that each cost less than $30,000 (the instant asset write-off threshold) if they are first used or installed ready for use from 7.30pm (AEDT) 2 April 2019 to 30 June 2020
• immediately deduct the business portion of most assets costing less than $25,000 each, if it was first used or installed ready for use from 29 January 2019 until 7.30pm (AEDT) 2 April 2019
– before 29 January 2019 the relevant threshold is $20,000
Businesses with a turnover from $10 million to less than $50 million may now be eligible for the increased instant asset write-off threshold. However, the general depreciation rules must be used for assets purchased for $30,000 or more.
Lower company tax rate changes
From the 2018–19 income year, a company must be a base rate entity to be eligible for the lower 27.5% company tax rate.
A company is a base rate entity if both of the following apply:
• the turnover is less than the threshold of $50 million for the 2018–19 income year
• 80% or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain)
When working out the rate to use when franking your distributions, you need to assume that your aggregated turnover, assessable income and base rate passive income will be the same as the previous year.
Increased small business income tax offset
You can claim the small business income tax offset if you either:
• are a small business sole trader
• have a share of net small business income from a partnership or trust
From the 2016–17 income year, the small business income tax offset:
• increased to 8%, with a limit of $1,000 each year
• applies to small businesses with turnover less than $5 million
The tax offset increases to 13% in 2020–21 and to 16% from the 2021–22 income year. The ATO work out your offset based on amounts shown in your tax return.
GET HELP FROM YOUR ADVISER
We are here to help you navigate your way through this very important time of year. Don’t hesitate to call your Treysta adviser to ensure that you’re on the right track.