KEY TAX CHANGES IN 2018

This article looks through notable tax updates and amendments in Australia that will take effect in 2018. Note that the enactment of some may change depending on the future passage of necessary legislation. Here are some major items in the new bill that will impact individual taxpayers and businesses:

SMALL BUSINESSES AND COMPANIES

  • Base rate entities (aggregated turnover of less than $25 million from 2017-18 income year) and small businesses (aggregated turnover of less than $10 million from 2015-17 income years) are now eligible to apply the lower 27.5% company tax rate.
  • From 1 July 2017, disclosure of tax debt information to the Credit Reporting Bureaus by the ATO will be allowed if the business failed to manage their debts.
  • From 1 July 2017, simplified BAS will be the applicable reporting method for small businesses.

GOODS AND SERVICES TAX

  • From 1 July 2017, importation of services and intangibles (i.e. digital products) by Australian consumers will now be subjected to GST.
  • From 1 July 2017, the definition of ‘‘financial supply’’ has been extended to include the supply of bank accounts and superannuation interests by foreign financial institutions.
  • Sales/Purchases of digital currency (i.e. bitcoin) is not subjected to GST to avoid potential double taxation. Today, using digital currency to pay for purchases of goods and services is the same as using money thus GST applies.
  • From 1 July 2017, GST reporting and record keeping has been simplified for small businesses.

 

SUPERANNUATION

  • From 1 July 2017, the Departing Australia Superannuation Payment (DASP) made to working holiday makers is now taxed at 65%.
  • From 1 July 2017, the low income superannuation contribution (LISC) policy has been repealed and replaced by the new low income superannuation tax offset (LISTO).
  • From 1 July 2017, the new limit on transfer balance cap will be $1.6 million. This applies to the total amount of superannuation that can be transferred into the retirement phase. Excess transfer balance will be taxable.
  • From 1 July 2017, a change in Division 293 tax liability of high income earners will take effect:
  New Old
Threshold $250,000 $300,000
  • From 1 July 2017, the annual cap on concessional contributions has been reduced to $25,000 for all regardless of their age.
  • From 1 July 2017, a lower annual non-concessional contributions cap of $100,000 (previously $180,000) per annum with a three-year bring forward period for individuals under 65 years old will take effect.
  • From 1 July 2017, individuals with a superannuation balance of more than $1.6 million will not be eligible to make non-concessional contributions.
  • From 1 July 2017, the 10% test to determine an individual’s eligibility for deductions for personal superannuation contributions will be removed. As such, contributions to certain prescribed funds are no longer tax-deductible.
  • From 1 July 2017, spouses who earn up to $40,000 can claim tax offset for spouse contributions.
  • From 1 July 2017, tax exemption for income derived from assets has been changed to apply only on income streams in the retirement phase. Individuals cannot treat superannuation income stream payments as lump sum superannuation benefits for tax purposes.
  • From 1 July 2017, the removal of the anti-detriment provision, which allows a tax deduction for a portion of the death benefits paid to eligible dependents on superannuation funds, will take effect.
  • From 1 July 2017, the transitional CGT relief will be available to trustees of superannuation funds, including self-managed super funds (SMSFs) who adjust their asset allocations to comply with the transfer balance cap, and transition-to-retirement income stream (TRIS) reforms.
  • The determination of eligibility for various tax concessions is based on the individual’s total superannuation balance.

 

INTERNATIONAL

  • From 1 July 2017, the diverted profits tax (DPT) of 40% shall commence to reduce multinational tax avoidance. This is imposed to relevant schemes which produce tax benefit on the income year and the years thereafter.
  • From 1 July 2017, failure-to-disclose penalties have been increased for significant global entities.
  • To strengthen Australia’s foreign investment framework, a clarified and simplified framework will take effect to make foreign investor obligations clearer.

 

CAPITAL GAINS TAX

  • Applicable changes for the CGT of foreign residents:
  New Old
Withholding rate 12.5% 10%
Threshold $750,000 $2,000,000
  • In qualifying for an affordable housing, a 60% discount is proposed to be available to resident individuals starting 1 January 2018 from direct investments or indirectly through certain trusts.
  • Foreign residents with indirect interests in Australian real property will be subjected to the principal asset test on an associate inclusive basis.
  • Foreign and temporary residents will no longer be exempted from the CGT main residence.
  • From 1 July 2017, CGT event E4 (trust non-assessable payments) will no longer arise where trust receives a tax-free capital gain under the early stage innovation company provisions.

 

OTHER CHANGES

  • From 1 July 2017, managed investment trusts will be allowed to invest in affordable housing.
  • From 1 July 2017, travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed and non-deductible.
  • From 1 July 2017, only the entity that incurred the outlay to purchase the plant and equipment can claim the deduction on depreciation. Successive investors that can claim deduction on the second-hand depreciating plant and equipment will be limited.
  • From 1 July 2017, a limitation on the taxpayer’s PAYG instalment rate will be set by the Commissioner in case the normal rules would otherwise produce a very high rate.
  • Primary producers who decided to opt out – which was then a permanent choice in 2016/17, are now allowed to access income tax averaging 10 income years.
  • The junior mineral exploration tax credit (JMETC) will replace the exploration development incentive (EDI) from 2017/18.
  • Foreign owners of residential real estate will be liable to pay vacancy fee when a residential property is not occupied or available on the rental market for at least six months within a 12-month period.
  • From 1 January 2018, a Vacant Residential Property Tax of 1% on the property’s capital improved value will be imposed to residential properties that are left vacant for six months in the calendar year (applicable to properties located in metropolitan Melbourne).

 

A Queensland absentee surcharge of 1.5% will apply to the land you own if its total taxable value exceeded $349,999.