Last night Treasurer Josh Frydenberg delivered the first budget of the Morrison Government.

As expected, it was compete with good news and promises for voters in the hope that the Government can get a large enough bump in the polls to be reelected in May. Given this political backdrop, and the polling to date (as well as the odds on the next election), the opposition’s response tomorrow evening will be particularly relevant.

The budget contained a number of non-tax announcements including, for example the “one-off tax-free energy payment to pensioners.” As this is not a tax measure, the detail of this announcement is not included in this summary.

This post specifically considers the tax changes announced last night as they are relevant to small and medium businesses as well as families and individuals.

For Small Businesses

Increase in instant asset write off threshold

The Government announced an increase in the instant asset write off threshold from up to $25,000 to up to $30,000 with effect from last night. They have also announced that the turnover threshold will be increased to include businesses with a turnover of up to $50 million.

Note that the threshold is legislated to revert to $1,000 on 1 July 2019 (although it has been announced that this will be extended to 1 July 2020 this legislation is yet to pass Parliament, and may not pass before the election).

Deferred commencement of proposed amendments to Division 7A

The Government also announced that they will defer the start date of the proposed amendments to Division 7A by 12 months to have them start from 1 July 2020 instead of 1 July 2019. I will expand on these amendments in another post.

For Individuals and Families

Increase in Low and Middle Income Tax Offset

The biggest tax announcement in the budget to impact individuals and families is the increase in the low and middle income tax offset from $530 to $1,080. This increase will occur from the 2019 financial year, so individuals earning under $126,000 per year will receive this as soon as they lodge their 2019 income tax returns.

In initial comments from Shadow Treasurer Chris Bowen the Labor part will support these cuts, so it is likely they will be implemented (though possibly increased for lower income earners).

Reduction in 32.5% Tax Rate and Increase in Income Threshold (from 1 July 2024)

The government also announced that they would lower the 32.5% tax rate to 30% from 1 July 2024. While this is very welcome, the implementation of this policy is outside the forward estimates (and at least two elections away), so doesn’t require much immediate consideration.

Also announced was an increase in the threshold that this rate kicks in from $37,000 to $45,000. Again, this increase in tax threshold is welcome, but I’ll remain skeptical until it has been legislated.

Unchanged was the (already legislated) abolition of the 37% tax threshold from 2024-2025. If these changes were to be legislated as announced, the tax thresholds in the 2025 financial year would be lower and more simple. That is no tax to $18,000 of income, 19% between $18,000 and $45,000, 30% between $45,000 and $200,000 and 45% above $200,000.

Changes to Work Test for Voluntary Superannuation Contributions

Individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test. The age limit for making spouse contributions will also be increased from 69 to 74.

If you have any questions for us about the impacts of last night’s budget on your family or small business, please leave a comment below, or book a time to speak to the team.