April 9, 2019 | Posted in Blog | By

From the desk of Christopher Emmanuel

I have read the Federal Budget 2019/20 proposal, tax section only, and I have to say that I like what I saw.

Since I am an accountant and tax agent, this article about the budget was filtered to the tax proposal only. Overall, the lower and middle-income earners are the focus of this tax budget.

Maximum tax offset will be increased up to $1,080 for income up to $90k and will be gradually decreased to $0 for income between $90k to $126k.

With the base lower income tax offset of $255, this means tax free taxable income is effectively $19,500 instead of $18,200.

The new targeted offset will benefit over 10 million low- and middle‑income earners

The other major proposal that I really like is the simplification of the Australian Tax Bracket system (Progressive Tax System). Proposed, if elected, in 2024/25, they will abolish the 2nd largest tax bracket, 37%, and increased the 2nd level tax threshold to $200k, up from $37k in 2017/18.

Now unto Small Business. We also win big time, with the proposal to fasten the reduction of tax rate for small business corporate entity from 27.5% to 25% five years earlier. Who wouldn’t want that?

The only downside with the reduction of the tax rate, with the current law, the franking rate can only be maxed to the rate of the current tax rate applied. So if there were a small business who have paid 30% tax rate, they will not be able to distribute the difference as an imputation credit to the dividend being paid, thus this will create a massive excess franking account balance, which will never get distributed. The only time this will ever be distributed is when the government increases the tax rate again or the small business entity received 80% of its income from passive investments, thus putting them back to the 30% tax rate.

Also, from 1/07/2019, the Government increases the threshold for SBE Immediate Write-off to $30,000. This is a great news for a lot of small business entities but still my advice, just because there is this tax break, you will still need to judge wisely whether you will need to spend $30k just to reduce your tax.

In conclusion, I like what I being proposed in the budget and hope that we all can benefits from this.

Kind regards

Christopher Emmanuel

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