Tax cuts in the 2018 Budget but devil in the detail

The Commonwealth Treasurer, Scott Morrison, delivered his second Budget in Canberra on Tuesday, 8 May 2018.

The Budget is the Government’s annual financial statement and review of levels of taxation. It also includes the Government’s future financial strategy and economic forecast, as well as the social and political priorities and how the Government intends to achieve these.

This was a Budget that was targeted at low and middle-income earners with average tax deductions of $200 per annum for low income earners, and $530 per annum for middle incomes. High income earners are again asked to wait.

On the good side, the $20,000 instant write-off was extended again, and the Medicare levy will remain at 2% despite talks about increasing it.

The income tax cuts will be achieved in two ways. Firstly, the income tax cuts for low income earners will simply be a new low-income tax offset in your tax return.

Income tax cuts for middle income earners will be achieved by increasing the tax brackets from $87,000-$90,000 before the 37c bracket kicks in at the start of the new financial year.

Like a lot of legal documents, the devil is in the detail.

There will be more funding provided to the ATO audit and matching program that will lead to more audits for individual tax payers and their tax agents. As well, any payments made to contractors or pay-as-you-go withholding employees where money is withheld will no longer be deductible, thus putting more pressure on small business cash flow.

Self-managed super funds may only require an audit every three years rather than the annual audit. In addition, there were many other changes affecting superannuation, mainly positive.

Some of the measures that will affect small business are in the black economy. From 1 July 2019, business can no longer receive cash payments above $10,000 for goods and services.

Also, any government contracts above $4 million will require a statement of compliance with the tax obligations again on 1 July 2019.

An area of concern will be that the taxable payment reporting system for payments to contractors will be expanded to include security services, road freight transport and computer system design industries again from 1 July 2019. We can see this expanding more in the future where the government will try and keep track of all payments made to and from small business.

This was clearly an election budget and note the leader of the opposition was scratching his head as he left the house. This appears to have created a wedge between a government seeking to reduce tax and opposition seeking to increase taxes.

There appeared only to be a small reduction in government debt that will leave open the door to attack the Budget.

Overall, we can say that this was a Budget that didn't badly affect small business. However, the loss of deductibility of some payments to employees and contractors that are ruled non-compliant will hurt.

This ties in neatly with the government's idea to report all payroll payments in the next two years, this seems to be a belief that by penalising people who are having cash flow problems will improve the economy.

Against this, it will mean more money in the pocket for our everyday customers.

Terry Murphy CPA

Date published 8 May 2018 | Last updated 8 May 2018