Top Tax Tips - 20 June 2018

Reminder of some of the main tax changes for 2018      

When applying the tax law detailed consideration must be given to a person’s or entity’s circumstances. This process cannot be simply following a generic checklist and ticking boxes (a practice unfortunately rife in many firms) or doing exactly what was done the year before.  Tax and superannuation laws are constantly changing such that the application of the law in one year may be different in a subsequent year.  For this reason, checking with your Nexia advisor on how the law will apply to the transaction is important when embarking on a significant transaction.

Set out below are some of the main brand new tax changes that affects the 2018 income tax year:

• 27.5% company tax rates for companies carrying on business with a turnover of less than $25 million – as per the current law as at the date of this top tax tips;
• No more budget repair levy (so top marginal tax rate is 47%);
• No more travel deductions to inspect residential rental properties;
• Limited depreciation deductions on previously used plant and equipment in residential rental properties;
• 12.5% foreign resident CGT withholding tax (and a $750,000 threshold);
• First year of first home super saver scheme to enable taxpayers to buy their first home [i.e. can make superannuation contributions to a maximum of $15,000 (if single) and $30,000 (if couple) in 2018];
• Superannuation contributions of individuals earning income of more than $250,000 will be taxed at 30% and payable by the individual although the individual can complete a release authority to obtain reimbursement from their superannuation fund; 
• Salaried workers can now claim a deduction for personal superannuation contributions.

SME businesses should also consider whether they can qualify for:

• Small business entity concessions (e.g. $20,000 instant asset write-off, small business restructure rollover, simplified depreciation and trading stock rules etc.) – for businesses with a turnover of less than $10 million; or
• Small business CGT concessions on the sale of the business – for businesses with a turnover less than $2 million or net assets of less than $6 million.

Please see our tax year-end planner for a more detailed discussion of the various issues to consider for the 2018 tax time.

Other Important superannuation issues to consider

Because of the fundamental changes to the superannuation system from 1 July 2017, the following issues need to be considered for the 2018 income tax year:

1. The tax-exempt status is removed on income from assets that support a Transition to retirement income stream (TRIS) that is not in the retirement phase. Income from assets supporting a non-retirement phase TRIS will be taxed at 15% regardless of the date the TRIS commenced. However, the TRIS account can enter into retirement phase if the SMSF member has met a nil cashing restriction condition of release (e.g. aged 65 or above, turns 60 and retires, or over the preservation age and retires with no intention to be gainfully employed, has permanent incapacity or has a terminal medical condition). Entering the retirement phase brings the pension exemption but also brings the pension within the $1.6 million transfer balance cap regime.
2. Members will only be allowed to make non-concessional contributions if their total superannuation balance in all superannuation funds does not exceed $1.6 million (note; contributions from the small business CGT cap, the $300,000 downsizing contributions and any Court order superannuation splits will not be subject to this $1.6 million total superannuation balance cap,).
3. Ensure non-commercial limited recourse borrowing arrangements (LRBAs) to fund the acquisition of properties are put on arm’s length terms (e.g. there must be market interest rates, commercial lending periods and principal and interest repayment arrangements).

Superannuation law is complex.  Therefore, please speak to an authorised Nexia representative for advice on these issues.