Every year around tax time, things can change, the government may choose to implement new schemes, cuts or hikes in your tax, and it can be difficult to keep track of what will happen.
At TaxReturn.com.au, we want to help you understand exactly what has changed for the 2019/20 tax year and have put together this hand guide to tell you the key things you need to know when it comes to tax.
What Types of Tax Are there?
The Australian Federal Government imposes taxes for most goods and services that the people avail of in the country. The agency that takes care of the taxation process is the Australian Taxation Office (ATO). As the primary revenue collector, some reports state that the ATO gathers 92% of the entire revenue of the Government.
Some of the taxes in Australia are charged from individuals, tax professionals, and businesses in the form of:
- Income
- Superannuation
- Corporate taxes
- Tax on inheritance
- Goods and services
- Property
- Excise tax
- Payroll
Out of all the types mentioned above, the most important is the income tax. It is the primary source of revenue for different government activities in the country. Citizens pay the income tax, specifically those who are categorised under the “taxable group” of people.
Tax Facts
A little bit of background here: did you know that the birth of income tax was in 1880 in Tasmania? At that time, residents of Tasmania had to pay for the taxes. The Australian Government was not in good shape, so income taxes were imposed on people in the southern regions of the country.
Many years later, income tax was levied on everyone residing all around Australia starting from 1915. Income tax included family tax benefit, personal income tax, capital gains tax, and low-income tax offset are some of the different categories involved.
To be clear, the ATO collects income tax every financial year, which runs from the 1st of July to the 30th of June the following year. In this case, we are in the 2019/2020 fiscal year, starting from the 1st of July 2019 to the 30th of June 2020.
Tax Brackets and Rate of Tax for 2019/20
The tax rates remain the same as the previous year, which are as follows:
| Tax Brackets | Tax Rates |
|---|---|
| $18,000 or below | No taxes |
| $18,201 to $37,000 | 19c for every $1 over $18,200 |
| $37,001 to $90,000 | $3,572 + 32.5% for every $1 over $37,000 |
| $90,001 to $180,000 | $20,797 + 37% for every $1 over $90,000 |
| $180,001 or more | $54,096 + 45% for every $1 over $180,000 |
Federal Budgets in 2018 and 2019 announced that there would be income tax cuts. They ushered the entrance of certain changes in the tax guidelines, including the temporary Low and Middle Income Tax Offset (LMITO). Some more modifications were to be imposed on most tax brackets as well.
Residents whose income is $18,200 or lower will still not pay taxes until the 2024/2025 financial year. However, the changes begin for those in the second bracket. As mentioned above, 19% is imposed for those with incomes from $18,201 to $37,000. In 2022/2023 to 2024/2025, the same percentage will be applied for those who earn $18,201 to $45,000.
Another big adjustment is the third level, which will be modified to $45,001 to $120,000 with $5,092 + 32.5% from $37,001 to $90,000 with the income tax of $3,572 + 32.5% currently.
But of course, most people are more focused on the “now.” Tax rules, regulations, and requirements have changed over the years. As a tax-paying citizen in the country, you should know about these alterations to understand how it can affect you.
What Are The Main Tax Changes for 2019/20?
Low to middle income earning individuals have something to be glad about because the Government has imposed significant cuts on their personal taxes. The Australian Government announced that this reduction is a part of the legislated Personal Income Tax Plan. The lower rates will certainly provide immediate relief for many citizens, estimated to be more than 10 million.
This change will reduce the revenue of the country by $19.5 billion. Those who qualify from the tax cut are people whose income is less than $126,000. There are a few restrictions on the reduction, which include:
- $1,080 maximum offset per year
- $255 base amount per annum for those with incomes up to $37,000
The amount the qualified taxpayer will receive will depend on a few factors. The most important considerations are the income and the total tax paid throughout the year.
From the 1st of July in 2022, the Government confirmed that the top threshold of the tax bracket would be increased from $41,000 to $45,000 for the 19% tax. The announcement included an increase in low-income tax offset (LITO), which will be from $645 to $700. It will also be executed on the same date mentioned.
Another declaration from the Government involved an increase in the Medicare levy. Starting from 2018/2019 income year, those in the low-income thresholds will continue to be exempted from paying Medicare. The benefit includes all citizens, such as singles, pensioners, families, and seniors. The measure will lower the revenue by approximately $250 million.
Medical Levy changes will look like the following figures:
- The threshold for singles will be from $21,980 to $22,398
- The threshold for families will increase from $37,089 to $37,794
To know your Medicare levy, use this online calculator.
It should be noted that Medicare Levy is not the same as Medicare Levy Surcharge (MLS). The latter is a type of federal government tax collected to pay for public healthcare. Everyone benefits from Medicare, which allows even those who cannot afford to obtain services from hospitals and medical professionals.
On the other hand, Medical Levy Surcharge is for Australians to take out health insurance from private companies.
Almost all people with a full-time job are required to pay the Medicare Levy, which is at two per cent. The exception is for those who do not meet the income threshold, as stated above. People whose income is more than $90,000 and $180,000 for singles and couples respectively will have to pay the Medicare Levy Surcharge. However, they should not have any private health insurance.
Previously known as payment summaries, income statements will take over. Employers who lodge income statements through Single Touch Payroll will no longer have to provide the document. Meanwhile, employees can view their income statements online anytime. They will be notified directly through their myGov accounts whenever their income statements are ready. This way, it will be easier and faster to complete tax returns.
The Government announced the passing of the legislation for the budget year 2018/2019. On the 5th of April 2019, laws concerning income tax were enhanced in many ways, including the modification of thin capitalisation rules.
Three primary changes are:
- Entities should utilise the same method they used for preparing their financial statements for the asset, equity, and liability valuations.
- Business entities are no longer allowed to revalue their assets, particularly if the purpose is to calculate the thin capitalisation ratio.
- All foreign entities that control Australian tax consolidated groups, as well as multiple entry groups are treated as investing entitles. This measure also applies to foreign investments and others that are not authorised deposit-taking institutions (ADIs).
The tightening of the rules was a part of the Government’s plans to improve the integrity of critical international tax measures. The changes concern businesses involved trust investments, excluding public trading trusts. Partnerships are also affected by these modifications.
Taxpayers who have reached 65 years old may want to move to a smaller home. Some retirees are willing not to sell their family home, which will help release equity that may have built up over the years. The amount they get can be added to their super account. It is what this change is all about.
The downsizer contribution rules can boost super accounts. This reform is not entirely new since it was announced in the 2017/2018 Budget. It became law in December 2017.
Downsizer is a type of contribution where eligible citizens can add up to $300,000 to their super funds. The amount may come from their primary residence, which they have sold. Only those whose contract for sale started from the 1st of July 2018 will be eligible.
Members who make a downsizer contribution will have to report it in the same year. It should also be documented within 90 days since the change of ownership. In some cases, the eligible taxpayer may request an extension. However, it should not be for the purpose of waiting for the member to reach the age requirement.
The good news though is that the downsizer contributions can continue despite caps on donations. Some restrictions are also ignored, including a work test, which typically applies for voluntary donations.
This scheme is quite beneficial to those who want to save money so that they can purchase their very first home. The user will be required to tap into superannuation funds, which can give the deposit a big boost.
First Home Super Saver (FHSS) is a new system where members can voluntarily make a contribution of up to $30,000 to their super. They can then withdraw the amount, along with some extra earnings to purchase their first home.
Those who would like to take advantage of the scheme should be providing the tax withheld amount and assessable FHSS amounts. These two requirements should be included in their tax return. Applying for FHSS is not as complicated as it may sound. The Australian Taxation Office will provide a payment summary, which breaks down the assessable FHSS and tax withheld amounts.
Rules on hybrid mismatch were approved on the 24th of August in 2018. Since the implementation, they have prevented a number of multinational companies from avoiding income tax. Several businesses protested in the past about these companies gaining an unfair advantage because of the double tax benefits. It is why the hybrid mismatch rules were formed.
The arrangement exists to reduce or even remove tax deductions for Australian companies that provide funds for a hybrid mismatch in all countries without the OECD approvals.
Australia is one of the few countries that have departed from some of the Organisation for Economic Cooperation and Development or OECD recommendations. Other countries with the hybrid mismatch rules are the United Kingdom, Japan, the Netherlands, South Africa, and New Zealand.
The rules are quite broad, but the goal is to deny deductions for different types of payments made by an Australian company or group. These payments can be anything from interest, service fees, royalties, and rents.
Granular deductions, which many people know as the line entry deduction data, are now mandatory since the 1st of July 2019. The record is what you enter in your practice management software. You then lodge it with the practitioner lodgement service (PLS).
The Australian Taxation Office starts receiving granular deductions for all applicable data, including work-related expenses. If you have hired a tax agent before, the information required may be already entered in your record.
The ATO has confirmed that granular data will be added to the software applications that agents use. Such data will be used to gain better visibility over tax agents in the country. This way, those who provide services but are not capable of giving the right information to their clients will be identified. Additionally, it will be utilised to pinpoint certain mistakes that an agent may not have made intentionally.
The revised tax incentive for research and development is to encourage more investments in Australia’s R&D arena. At the same time, the purpose is to ensure the honour and reliability of such an incentive. Research and development is an area that can become extremely costly, which inhibits groups and investors from supporting R&D projects.
Another vital announcement regarding R&D tax incentives is that the Government exempts those who may have been a victim of the bushfires. Instead, tax incentives are available for claiming through the government contact centre or via your case manager.
As a taxpayer, many of these reforms may have changed how you should pay your taxes. Be sure to stay updated with any alterations that may impact your obligations. To make everything easier, have experts sort your tax return for you. Contact TaxReturn.com.au today.
