2018-19 budget – what tax deductions & concessions are out the door?

federal budget 2018-2019 tax deductions taxation business concessions vacant land testamentary trusts SMSF audit

The only thing certain in life is death and taxes – so what is set to change? Some of the key changes from the 2018-19 budget that may affect our clients are listed below.

  1. Tax deductions on vacant land – better start that build

From 1 July 2019, taxpayers will not be able to claim holding cost deductions on vacant land until a property has been constructed and is available for rent, unless that land is being used (in its vacant state) in a business conducted by the taxpayer.
This means that for most persons buying vacant land to construct a dwelling to be used as an investment property – interest, rates and land tax are not able to be claimed as deductions until construction has been finalised.

  1. Partnerships and assignment of income – goodbye to a glorious loophole

It is not uncommon for partners in a business partnership to assign their right to future income to a related entity, such as a company or trust. This is usually an assignment of the right to income only, not the ownership of the partnership interest, which avoids triggering capital gains tax and transfer duty consequences.
It is proposed that changes be made to ensure partners who assign their right to future income will not be able to apply capital gains tax concessions in relation to those rights.

  1. Contributions/gifts to testamentary trusts – you thought you were being sneaky

First, what are testamentary trusts? A colleague has an excellent article with all the background you need here.
One big tax benefit associated with testamentary trusts is that income of the trust that is distributed to minors (who are beneficiaries) will usually be taxed as though that minor were an adult.  Note – minors ordinarily have higher tax rates for distributions from trusts.
Where a testamentary trust is established, it is common for assets that were not part of the estate to be gifted to the testamentary trust – thereby obtaining concessional tax treatment of income from these assets to minors. Changes will be made to ensure that income distributed to minors from a testamentary trust will only be taxed at adult marginal rates where it is from assets placed in the trust by the deceased – not those later gifted to the testamentary trust.

  1. SMSF Auditing – wait, there is some good news!

From 1 July 2019, if you have been a good trustee, your annual audit requirements will go back to once every three years! This will be available to SMSF trustees that have three consecutive years of clear audit reports.
No doubt some of these changes may affect how you structure your affairs, and you should consult with your accountant or legal advisors if it sounds like you may be affected. It is worth noting that these announcements are part of the budget and are not yet law – some changes might be made before these come into effect.
Should you have any questions regarding the 2018-19 budget and the changes listed above, please contact our team today.

Prefer to call?

Give us a buzz on our Free Call number: 1800 640 509

Connect with us