Following on from my last article about the increase to the Trust tax rate and the first budget announced by the coalition government last week, we have a clearer picture of the tax landscape for the near future.
Trusts
The tax rate for trusts has increased from 33% to 39% from 1 April 2024.
A trust pays tax on any income left over after income distributions to beneficiaries. The below “carve outs” relate to trust income after any distributions to beneficiaries.
If your trust earns $10,000 or less in a tax year, the trust will pay tax at 33%.
Estates are taxed as a trust. If an estate continues to earn income while it is being wound up, that income will be taxed at 33% for the year that the person dies, and for the next 3 years. After that the tax rate will revert to 39%.
If a trust has been settled to care for a disabled beneficiary, then it will pay tax at 33% no matter how much income it earns.
Energy consumer trust, will still pay tax at 33% (e.g. Northpower Electric Power Trust).
Budget 2024
Not a great stimulatory budget but more a “getting back into shape” budget.
Tax Changes:
The tax changes apply from 31 July 2024, apart from FamilyBoost which applies from 1 July 2024.
Increasing personal income tax thresholds reduces income tax for people earning more than $14,000 per annum. This reduction in personal income tax is the first since 2010:
The independent earner tax credit thresholds increase from $24,000 to $48,000 from $24,000 to $70,000 per annum (if not receiving Working for Families, main benefits or Superannuation). If eligible the tax credit is up to $20 per fortnight.
The in-work tax credit will increase by up to $50 extra per fortnight. This is available for families who have some income from paid employment each week.
The new FamilyBoost payment will help families with the costs of early childhood education, by up to $150 per fortnight.
Recap on previous announcements:
Removal of depreciation claims on non-residential buildings from 1 April 2024.
Changes to the Bright-line Property Rule:
If you sell a property on or after 1 July 2024 the bright-line property rule will only apply if the property is sold within 2 years of purchasing it.
If you sell a property before 1 July 2024 the current bright-line periods still apply.
If you bought the property between 29 March 2018 and 26 March 2021, the bright-line property rule applies if you sell the property within 5 years of buying it.
If you bought the property on or after 27 March 2021, the bright-line property rule applies if you sell the property within 5 years for qualifying new builds or within 10 years for other residential property.
Generally, the bright-line property rule does not apply if you sell your main home, and this will not change.
The changes restore the ability to claim interest deductions on residential rental properties to: 80% of interest deductions from 1 April 2024 to 31 March 2025. 100% of interest deductions from 1 April 2025 onwards.
