Scott Morrison has now handed down his third budget. This year, the headline is $140 billion in tax cuts over the next decade, with some more immediate tax relief of up to $1,060 a year for middle-income households and the proposed fundamental reform of the tax system.
As we remind our clients every year, these Budget proposals are exactly that – proposals. They have NO effect until passed into law. Once passed into law, we can examine the impact to you and advise relevant strategy into the future.
As we remind our clients every year, these Budget proposals are exactly that – proposals. They have NO effect until passed into law. Once passed into law, we can examine the impact to you and advise relevant strategy into the future.
Note: These changes are proposals only and may or may not be made law.
There are some key opportunities announced in previous Federal Budgets that are already legislated to take effect on 1 July 2018. These include:
Date of effect: From 1 July 2018
Low and middle income earners will benefit from tax savings of up to $530 per person (or $1,060 per couple), via a series of changes to be implemented over seven years.
Personal income tax thresholds
The income threshold at which the 32.5% marginal tax rate applies will progressively increase to $200,000 by 1 July 2024.
Personal tax offsets
Personal tax savings
Table 2 below illustrates the tax payable in future financial years (and the potential tax savings compared to 2017/18) for a range of taxable incomes. These figures take into account the proposed personal income threshold and tax offset changes.
The previously proposed increase in the Medicare levy to 2.5% from 1 July 2019 has been abandoned.
Date of effect: From 1 July 2018
Small businesses with turnover of less than $10 million will be able to immediately write-off newly acquired eligible assets valued at less than $20,000 for a further 12 months.
Date of effect: 1 July 2019
A person aged 65 to 74 is currently able to make contributions to superannuation if the ‘work test’ has been satisfied (i.e. they have worked at least 40 hours in 30 consecutive days) in the financial year the contribution is made.
A one year exemption from the work test will apply to older Australians who have less than $300,000 in total super savings. This exemption will apply to the financial year following the last year the work test was satisfied. This will allow an additional period of time for those eligible to contribute to superannuation.
Date of effect: 1 July 2019
In many super funds, including MySuper and employer funds, insurance is offered as a default option. It’s proposed that members will need to ‘opt-in’ for insurance where they:
Date of effect: 1 July 2019
Measures will be introduced to reduce the impact of fees on low super balances and focus on returning lost super to members.
Date of effect: 1 July 2018
The ATO will develop new compliance processes for taxpayers claiming a deduction for personal superannuation contributions. This includes raising awareness regarding the necessary steps, including lodging a ‘notice of intent to claim a tax deduction’ form with the super fund trustee.
Date of effect: 1 July 2018
Employers are required to pay Superannuation Guarantee (SG) based on an individual employee’s income. For some individuals this means their concessional contribution cap is breached by the total of multiple employers’ compulsory contributions.
Individuals who have a total income exceeding $263,157 p.a. and multiple employers will have the option to elect to no longer have SG contributions paid on certain income from their employer. This overcomes the inadvertent breach of the concessional contribution cap and associated tax penalties.
Date of effect: 1 July 2019
Self-managed superannuation funds (SMSFs) are limited to having four members. This threshold will increase to six to provide greater flexibility and allow families, for example, to all be members of the same SMSF.
Date of effect: 1 July 2019
SMSFs with a history of good record-keeping and compliance will move from providing an audit on an annual basis to a three-yearly cycle. Eligible SMSFs will be those with a history of three consecutive years of clear audit reports and have lodged annual returns on time.
Date of effect: 1 July 2019
The Pension Loans Scheme allows eligible individuals to access some of the equity in the home or other property via a Government loan, which is advanced in fortnightly instalments.
This scheme will be available to all Australians over Age Pension age and the maximum loan payments will increase to 150% of the full Age Pension. Eligibility will continue to limited by the value of the property used as loan security.
The following table summarises the payment ranges for singles and couples based on current rates, where the full pension and no pension is available.
Date of effect: 1 July 2019
Under the Work Bonus, the first $300 per fortnight (currently $250) of employment income will not count when calculating Age Pension entitlements under the income test.
Self-employed retirees will be able to access the scheme for the first time.
A ‘personal exertion test’ will ensure the bonus only applies to income earned from paid work.
Any unused Work Bonus (up to a total of $7,800 pa) can continue to be accrued to reduce assessable employment income in a future period.
Date of effect: 1 July 2019
Favourable social security rules will be introduced to encourage the development and use of income products that will help retirees reduce the risk of outliving their savings.
Under the proposed rules, only 60% of the amount initially invested in these ‘lifetime income streams’ will be assessed under the assets test. This concession will apply until the account holder is 84 (or for a minimum of five years).
After this time, only 30% will be assessed for the rest of the person’s life. Also, only 60% of the income payments will be assessed under the income test.
Date of effect: To be confirmed by Government
As previously announced, the Carer Allowance and Carer Allowance (child) Health Care Card will be income tested. Households earning over $250,000 won’t be eligible. Both existing and new recipients of Carer Allowance will need to meet this income test.
Date of effect: From 1 July 2018
Funding for home care services and residential aged care will increase, including:
Individuals aged 65 or older may be able to make super contributions of up to $300,000 (or $600,000 per couple) from 1 July 2018 when selling their home.
These contributions, known as ‘downsizer contributions’ can be made without having to meet a ‘work test’ or ‘total super balance test’ and they don’t count towards the contribution caps. However, they must be made with 90 days of settlement and a tax deduction can’t be claimed.
The property must have been owned for at least 10 years and have been the main residence at some time during this period.
First home buyers who have made super contributions under the First Home Super Saver Scheme (FHSSS) can access their money from 1 July 2018.
The FHSSS started on 1 July 2017 and allows eligible first home buyers to save a deposit in the concessionally taxed superannuation system. Contributions of up to $15,000 per year (and a total of $30,000) can be made and they count towards the relevant contribution cap.
Where the annual concessional contribution (CC) cap is not fully utilised from 1 July 2018, it may be possible to accrue unused amounts for use in subsequent financial years.
The CC cap is currently $25,000 pa1. Counted towards this limit are all employer contributions (including super guarantee and salary sacrifice), personal tax deductible contributions and certain other amounts.
Unused cap amounts can be accrued for up to five financial years. 2019/20 is the first financial year it will be possible to use carried forward amounts.
To be eligible, individuals cannot have a total super balance exceeding $500,000 on the previous 30 June.
This measure could help those with broken work patterns and competing financial commitments to better utilise the CC cap. It could also help to manage tax and get more money into super when selling assets that result in a capital gain.
If upon reading the this summary, if you would like to discuss any proposed changes in more detail before they are passed into law, then please feel free to contact us.
2024 was a memorable one for investors, with asset prices powering ahead.
The year started with a bang, as the positive market momentum from the fourth quarter of 2023 spilled over into the new year, under the premise that inflation would fall sharply through 2024 enabling central banks to deliver large interest rate cutting programs.
The Australian equity market (ASX 200), although starting the quarter in good spirits and continuing to rally, driven by lower-than-expected inflation data and positive sentiment, witnessed an acceleration in market volatility due to various economic and political factors. This did not deter investors as the index made history on 17 July by surpassing the 8,000 mark and closing at an all-time high of 8,057. Off the back of positive momentum supported by optimism of interest rate cuts by the US Federal Reserve as early as September the benchmark delivered a strong quarterly return of +7.8%.
A new generation of just over 5 million Australians – born between 1965 and 1980 – are approaching their retirement years.