Federal Budget Summary 2018-19

Another Australian Federal Budget, more changes to tax and super - What are the key highlights

Scott Morrison has released his third budget, which includes tax cuts and a road to surplus.  In all there are some $140 billion in tax savings over the next 10 years, with middle income earners receiving tax savings of up to $1,060 per year.

 

We have compiled some of the key highlights from the budget below noting that these are proposed changes by the government at this stage and some of them may or may not become law.

Summary of Budget measures

From 1 July 2018

  • Low and middle income earners are to benefit from tax savings of up to $530 per person (or $1,060 per couple).
  • The Medicare Levy will remain at 2%.
  • The $20,000 instant asset write-off for business with aggregate turnover less than $10m will be extended until 30 June 2019.
  • Funding for home care services and residential aged care will increase.

From 1 July 2019

  • A one year exemption from the ‘work test’ will apply to recent retirees who have less than $300,000 in total super savings.
  • Life insurance can only be offered in super on an ‘opt-in basis’ to new members under 25 years of age or members with inactive accounts or an account balance under $6,000.
  • Fees when exiting a super fund will be banned and administration/investment fees will be capped at 3% pa on accounts with balances of less than $6,000.
  • The ATO will work to proactively reunite Australians’ dormant superannuation funds with their active account.
  • The Pension Loans Scheme will be available to all Australians over Age Pension age and the maximum payments will increase to 150% of the full Age Pension.

Taxation

Personal income tax savings

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 increased to $200,000 by 1 July 2024.

Table 1: Personal tax rates and thresholds
Tax rate
(excluding Medicare)
2017/18
income
thresholds
Proposed income thresholds

From 1/7/2018

From 1/7/2022

From 1/7/2024

0%

$0 – $18,200

$0 – $18,200 $0 – $18,200

$0 – $18,200

19%

$18,201 – $37,000

$18,201 – $37,000 $18,201 – $41,000

$18,201 – $41,000

32.5%

$37,001 – $87,000

$37,001 – $90,000 $41,001 – $120,000

$41,001 – $200,000

37%

$87,001 – $180,000

$90,001 – $180,000 $120,001 – $180,000

Not applicable

45% > $180,000 > $180,000 > $180,000 > $200,000

Personal tax offsets

  • A Low and Middle Income Earners Tax Offset of up to $530 will apply from 1 July 2018 to 30 June 2022.
  • From 1 July 2022, the Low Income Tax Offset will increase from $445 to $645.

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.

Table 2: Tax payable and potential savings
Taxable income

Tax payable in 2017/18

From 1/7/2018 From 1/7/2022 From 1/7/2024

Tax payable

Tax saved Tax payable Tax saved Tax payable

Tax saved

$40,000

$4,947

$4,657 $290 $4,492 $455 $4,492

$455

$80,000

$19,147 $18,617 $530 $18,607 $540 $18,607

$540

$120,000

$34,432

$34,217 $215 $32,407 $2,025 $32,407

$2,025

$160,000

$50,032

$49,897 $135 $48,007 $2,025 $46,207

$3,825

$200,000 $67,232 $67,097 $135 $65,207 $2,025 $60,007

$7,225

Medicare levy to stay at 2%

The previously proposed increase in the Medicare levy to 2.5% from 1 July 2019 has been abandoned.

Extension of instant asset write off

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.

Superannuation

Work test exemption for retirees

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 (ie 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.

Insurance in super

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:

  • have a balance less than $6,000
  • are new members under age 25, or
  • have an account which has not received a contribution in 13 months and are considered inactive.

Protection for small super balances

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.

  • Protection will be provided to super accounts by limiting administration and investment fees to a 3%
    annual cap. This cap will apply to accounts with balances below $6,000.
  • Exit fees will also be banned on all super accounts.
  • A $6,000 threshold will apply to inactive accounts. The ATO will increase data matching activities in an attempt to return amounts to active accounts held by members.

SMSF increase in member numbers

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.

SMSF three-year audit cycle

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.

Social security

Pension Loans Scheme

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.

 

Table 3: Pension Loans Scheme payment range

 

Full pension entitlement No pension entitlement
Single

$11,799

$35,397

Couple combined

$17,787

$53,360

Aged care

Additional funding for aged care

Date of effect: From 1 July 2018

Funding for home care services and residential aged care will increase, including:

  • 14,000 new home care packages over four years
  • 13,500 new residential aged care places, and
  • grants for aged care facilities in rural, regional and remote areas.

Legislated super changes post 1 July 2018

Downsizer contributions

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.

Catch-up concessional contributions

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.

  1. This cap applies in FY 2017/18 and 2018/19. It may be indexed in future financial years.

 

Like to know more?

To find out more about how the Budget could affect you, go to www.budget.gov.au or speak to us. Again the proposals may change or be withdrawn as legislation passes through parliament.

Need more information?

For more information on how the Federal Budget 2016/17 will affect your personal financial situation, please contact us today.

 

Please Note – General advice warning

This document or website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.

 

Reference to information provided by the MLC Technical Team

The budget summary above also references information provided by the MLC Technical Team – and is also subject to the following disclaimer.

 

Important information

The Federal Budget Analysis prepared by the MLC Technical team, part of GWM Adviser Services Limited, appears below.

The information contained in this Federal Budget Analysis is current as at 8 May 2018 and is prepared by MLC Technical, part of GWM Adviser Services Limited ABN 96 002 071749, registered office 150-153 Miller Street North Sydney NSW 2060,  a member of the National Australia Bank Group of Companies.

Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

Past performance is not a reliable indicator of future performance.

Before acquiring a financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.

 

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