‘Christmas in May’ is the unofficial catchphrase of this year’s Federal Budget (given a Federal election is on the horizon), but officially it’s being referred to by the Government as a ‘Plan for a Stronger Economy’.
The 2018-19 Federal Budget, delivered on 8 May 2018 by Treasurer Scott Morrison, saw many proposed measures announced. These proposed measures carry on with the main principles that underpinned last year’s Federal Budget, e.g. stronger growth, guaranteeing the essentials and living within our means.
Below is an overview of some of the main proposed measures that may be relevant to you and your personal finances.
The Government has restated its commitment to returning the budget to surplus. Based on forward estimates and the medium term, the budget is forecasted for a: $14.5 billion deficit in 2018-19; $2.2 billion surplus in 2019-20; $11 billion surplus in 2020-21; $16.6 billion surplus in 2021-22. Importantly, the budget surplus is set to occur a year earlier than previously promised.
Personal Income Tax Plan
Introduction of the Low and Middle Income Tax Offset*, a non-refundable tax offset of up to $530 per annum to low and middle-income taxpayers, which will be available for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. This is how it will apply to taxpayers with the following taxable incomes:
• ≤$37,000, a benefit of up to $200.
• Between $37,000 and $48,000, the value of the offset will increase at a rate of 3 cents per dollar to the maximum benefit of $530.
• From $48,000 to $90,000, the maximum benefit of $530.
• From $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
• From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased to $90,000.n
• The top threshold of the 19% tax bracket will be increased to $41,000 (currently $37,000).
• The Low Income Tax Offset will be increased from $445 to $645 (and withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667).
• The top threshold of the 32.5% tax bracket will be further increased to $120,000 (from the proposed $90,000 in 2018-19).
From 1 July 2024:
• The 37% tax bracket will be removed.
• The top threshold of the 32.5% tax bracket will be further increased to $200,000, which will mean that the top marginal tax rate of 45% will be paid by those taxpayers that exceed this amount.
*This will be received as a lump sum on assessment after an individual lodges their tax return. Furthermore, this is in addition to the existing Low Income Tax Offset.
Retaining the Medicare levy rate at 2% and increasing the Medicare levy low-income thresholds
• The Medicare levy rate will not be increasing from 2% to 2.5% of taxable income from 1 July 2019; however, this will not impact the funding of the National Disability Insurance Scheme.
• From the 2017-18 income year, the Medicare levy low-income thresholds will increase for singles (from $21,655 to $21,980), families* (from $36,541 to $37,089), and seniors and pensioners [from $34,244 to $34,758 (single) and from $47,670 to $48,385 (family)].
*For each dependent child or student, the threshold increases by a further $3,406, (previously $3,356).
Income tax exemption for certain Veteran Payments
From 1 May 2018, supplementary amounts (e.g. pension supplement and rent assistance) of Veteran Payments paid to a veteran, and full payments (inclusive of the supplementary component) made to the spouse/partner of a veteran who dies, will be exempt from income tax.
Deny deductions for vacant land
From 1 July 2019, expenses associated with holding vacant land will cease to be deductible if the land is not being used to carry on a business.
Improving the taxation of testamentary trusts
From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
Further extending the immediate deductibility threshold
The $20,000 instant asset write-off will be extended by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
Introduction of an economy-wide cash payment limit
From 1 July 2019, there will be a limit imposed of $10,000 for cash payments made to businesses for goods and services; they can only be paid electronically or via cheque. However, transactions with financial institutions or consumer to consumer non-business transactions will not be subject to this cash limit.
Enhancing the integrity of concessions in relation to partnerships
From 7:30pm (AEST) on 8 May 2018, partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.
Extending anti-avoidance rules for circular trust distributions
From 1 July 2019, anti-avoidance measures will be extended to family trusts engaging in ‘round robin’ arrangements whereby the trusts act as beneficiaries of each other and the distribution is ultimately returned to the original trustee tax free.
Removing the capital gains discount at the trust level for MITs and Attribution MITs
Applying to payments made from 1 July 2019, Managed Investment Trusts (MITs) and Attribution MITs will no longer be able to apply the 50% capital gains discount at the trust level; ensuring that income is taxed in the hands of investors, as if they had invested directly.
Protecting Your Super Package
From 1 July 2019:
• Insurance within superannuation will be offered on an opt-in basis for members that have low balances (<$6,000), are under the age of 25 years and/or have accounts that have not received a contribution in 13 months and are inactive.
• A 3% annual cap on passive fees charged by superannuation funds on accounts that have low balances (<$6,000).
• A ban on exit fees on all superannuation accounts.
• Inactive superannuation accounts that have low balances (<$6,000) will be required to be transferred to the ATO, and the ATO will be given greater capacity to proactively reunite Australians (and their active account) with their lost and inactive superannuation.
Work test exemption for recent retirees
From 1 July 2019, there will be an exemption from the work test for voluntary contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements. However, existing annual concessional (and, the carry forward rules) and non-concessional contribution cap limits will continue to apply to the contributions permitted by the exemption.
Increasing the maximum number of allowable members in SMSFs and small APRA funds
From 1 July 2019, the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds will increase from four to six.
Three-yearly audit cycle for some SMSFs
From 1 July 2019, the annual audit requirement for self-managed superannuation funds will be changed to a three-yearly for those with a history of good record-keeping and compliance.
Preventing inadvertent concessional cap breaches by certain employees
From 1 July 2018, individuals who earn over $263,157 and have multiple employers will be allowed to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG). Due to this, employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates.
Ongoing care and maintenance of Treasury portfolio legislation
Technical amendments will be made to legislation with regards to:
• The transition to retirement income stream rules relating to the death of a member.
• Addressing double taxation in respect of deferred annuities purchased by a superannuation fund or retirement savings account.
Skills Checkpoint for Older Workers Program
To support employees aged 45-70 to remain in the workforce, the Government will provide funding to establish the Skills Checkpoint for Older Workers Program. This will mean, starting from 1 September 2018, 5,000 employees each year would be entitled to receive customised career advice on transitioning into new roles, or their pathways to a new career, including referrals to relevant training options.
Jobs and skills for mature age Australians
The Government will provide funding to support mature age Australians, aged 45 years and over, to adapt to the transitioning economy and develop the skills needed to remain in work. This includes targeted funding, for example, to those considering early retirement or who are retrenched to look at alternatives to remain in employment.
Finances for a longer life
From 1 July 2019:
• The Pension Work Bonus will increase from $250 to $300 per fortnight to allow pensioners (and self-employed retirees) to earn up to $7,800 each year without affecting their pension.
• The Government will introduce a ‘retirement income covenant’ requiring superannuation trustees to formulate a retirement income strategy for their members and offer ‘Comprehensive Income Products for Retirement’ (CPIRs), which provide an income for life, regardless how long the member lives.
• Pension means test concessions will be introduced to encourage the development and take-up of pooled lifetime retirement income products that help retirees manage longevity risk. Only 60% of the assets and income from a qualifying income stream would be assessable, reducing to 30% from age 84 or a minimum of 5 years.
• The Pension Loans Scheme will be expanded to everyone over Age Pension age, allowing homeowners to borrow a fortnightly amount that tops up their Age Pension to 150% of the Age Pension rate (increased from 100%). The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25% on the outstanding balance.
Healthy ageing and high quality care
• The Government will deliver an additional 14,000 new high level home care packages over four years from 2018-19. Furthermore, 13,500 residential aged care places and 775 short-term restorative care places in the 2018-19 Aged Care Approvals Round will be released.
• From 1 July 2018, the Residential Care and Home Care programs will be combined.
Whilst there were many other proposed measures in the 2018-19 Federal Budget, we have focused predominantly on the ones that may relate to you and your personal finances. Other measures not mentioned include, for example, the infrastructure spend on road and rail projects (i.e. Melbourne Airport Rail Link, Bruce Highway, Perth Metronet, and Western Sydney Airport), funding for schools, public hospitals, and regulators, to name a few.
For more information on this year’s Federal Budget and what it may mean for you, please feel free to visit our Knowledge Centre for more information. Alternatively, you can call us on (03) 9801 7605.