On Tuesday 8 May, the Federal Government handed down its Budget for the 2018–19 financial
Here’s a roundup of some of the key proposals put forward, and we take a look at how they might affect your financial goals — whether you’re starting out in your working life, building a career and family, or enjoying the fruits of your labor in retirement.
Remember, at this stage these are just proposals and not yet law. As such, they could change as legislation passes through parliament.
Personal income tax
1.Increase in tax bracket thresholds
The 32.5 per cent upper threshold will be increased from $87,000 to $90,000 from 1 July 2018. The existing threshold was increased from $80,000 to $87,000 from 1 July 2016.
The increase to $90,000 reduces the tax liability of those earning $90,000 or more by $135.
A further increase in this threshold to $120,000 is proposed from 1 July 2022.
In addition, the 19 per cent upper threshold will increase from $37,000 to $41,000 from 1 July 2022.
From 1 July 2024, the Government will extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognize inflation and wage growth impacts.
Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.
2.Low Income Tax Offset
The existing Low Income Tax Offset (LITO) will be increased to a maximum of $645 for those with taxable income less than $37,000 from 1 July 2022. LITO will phase out at 6.5% in the income range from $37,000 to $41,000, and at 1.5% thereafter.
3.Medicare levy thresholds for 2017-18
The threshold for singles will be increased from $21,655 to $21,980. The family threshold will be increased from $36,541 to $37,089. For single seniors and pensioners, the threshold will be increased from $34,244 to $34,758. The family threshold for seniors and pensioners will be increased from $47,670 to $48,385. For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.
4.Increase in the Medicare levy
The Government will not proceed with the increase to the Medicare levy rate from 2.0 to 2.5 per cent of taxable income from 1 July 2019. The increase was originally announced in the Federal Budget 2017-18.
5.Denying deductions for vacant land
Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward.
Such expenses for land that was previously vacant will only become deductible when:
- construction is complete, approval for occupancy has been granted and the property is available for rent, or
- the land is used in carrying on a business.
Denied deductions will not automatically be included in the cost base of a CGT asset. Taxpayers will need to assess the expenses against existing cost base element rules.
6.Ensuring tax compliance for individuals
Additional funding will be provided to the ATO to assist its compliance activities around taxpayers that over-claim deductions or entitlements.
The funding will complement and strengthen the ATO’s data matching and pre-filling activities.
7.Improving the taxation of testamentary trusts
Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust.
This new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate.
8.Removing the CGT discount on gains made within a Managed Investment Trust (MIT) or Attribution MIT (AMIT)
Presently, MITs and AMITs are entitled to a 50% discount for capital gains made on assets held within the trust for longer than 12 months.
From 1 July 2019, this CGT discount will no longer be allowed at the trust level. This means each beneficiary taxpayer must determine their own entitlement to a CGT discount upon receiving a capital gain distribution through a MIT or AMIT.
1.Continuation of small business asset write-offs ($20,000 threshold)
Small businesses will be given an additional 12 months to write off assets costing less than $20,000, provided they are installed ready for use by 30 June 2019.
Depreciation pools will continue to be allowed for assets costing $20,000 or more.
2.Economy wide cash payment limit of $10,000
From 1 July 2019, any payments for goods or services to businesses that exceed $10,000 will no longer be allowed to be paid with cash. They can only be paid electronically or via cheque.
Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.
3.Removing tax deductibility of non-compliant payments
Where an employer fails to withhold an amount of PAYG from payments to an employee or to a contractor (where no ABN is provided), a deduction for the payment will be denied.
This measure will commence from 1 July 2019.
4.GST on online hotel bookings sold by offshore providers
The current exemption allowing offshore sellers of Australian hotel rooms online not to charge GST to consumers will be removed from 1 July 2019.
The proposal requires unanimous approval from the States and Territories and mirrors previous GST changes to digital products and low value importations.
5.Partnerships and small business concessions
The small business CGT concessions will no longer be available in respect of the disposal, creation or assignment of rights to future income of a partnership (also called an “Everett assignment”).
The measure will apply from the date of the budget, 7:30pm 8 May 2018.
1.SMSF member limit increase
The maximum number of members allowable in self managed superannuation funds (SMSFs) and small APRA funds will increase from four to six from 1 July 2019.
2.SMSF three-yearly audit cycle
SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.
3.Work test exemption for those with balances of less than $300,000
From 1 July 2019 those aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year following the year they last met the work test.
Eligibility will be assessed based on the individual’s total superannuation balances at the beginning of the financial year following the year that they last met the work test.
4.Individuals with multiple employers able to opt out of Superannuation Guarantee
Individuals who earn over $263,157 from multiple employers will be able to nominate that their wages from certain employers are not subject to the Superannuation Guarantee (SG) from 1 July 2018. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could negotiate to receive additional income, taxed at marginal tax rates.
5.Improving the integrity of personal deductible super contributions
The Australian Taxation Office (ATO) will receive additional funding to improve the integrity of the process for deducting personal superannuation contributions from 1 July 2018. This will include a new compliance model and additional compliance and debt collection activities. A new acknowledgement will also be added to income tax returns to confirm that an individual who is claiming a deduction has met the ‘notice of intent’ requirements.
6.Opt-in basis for default insurance inside superannuation
The Government proposes to amend the default insurance arrangement in superannuation funds, which currently requires members to opt-out of cover, to be on an opt-in basis. This change will apply to members:
- with a balance of less than $6,000
- under the age of 25 years, or
- whose account has been inactive (ie hasn’t received a contribution) for 13 months or more.
The changes are proposed to take affect from 1 July 2019. A transition period of 14 months will allow affected members to decide whether or not to opt-in.
7.Passive fees, exit fees and inactive super
From 1 July 2019, a three per cent annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts.
Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.
1.Expansion of the Pension Loan Scheme
From 1 July 2019:
- all Australians of age pension age will be eligible, including full rate age
- ensioners (currently excluded from the scheme)
- the maximum loan amount will increase from 100 per cent to 150 per cent of age pension.
The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent on the outstanding balance.
2.Extension of the Pension Work Bonus
From 1 July 2019:
- the bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test
- eligibility will be extended to the self-employed, subject to a ‘personal exertion’ test, reflecting the intention that the bonus not apply to investment income.
3.New means testing rules for lifetime retirement income products
From 1 July 2019:
- a fixed 60 per cent of all pooled lifetime product payments will be assessed as income
- 60 per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.
1.Improving access to residential and home care
The Government will provide additional funding to deliver a package of measures to improve access to aged care for older Australians. The More Choices for a Longer Life package includes 14,000 new high level home care packages over four years from 2018/19 and 13,500 residential aged care places in 2018/19. It also includes funding to deliver home care packages and residential care in rural, regional and remote communities as well as preparatory work for a new national assessment framework for people seeking aged care.
A new Aged Care Quality Safety Commission is also proposed to be established to ensure the quality of care provided by the aged care system.
Note: What you need to know
Any advice in this document is general in nature and is provided by Halle Yilmaz, as a financial adviser at HQ Financial Solutions, an Authorised Representative of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735, AFSL No. 229892. Halle is authorised to advice on super, pension and investment products. The advice here does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters, products, and consider talking to a financial adviser before making an investment decision. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.
Source of the information on this newsletter: Colonial First State, and Macquarie.
Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz