On 8 May 2018, the Turnbull Government delivered the 2018/19 Federal Budget. According to the Treasurer, this year’s Budget is focused more on minor adjustments rather than sweeping reforms.
From a pure financial planning and wealth perspective, the positive news from this year’s Budget is that the changes are minimal. This is a very welcome outcome given the significant changes, particularly to superannuation.
Most of the changes announced were focused on tax reform and reductions for all Australians, and additional support for older Australians.
Whilst the changes may be regarded as minimal only, it’s still important to understand what changes have been proposed, and more specifically, how these changes may impact you. We say “may impact you” as these proposals are just announcements at this stage and the final form of the announcements may differ when they ultimately become law. Also, everyone’s circumstances are different and the following summary should not be read as being specific to your personal circumstances.
Work Test Exemption
From 1 July 2019 the Government will introduce an exemption from the work test for voluntary contributions to superannuation. This is available for the following retirees: aged 65-74, with superannuation balances below $300,000, and in the first financial year that they do not meet the work test. The exemption will be available for 12 months from the end of the financial year in which they last met the work test. The work test currently requires individuals who are 65-74 to have worked at least 40 hours within 30 consecutive days in a financial year before they can make a personal contribution to superannuation. Existing annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply to contributions made under the work test exemption. Catch-up concessional contributions also remain permissible during the 12 months.
Increase to maximum SMSF members
From 1 July 2019, the maximum number of members allowable in a new or existing self managed superannuation fund (SMSF) or small APRA fund will increase from four to six.
Three-yearly Audit cycle
SMSFs currently require an annual audit. To reduce red tape for SMSFs with a history of good record keeping and compliance, the Government will change this to a three-yearly audit requirement. This measure will start on 1 July 2019 and eligible SMSFs will be those where the trustees have a history of three consecutive years of clear audit reports and have lodged the fund’s annual returns in a timely manner.
Personal Tax Bracket Thresholds
Over a seven year period commencing in 2018-19 the top threshold for the personal income tax brackets will increase as illustrated in the table below. After seven years the personal income tax brackets will be simplified to four brackets so the majority of taxpayers will be on a marginal tax rate of 32.5 per cent or less.
Low and Middle Income Tax Offset
A new non-refundable Low and Middle Income Tax Offset (LMITO) will be introduced. The LMITO will be a temporary measure applying from 2018-19 and phasing out in the 2021-22 financial year. As illustrated in the following table the maximum annual offset will be $530 and will cut out for those with a taxable income above $125,333 per annum
Low Income Tax Offset
From 1 July 2022 the annual Low Income Tax Offset (LITO) will increase to $645 and will cut out for those with a taxable income above $66,667 per annum.
The Government will retain the Medicare Levy rate at 2.0 per cent and will not proceed with the proposed increase to 2.5 per cent of taxable income from 1 July 2019. Consequential changes to other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also not proceed.
Extended instant asset write-off measures
For a further 12 months until 30 June 2019, small businesses with aggregated annual turnover of less than $10 million may continue to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Some assets are ineligible e.g. horticultural plants and in-house software. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
Small business instant asset write-off extended until 30 June 2019. The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.
Better Access to Aged Care
The Government will provide an additional 14,000 new high level home care packages over four years from 2018-19 in addition to the 6,000 high level packages delivered in the 2017-18 Mid-Year Economic and Fiscal Outlook. The additional home care packages will be complemented by the release of a further 13,500 residential aged care places and 775 short term restorative care places in the 2018-19 Aged Care Approvals Round. The Government will provide funding for older Australians, their families and carers to access reliable and trusted information about aged care services. The Government will combine the Residential Care and Home Care Programs from 1 July 2018 to provide greater flexibility to respond to changes in demand for residential aged care places and home care packages.