On 2 May 2019, the Morrison Government delivered the 2019/20 Federal Budget. According to the Treasurer, this year’s Budget is focused on providing a plan for a stronger economy and securing a better future.
From a pure financial planning and wealth perspective, the positive news from this year’s Budget is that the changes are minimal, and largely positive in nature. This is not surprising in an election year.
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 for contributions to super to apply from age 67
From 1 July 2020, individuals aged 65 and 66 will be able to make voluntary super contributions, such as eligible concessional and non-concessional contributions, without having to meet the work test.
Bring-forward arrangements, which currently allow those aged less than 65 years on 1 July to make up to three years’ worth of non-concessional contributions (currently capped at $100,000 a year) to their super in a single year, will also be extended to those aged 65 and 66.
Raising the age from 65 to 67 will align the work test with the eligibility age for the Age Pension which is scheduled to reach age 67 from 1 July 2023.
Increase the age limit for spouse contributions from age 69 to 74
Currently, individuals aged 70 years and older cannot receive contributions made by another person on their behalf. This may restrict the ability of an individual, or members of a couple, to implement appropriate contribution planning strategies as they approach retirement.
From 1 July 2020, the government has proposed to increase the age limit for spouse contributions from age 69 to age 74, opening up additional contribution opportunities for clients seeking to make spouse contributions.
Delayed start for insurance within super protection measures
The Government has announced a delayed start date for ensuring insurance within super is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years.
This measure was due to commence on 1 July 2019 however it will now commence from 1 October 2019.
These changes are currently before Parliament and are intended to protect the retirement savings of younger people and those with low balances.
Personal Tax Bracket Thresholds
They have amended their plan for the change to the lowest tax bracket from 1 July 2022. This has been legislated to increase to $41,000 at this time, they are proposing instead to make this $45,000.
The proposal also saw the tax rate of 32.5% reduced to 30% from 1 July 2024, aligning with when this bracket is legislated to be up to $200,000 and the removal of the 37% tax rate.
Immediate relief for Low and Middle Income earners
The Government has announced a further reduction in tax via the non-refundable low and middle income tax offset (LMITO). This measure will increase LMITO from a maximum of $530 to $1,080 per annum and the base amount will increase from $200 to $255 per annum.
Low Income Tax Offset
From 1 July 2022 the annual Low Income Tax Offset (LITO) will increase to $700 and will cut out for those with a taxable income above $66,667 per annum.
The Government will increase the Medicare levy low income thresholds for all categories.
Increasing and expanding the instant asset write-off measures
From 7:30pm AEDT 2 April 2019 small businesses with an aggregated annual turnover of less than $10 million can instantly deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use from 7:30pm AEDT 2 April 2019 until 30 June 2020.
In addition, this measure will be extended to medium businesses with aggregated annual turnover of $10 million or more but less than $50 million.