On Tuesday 8 May, the Government handed down its Budget for the 2018–19 financial year, which is likely to be the final Budget before the next federal election.
Here are some of the key Budget announcements that may affect you. Note that each of these proposals will only become law if it is passed by Parliament.
Taxation
Seven-year personal income tax plan
The government’s three-point plan for personal income tax reform will be delivered over the next seven years as follows.
Stage 1 from 2018–19:
- A new Low and Middle Income Tax Offset (LMITO) worth up to $530 p.a. will be introduced, in addition to the current Low Income Tax Offset (LITO).
- The top threshold for the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
Stage 2 from 2022–23:
- The top threshold for the 19% personal income tax bracket will increase from $37,000 to $41,000.
- The top threshold for the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
- The LITO will increase from $445 to $645.
Stage 3 from 2024–25:
- The 37% personal income tax bracket will be removed.
- The top threshold for the 32.5% personal income tax bracket will increase from $120,000 to $200,000.
What this could mean for you
If you’re eligible for the LMITO, it will be available each year from the 2018–19 financial year until the 2021–22 financial year. You’ll receive the payment as a lump sum after lodging your tax return.
For more information about the proposed changes to tax thresholds and offsets, speak to your accountant.
Maintaining the Medicare Levy at 2%
In the 2017–18 Federal Budget, an increase in the Medicare Levy rate from 2% to 2.5% of taxable income was announced, which was legislated to take effect on 1 July 2019. However, the government has confirmed it will not proceed with this initiative and the Medicare Levy will remain at 2%.
What this could mean for you
It was expected that the increased Medicare Levy would also cause increases to other tax rates linked to the top personal tax rate, including fringe benefits tax. As the Medicare Levy is remaining unchanged, these consequential increases won’t take effect.
Superannuation
A work test exemption for retirees
From 1 July 2019, people aged 65–74 who have a total superannuation balance of under $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year when they last satisfied the work test.
What this could mean for you
This initiative will make it easier to keep contributing to super after you’ve left the workforce. For example, if you retire on 30 March 2020 and your super balance is below $300,000 on 30 June at the end of the year, you’ll still be able to make voluntary contributions during the 2020–21 financial year. The usual concessional and non-concessional contribution caps will still apply.
Increasing the maximum Self-Managed Super Fund (SMSF) membership from 4 to 6 members
From 1 July 2019, the Superannuation Industry (Supervision) Act will be amended to allow the number of members in new and existing SMSF’s to increase from 4 to 6.
This change will also apply to Small APRA funds (funds regulated by Australian Prudential Regulation Authority).
What this could mean for you
This initiative will provide more flexibility for larger families to be members of a single SMSF, but may also increase the risk of disputes among members. It’s also important to consider the need for:
- multiple investment strategies to cater for members with different risk profiles
- a corporate trustee, to avoid the risk of additional trustee penalties and to address the increased risk of fund membership changes.
Social Security
Expanding the Pension Work Bonus
The Pension Work Bonus currently allows age and service pension recipients to earn up to $250 per fortnight without it impacting their pension entitlements. Under the proposed changes, this amount will increase to $300 per fortnight from 1 July 2019. The scheme will also be extended to pensioners who are self-employed.
Pensioners will still be able to accrue unused amounts of the bonus, so that their future earnings will also be exempt from the pension income test. The maximum accrual amount will increase from $6,500 to $7,800 a year.
What this could mean for you
The Pension Work Bonus is provided in addition to the income-free area of your pension. So if you’re a single person with no other income source apart from your pension and wages, you could earn up to $468 a fortnight from working and still be entitled to the maximum age pension.
Increasing the availability of home care packages
Since last year’s Federal Budget announcement, the government has provided an additional 6,000 high-level home care packages. From 1 July 2018, the government will supplement this with a further 14,000 new packages over the next four years.
What this could mean for you
As at 31 December 2017, there were over 100,000 people in the national queue waiting for either their first home care package or an interim package, with 54.4% waiting for a high-level (Level 4) package. If you’re in this situation, the initiative could help you access a home care package sooner.
Supporting you through the changes
Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your financial plans for the future.
If you have any concerns, or would like to discuss your financial strategy, please do not hesitate to contact your Pinnacle adviser on (08) 8312 0000.
