Federal Budget Update May 2018
As widely anticipated, Treasurer Scott Morrison’s third Budget has cut income taxes, boosted support for senior Australians, delivered $24.5 billion of new infrastructure spending and promised a return to surplus by 2020. That’s a year earlier than previously thought possible and would be the first surplus since 2007-08.
In a call to arms, in what is likely to be the last Budget before the next federal election, the Treasurer urged Australians to ‘stick with this plan for a stronger economy and more jobs because it’s working’.
It is important to note that before any of the announcements can be implemented, they will require the passage of legislation and may be subject to change.
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.
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 SMSFs to increase from 4 to 6. This change will also apply to Small APRA funds (funds regulated by Australian Prudential Regulation Authority).
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.
Introducing a three-year audit cycle for some SMSFs
From 1 July 2019, SMSFs will have the option to move from an annual to a three-yearly audit cycle if they have:
- three consecutive years of clear audit reports, and
- lodged the fund’s annual returns in a timely manner.
If your SMSF has a good compliance and lodgement record, this initiative could make it cheaper to operate your SMSF, as it will remove the need for an annual audit.
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.
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.
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%.
Increasing the Medicare Levy’s low-income thresholds
As of 1 July 2018, the government will increase the Medicare Levy’s low-income thresholds for singles, families, seniors and pensioners for the 2017–18 income year. You won’t be charged the Medicare Levy if your taxable income is below the following thresholds:
Extending accelerated depreciation for small businesses
From 1 July 2018, the government will extend the existing $20,000 instant asset write-off by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
Assets valued at $20,000 or more that cannot be immediately deducted can still be placed into the small business simplified depreciation pool. These assets can be depreciated at 15% in the first income year and 30% 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).
Under this measure, small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 that are installed and ready for use before 30 June 2019.
Social Security & Aged Care
New means testing rules for certain lifetime income streams
From 1 July 2019, new age pension means testing rules will be introduced for pooled lifetime income streams. Those purchased before 1 July 2019 will be grandfathered. At this stage, however, it’s unclear exactly which income streams will meet the definition of ‘pooled lifetime income streams’.
This initiative is designed to help you avoid the risk of outliving your income. Under the new rules:
- 60% of all income payments will be assessed as income, and
- 60% of the purchase price will be assessed as an asset until you turn 84 (or a minimum of 5 years) and then 30% of the purchase price will be assessed as an asset for the rest of your life.
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.
Extending eligibility for the Pension Loan Scheme
Under the current rules, pensioners can top up their age pension to the maximum rate if they:
- receive a part pension under the income or assets test, or
- don’t receive an age pension under either the income or assets test (but not both).
This allows pensioners to take advantage of a voluntary reverse mortgage scheme, under which Centrelink treats the top-up payments as a loan that is secured by the pensioner’s property. This loan must be repaid when the pensioner either sells the property or passes away.
From 1 July 2019, the government proposes to expand the scheme by making all age pensioners eligible and increasing the maximum top-up payments from 100% to 150% of the maximum age pension rate.
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.
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.
Additional funding for residential aged care and short-term restorative care
During the 2018–19 financial year, the government will provide $60 million to fund additional places in residential aged care and short-term restorative care. A further $82.5 million will support mental health services for residents of aged care facilities.
As part of this initiative, the government will simplify the aged care assessment forms available via the My Aged Care website. This will make it easier to access the aged care services that you or your loved ones need.
Money for roads and rail
The Government’s $24.5 billion infrastructure spend, designed to alleviate transport bottlenecks will provides a revenue boost for companies involved in the planning and construction as well as job creation for locals.
In Victoria, major projects include $5 billion for a Melbourne Airport rail link and $1.75 billion to build Melbourne’s North East Link and new tunnels and lanes for the Eastern Freeway.
In Queensland, there’s $1 billion for the M1 between Brisbane and the Gold Coast and $390 million to upgrade the Sunshine Coast rail network. In NSW, $971 million is earmarked for the Coffs Harbour bypass and $400 million for the Port Botany rail duplication.
Education and family support
There are no new announcements on funding for schools and universities, although the government will break its freeze on university funding by granting around 2000 new places across three regional universities.
The school chaplains program will also be funded permanently at a cost of $61.7 million a year.
The national agreement on childcare for 4-year-olds has been extended to 2019 and an extra $54 million has been allocated to tackle sexual assault, domestic violence, cyber safety and elder abuse.
While there is no increase in the Newstart allowance for the unemployed, regional students will have easier access to Youth Allowance with a lighter parental income test.
Science, innovation and the environment
As previously announced, $500 million will be allocated over 7 years to protect the Great Barrier Reef from climate change and pollution.
Savings will be made by tightening the Research and Development (R&D) tax incentive amid mounting concerns the scheme is being rorted. Savings of $2 billion are pencilled in over the first 4 years.
Ongoing focus on national security
The government will invest $294 million to strengthen aviation, air cargo and mail security. This includes enhancing security at regional airports, increasing the number of officers, dogs and full-body scanners at major airports and boosting high tech screening of inbound cargo and mail.
Defence spending is on track to reach about 2 percent of GDP by 2021, with $36.4 billion earmarked for Defence next financial year.
The foreign aid budget will be frozen. A large portion of this will be spent in the Pacific region as security concerns grow in the area.
Should you have any concerns or wish to discuss the proposed changes in more detail, please do not hesitate to contact our office on 02 8850 0777.
The Affinity Accounting Team