‘Positive news for middle income Australians and pre-retirees’
Federal Treasurer Josh Frydenberg handed down the Morrison Government’s first Federal Budget earlier this week, a month earlier than its usual May delivery. This year’s Budget focused on strengthening the economy and lowering taxes.
Particularly relevant for our clients are the opportunities for those approaching retirement to boost their super balance.
With an election looming, the Government was focussed on improving its chances of being re-elected and offered several sweeteners for Australians. Given the slowdown in the economy as the property market declines, the stimulatory nature of the Budget announcements could help calm nerves and assist in economic growth.
It’s important to remember the announcements are only proposals and won’t become law until they pass Parliament. This, in turn, will largely depend on the outcome of the upcoming Federal Election. The Labor Opposition did however provide support for personal tax cuts prior to Budget night, so regardless of the result of the election these may still go through. Therefore, several of the changes would potentially leave many working Australians with more money in their pockets from 1st July 2019.
So, what were the highlights? The Budget can be summarised as follows:
Personal tax cuts
The Government is proposing to expand the personal income tax cuts that have been legislated from the 2018-19 budget. These tax cuts will particularly benefit low-to-middle income earners. More than 10 million Australians will benefit, though only 4.5 million will receive the full amount.
These tax cuts will be rolled out through to 2024 but will see a flattening of the tax scales and a significant reduction in personal tax rates. This will initially be achieved via a tax offset that won’t be received until tax returns are lodged.
The indicative tax cuts in 2018-19, compared to 2017-18, are as follows.
Reduction in tax paid - individuals
Taxable income Tax reduction
From July 2024 there will be three marginal tax rates:
Nil on the first $18,200 income
19% on income from $18,201 to $45,000
30% on income from $45,001 to $200,000
45% on income above $200,000
While only minor changes were proposed to superannuation compared to previous years, they will provide more opportunities for those approaching retirement to boost their super balance. The proposals include the following:
Currently, people aged 65 to 74 must be in paid work for a minimum of 40 hours in any consecutive 30-day period in the financial year to make voluntary super contributions. The Budget proposed a small increase in the contributions window to age 67 with no requirement to be working.
People 65 and 66 will now be eligible to use the ‘bring forward’ rule for Non-Concessional Contributions allowing them to contribute up to $300K in one year (subject to $1.6M super fund balance cap).
Extended eligibility for spouse contributions - the intent is to raise the age limit for spouse contributions from 69 to 74 years, which may help a couple even out their superannuation assets and may provide a tax offset to the contributing spouse
Small and medium businesses look to be winners from an expanded instant asset write-off scheme.
The Government is increasing the instant asset write-off threshold from $25,000 to $30,000 per asset. Assets of up to $30K will be eligible for an immediate write off (i.e. will be fully tax deductible).
Eligibility for the scheme has been expanded from small businesses (up to $10 million in annual turnover) to medium-sized ones (up to $50 million).
Up to 80,000 new apprenticeships over five years have also been planned.
The Small Business tax rate to be reduced to 25%.
Energy Assistance: Individuals in receipt of a qualifying income support payment will receive a one-off payment of $75 for singles and $125 for couples (combined) to assist with energy bills.
Welfare recipients: The Government wants to introduce new data-matching technology to prevent over-payments for working income support recipients. It believes $2.1 billion can be saved over the next five years, with the scheme commencing in 2020-21. Employed welfare recipients will be asked to report income that is received during the fortnight in a new system, which is then checked with information held by the Department of Human Services.
Aged care - The government has allocated $320 million for a one-off increase to the basic care subsidy for aged care residents. Also, 10,000 extra home care packages will be released over the next five years.
Queensland infrastructure - The Government is planning to spend $2.6 billion in Queensland from 2020-21 on priority regional and urban transport infrastructure.
Multinational Tax Avoidance - $3.6 billion in extra revenue from multinationals and high-wealth individuals is expected from a billion-dollar investment in the Tax Avoidance Taskforce.
Car Commuters - A new $500 million fund has been set aside for upgrades to commuter car parks.
Mental Health Strategy - The Government is investing almost half a billion dollars in its mental health and suicide prevention strategy.
Leukaemia - The Government plans to list a new cancer drug on the Pharmaceutical Benefits Scheme. Besponsa, a medicine for people with acute leukaemia, currently costs $120,000 per course.
Fire ants - The Government is accelerating almost $20 million in funding to eradicate the ant in newly defined areas.
ASIO and AFP - Intelligence agency ASIO and the Federal Police are set to receive more than $500 million in funding over the next five years.
Remember, it’s important to remember the announcements are only proposals and won’t become law until they pass Parliament.
If you have any questions in relation to these measures and their potential impact on you, please speak to us so we can look at your current personal circumstances and assess how you will be affected.
You can reach us anytime on 07 3396 8518 or email@example.com
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