The 2018-19 Federal Budget handed down last week by the Treasurer, Scott Morrison focused more on minor adjustments rather than sweeping reforms. It was a Budget designed to create short sharp election headlines, but there were also many measures that will improve individuals’ financial position.

Below is a summary of three main areas:

  1. Superannuation
  2. Taxation
  3. Social Security & Aged Care

Superannuation

  • Super fund membership
    • The maximum number of members allowed in a Self-Managed Super Fund (SMSF) will increase from 4 to 6.
    • SMSF Trust Deed’s may need to be amended.
    • May appeal to some, i.e. intergenerational wealth planning.
    • From 1 July 2019.
  • SMSF three yearly audit cycle:
    • SMSFs that have clear audit reports over 3 consecutive years and have lodged annual reports in a timely manner will be able to move to a three year audit cycle.
    • This will reduce compliance costs for some.
    • The Government has undertaken to consult with industry stakeholders.
    • From 1 July 2019.
  • Work test exemption:
    • Individuals between 65 and 74 who have super balances below $300,000 will be able to make voluntary contributions in the first financial year following the year that they last met the work test.
    • The measure will provide individuals with low super balances with some additional flexibility and may assist with small business CGT concessions.
    • From 1 July 2019.
  • Other items:
    • Individuals earning over $263,157 from multiple employers will be able to nominate that their wages from certain employers be NOT subject to SG from 1 July 2018. Avoids unintentional breaching of the $25,000 concessional contribution cap.
    • Opt-in arrangements for default insurance inside super applying to accounts with balances below $6,000, under age 25 where account has been inactive for more than 13 months,from 1 July 2019.
    • Fees capped to 3% pa on passive fees on super account balances below $6,000 from 1 July 2019.
    • Inactive super accounts with balances below $6,000 to be transferred to the ATO.

Taxation

The Government will introduce a seven year Personal Income Tax Plan over three stages:

1. Targeted tax relief to low and middle income earners

  • Low and Middle Income Tax Offset (LMITO)
  • Effective date: 1 July 2018 – 30 June 2022.
  • Received as a lump sum on assessment after an individual lodges their tax return.
  • The benefit of the offset is in addition to the existing Low Income Tax Offset (LITO).

2. Protecting middle-income earners from bracket creep

  • Effective date: 1 July 2018 – 1 July 2022
  • Affects those individuals on middle incomes

3. Ensuring Australians pay less tax by making the system simpler

  • The 37% tax bracket will be removed entirely.
  • Effective date: 1 July 2024

 

  • Other items:
    • Retaining the Medicare Levy at 2%
    • Extension of $20,000 instant asset write-off for small business
      • This measure allows small businesses with a turnover of less than $10m a tax deduction for the purchase of assets worth up to $20,000. It was due to end 30 June 2018. It has been extended for 12 months to 30 June 2019.

Social Security

  • Increase to the Pension Work Bonus (PWB)
    • The PWB is an income test concession for Age Pensioners who continue to work.
    • Currently, the first $250 of employment income per fortnight is not counted under the Centrelink income test.
    • From 1 July 2019, the Government proposes to increase this to $300 per fortnight (first increase since 2011).
  • Expansion of the Pension Loans Scheme (PLS)
    • From 1 July 2019, the Government proposes to make the PLS available to full and part pensioners as well as self-funded retirees of age pension age.
    • Full rate pensioners will be able to increase their income by up to $11,799 (singles) or $17,787 (couples) per year by unlocking the equity in their home.
    • The current PLS interest rate of 5.25% pa will apply.
    • Only fortnightly pension payments are available (not lump sum amounts).
    • Repayments generally occur from the sale proceeds once the house is sold, however, it can be repaid at any time.
  • Improving access to residential and home care
    • The Government proposes creating 14,000 additional high-level home care packages over the next four years.
    • It is also proposing to release 13,500 residential aged care places.