2018 Federal Budget Summary
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2018 FEDERAL BUDGET SUMMARY
On Tuesday 8 May, Treasurer Scott Morrison handed down the federal government’s Budget for the 2018–19 year, which is likely to be the final Budget before the next federal election. It’s therefore hardly surprising that the Coalition have promised to deliver a suite of tax cuts for individuals at various income levels, as well as a range of incentives to support older Australians.
At this point, none of the changes have been passed into law so the final version may be different to those announced. The following is a summary of the main points.
Seven-year personal income tax plan Date of effect: From 1 July 2018 The government’s three-point plan for personal income tax reform will be delivered in stages over the next seven years as follows:
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). LMITO will be available from the 2018–19 financial year until the 2021–22 financial year, and will be paid as a lump sum after lodgement of the tax return. • The top threshold for the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
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.
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.
Potential impact: LMITO is a temporary benefit, and lifts the effective tax free income from $20,542 to $21,595 for those who are eligible. The changes in marginal rates should provide some relief from tax ‘bracket creep’.
Maintaining the Medicare Levy at 2% Date of effect: 1 July 2019 The government has confirmed it will not proceed with the increase in Medicare Levy rate from 2% to 2.5% of taxable income in 2019/20, as announced in last year’s Budget. The Medicare Levy will remain at 2%.
Potential impact: The increased Medicare Levy would also have caused increases to other tax rates linked to the top personal tax rate, including fringe benefits tax. With the Medicare Levy remaining at 2%, these consequential increases won’t take effect.
Increase in Medicare Levy low-income thresholds Date of effect: 1 July 2018 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.
Potential impact Medicare Levy won’t be charged if a tax payer’s taxable income is below the following thresholds:
Personal Situation....................................................Existing Threshold.....................New Threshold
Couple/Sole Parent (family income).............................$36,541..........................................$37,089
Additional Child or Student...........................................$ 3,356...........................................$ 3,406
Accelerated depreciation for small businesses Date of effect: 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. The assets must be installed and ready for use before 30 June 2019.
Assets over $20,000 that cannot be deducted immediately can still be placed into the small business simplified depreciation pool and then 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).
Potential impact: Small businesses will continue to be able to immediately deduct purchases of eligible assets costing less than $20,000 for another year.
Other tax integrity measures Other tax integrity measures announce in the Budget but not covered in detail include:
• Change to taxation on testamentary trusts. • Disallowing deductions for vacant land. • Black Economy Package – removing deductions for non-compliant payments. • Clarifying the operation of the Division 7A integrity rule. • Alienated partnership income and small business CGT concessions. • Changing the distribution of capital gains within managed funds. • Taxation of income based on fame and image.
Work test exemption for some retirees Date of effect: 1 July 2019 Currently, people aged 65 to 74 must work a minimum of 40 hours in a consecutive 30 day period in a financial year in order to contribute to their superannuation. 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.
Potential impact: This initiative extends the opportunity for retirees with low balances to make super contributions after retiring from the work force, and may also help with small business CGT concessions. Note that normal superannuation contribution limits will apply.
Protecting Your Super Package Date of effect: 1 July 2019 Fees Restrictions: There will be a 3% annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000, and exit fees will be banned on all superannuation accounts.
Lost Super: All superannuation accounts with balances below $6,000 that have been inactive for 13 months will need to be transferred to the ATO. In addition, without being directed by a member, the ATO must pay amounts held on behalf of a person to an active superannuation account when the balance of their consolidated account is $6,000 or more.
Insurance in superannuation: Insurance in superannuation will only be able to be offered on an opt-in basis for: • members with low balances of less than $6,000; • members under the age of 25 years; and • members whose accounts have not received a contribution in 13 months and are inactive.
The changes will take effect on 1 July 2019. Affected superannuants will have a period of 14 months to decide whether they will opt-in to their existing cover or allow it to switch off.
Potential impact: This package is designed to reduce the erosion of super funds with small balances. Funds may need to further strengthen their member communication and education regarding the value of insurance. Some members who have maintained small balances in certain funds to retain life insurance may need to consider making contributions so that the account stays open and the insurance cover remains in force.
Notice of intent to claim a tax deduction Date of effect: 1 July 2018 The current process of claiming a tax deduction for personal super contributions can prove to be convoluted and complex. Many members are denied a deduction where they have not understood all of the conditions that make a claim invalid. The government also has concerns that some members claim a tax deduction and do not notify the fund. This means the fund does not tax the contribution, resulting in reduced collection of tax revenue. Funding will now be provided to the ATO to improve the integrity of the ‘notice of intent’ processes.
Potential impact: The super industry has been asking for a simplification of this process for many years. The functionality of SuperStream and better data matching capabilities by the ATO provide significant improvement opportunities for this process.
Comprehensive income products Date of effect: TBA Superannuation law will be amended to introduce a retirement covenant that will require trustees of APRA regulated superannuation funds to formulate a retirement income strategy for superannuation fund members. The Government will also amend the Corporations Act 2001 to introduce a requirement for providers of retirement income products to report simplified, standardised metrics in product disclosure to assist customer decision making.
SMSF membership increase from 4 to 6 members Date of effect: 1 July 2019 From 1 July 2019, the Superannuation Industry (Supervision) Act will be amended to allow the number of members in self managed superannuation funds (SMSFs) to increase from 4 to 6.
Potential impact: This initiative will provide more flexibility for larger families to be members of a single SMSF. Care should be taken to consider: • the risk of disputes among members; • 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 Date of effect: 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.
Potential impact: For SMSFs with a clean compliance and lodgement record, a less frequent audit should reduce the ongoing cost of running the fund. If a compliance breach does occur, however, it might not be detected for up to three years, making it potentially more difficult and expensive to rectify.
New means testing rules for some lifetime income streams Date of effect: 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. 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.
Potential impact: This may encourage product innovation, leading to more choice of products that can help retirees manage the risk that they of outliving their investments and potentially increase eligibility for Age Pension. However, at this stage it is unclear exactly which income streams will meet the definition of ‘pooled lifetime income streams’ so further clarification is needed.
Higher Pension Work Bonus for pensioners Date of effect: 1 July 2019 Under the Pension Work Bonus, the amount that Age Pension and Service Pension recipients can earn from employment without any impact on their pension entitlements will increase from $250 to $300 per fortnight from 1 July 2019. The scheme will also be extended to pensioners who are self-employed. Unused amounts of the bonus will still accrue, so that future employment earnings will also be exempt from the pension income test. The maximum accrual amount will increase from $6,500 to $7,800 a year.
Potential impact: The Pension Work Bonus provides an additional amount of income that a pensioner can earn from employment over and above the income-free amount allowed in the Centrelink income test, without impacted Age Pension entitlements. This helps older Australians remain in the workforce for longer without losing or reducing Age Pension income.
Extended eligibility for Pension Loan Scheme Date of effect: 1 July 2019 Pensioners can currently top up their Age Pension to the maximum rate if they: • receive a part pension under the income test or assets test, or • don’t receive an Age Pension under either the Centrelink income test or assets test (but not both).
This is effectively a reverse mortgage scheme, under which Centrelink treats the top-up payments as a loan that is secured by the pensioner’s property. The loan must be repaid when the pensioner eventually either sells the property or passes away. Some restrictions may apply, depending on factors such as: • the pensioner’s age • whether they are single or a member of a couple • the value of their home • the expected duration of the top-up payments.
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.
Potential impact: Pensioners receiving the maximum age pension may be eligible for annual top-up payments of up to $11,799 for singles or $17,877 for couples. This provides more income in retirement. The loan will reduce the funds available when the property is sold, for example to purchase a place in an aged care facility, and reduce the value of a pensioner’s estate left to their family.
Increasing number of home care packages Date of effect: 1 July 2019 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.
Potential impact: 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. This initiative could help some access a home care package sooner.
Additional funding for residential aged care Date of effect: 1 July 2019 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, with a further $82.5 million of support for mental health services for residents of aged care facilities.
Potential impact: 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.
Skills checkpoint for older workers program Date of effect: 1 Sept 2018 The Government will establish the Skills Checkpoint for Older Workers program, supporting employees aged 45-70 to remain in the workforce. From 1 September 2018, 5,000 employees each year would be entitled to receive customised career advice on transitioning into new roles, or their pathways to a new career, including referrals to relevant training options.
Protecting older Australians from elder abuse The measure will support: • expansion and evaluation of trials of three types of specialist support services: specialist elder abuse units located in legal services; health-justice partnerships; and family counselling and mediation services; • an Elder Abuse Knowledge Hub; • a National Prevalence Research scoping study; and • the development of a National Plan to address elder abuse, to be agreed between the Commonwealth, States and Territories, in close consultation with industry and community groups.
The Government will also work with the States and Territories to develop a nationally consistent legal framework and establish a National Register of Enduring Powers of Attorney. Expenditure for this component has been provisioned in the Budget but is not for publication pending the outcome of negotiations with the States and Territories
NDIS – continuity of support The Government will ensure continuity of support for people who are not eligible for the National Disability Insurance Scheme (NDIS), but are currently receiving support under programs that are transitioning to the NDIS. Eligible recipients will receive a level of support that is consistent with that which they currently receive
The following is a summary of measures announced regarding funding on regulatory activities. • Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry: The Government will provide $10.6 million over two years from 2017-18 to the Australian Securities and Investments Commission (ASIC) and $2.7 million in 2018-19 to the Australian Prudential Regulation Authority (APRA) to assist in their involvement in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. • Tax Practitioners Board funding: The Government will provide $20.1 million over four years from 2018-19 to the Tax Practitioners Board (TPB) to assist the TPB in meeting its broadened responsibilities to ensure that tax agent services are provided to the public in accordance with appropriate professional and ethical standards • Enhancing Female Financial Capability: The Government will provide $10.0 million to the Australian Securities and Investments Commission in 2018-19 to provide a grant that will support initiatives to enhance female financial capability. • Australian Financial Complaints Authority: The Government will provide $1.7 million in 2018-19 to provide a grant to the Australian Financial Complaints Authority (AFCA) to support its establishment • Personal Income Tax: The Government will provide $130.8 million to the ATO from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents • Modernising payroll and superannuation fund reporting: The Government will provide an additional $15.0 million over three years from 2018-19 to the Australian Taxation Office to support the modernisation of payroll and superannuation fund reporting. The funding will be used to support small businesses with fewer than 20 employees during the transition to Single Touch Payroll Reporting from 1 July 2019. • National Consumer Data Right: The Government will provide funding over four years from 2018-19 to establish a national consumer data right (CDR) that will allow consumers and small to medium enterprises to access and transfer their data between service providers in designated sectors. Funding will be given to the ACCC, Office of the Australian Information Commissioner, and the CSIRO.
Questions? If you have any questions about how you may be affected by the 2018 Federal Budget, please call Greg on 0484 693 875 or email Greg.Meyers@integralwealth.com.au