What you need to know about the 2018 Federal Budget
On Tuesday 8 May 2018, the Australian Government handed down its Federal Budget and it’s likely to be the final Budget before the next federal election. It’s important that you take the time to understand what the Budget proposals mean – and how they might affect you personally.
Here are some of the key Budget announcements. Note that each of these are proposals at this stage and will only become law if it is passed by Parliament.
•• A seven-year personal income tax plan, to be delivered in three stages
The government will introduce a three stage plan for personal tax reform that will be delivered over the next 7 years.
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.
•• Maintaining the Medicare Levy at 2%
In the last Federal Budget, it was proposed to increase the Medicare Levy rate from 2% to 2.5% of taxable income. However, in this Federal Budget, the government has confirmed it will not proceed with this.
•• Increasing the Medicare Levy’s low-income threshold
From 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.
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.
•• Removing tax deductibility of payments where withholding obligation have been disregarded
Business will no longer be able to claim tax deductions if payments to their employees, such as wages, that have not withheld any amount of PAYG from those payments (i.e., despite the fact the PAYG withholdings apply).
It also applies to payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG.
•• Reforms to combat illegal phoenixing
The Government will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt illegal phoenix activities.
GST, luxury car tax (LCT) and wine equalisation tax (WET) have been added to the directorial responsibilities in the failure of a company.
•• 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. The usual concessional and non-concessional contribution caps will still apply.
•• Increasing SMSF membership from 4 to 6 members
From 1 July 2018, 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.
•• 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 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. If a compliance breach does occur, however, it might not be detected for up to three years, potentially making it more difficult and expensive to rectify.
•• Ability to opt-out from Superannuation Guarantee for certain high-income earners
From 1 July 2018, the Government will allow individuals to nominate that their wages from certain employers are not subject to the Superannuation Guarantee if they have multiple employers and income in excess of $263, 157.
•• Income received by minors from testamentary trusts is taxed at normal adult rates
The Government is concerned that some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into testamentary trusts after the trust is set up.
To ensure that this inappropriate advantage is not available, the Government is planning to change tax law to clarify that minors will be taxed at adult marginal tax rates only in respect of income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).
•• New means testing rules for certain lifetime income streams
This proposal is designed to help you avoid the risk of outliving your income. From 1 July 2019, new means testing rules will be introduced for pooled lifetime income streams. Those purchased before 1 July 2019 will be grandfathered.
However, it’s unclear exactly which income streams will meet the definition of ‘pooled lifetime income streams’.
•• Expanding the Pension Work Bonus
•• Extending eligibility for the Pension Loan Scheme
- Your age
- Whether you are single or a couple
- The value of your house
- The expected duration of these top-up payments
•• Increasing the availability of home care packages
•• Additional funding for residential aged care and short-term restorative care
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.
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.
•• Anyone under 25 have the option to opt-out of ‘compulsory’ insurance
Anyone who has a superannuation fund, is under the age of 25 and has a balance less than $6000 will no longer have to take out life insurance. The government will force Australian Superannuation Funds to stop charging young savers for automatic life insurance policy. This proposal aims to help young savers and those with low incomes to boost their retirement accounts and not pay unnecessary premiums on insurance policies they don’t need or are aware of.
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 don’t hesitate to get in touch with our Melbourne office on 03 9866 5888 or our Sydney office on 02 8404 6700. Alternatively, you can click here to arrange an appointment.
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