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2018 Federal Budget

On Tuesday 8 May, the government handed down its 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 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.


Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament.


Tax changes


Seven-year 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.


What this could mean for you


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.


For more information about the proposed changes to tax thresholds and offsets, speak to your accountant.


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%.


What this could mean for you


It was expected that the increased Medicare Levy would also cause increases to other tax rates linked to the top personal tax rate, including fringe benefits tax. As the Medicare Levy is remaining unchanged, these consequential increases won’t take effect.


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.


What this could mean for you


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).



What this could mean for you


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.


Superannuation Adjustments


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.


What this could mean for you


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).


What this could mean for you


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.


What this could mean for you


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.


Supporting older Australians


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’.


What this could mean for you


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.


What this could mean for you


The Pension Work Bonus is provided in addition to the income-free area of your pension. So if you’re a single person with no other income source apart from your pension and wages, you could earn up to $468 a fortnight from working and still be entitled to the maximum age pension.


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.


What this could mean for you


If you’re receiving the maximum age pension, you could be eligible for annual top-up pension payments of up to $11,799 for singles or $17,877 for couples. However, some restrictions may apply, depending on factors such as:

  • your age

  • whether you are single or a member of a couple

  • the value of your home

  • the expected duration of these top-up payments.


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.


What this could mean for you


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.


What this could mean for you


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.




Disclaimer

This information is current as at 10/05/18.

This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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