This year’s Federal Budget is overall positive, with the goal firmly on reducing national debt, creating jobs, and getting back into surplus over the next 3 years.
From a Financial Planning perspective, we have split our highlights between what the media are widely reporting on, versus our own hidden opportunities listed further below.
Please note that until the Budget is passed in Parliament, all the below discussion is still in the proposal stage.
Also please note that many proposals do not take effect until the following financial year starting 1 July 2019.
The main proposed points the media have focussed on:
From 1 July 2018
- Introduction of Low and Middle Income Tax Offset (LMITO) – if you are earning less than $90,000 a year, you may qualify for up to $530 as a tax offset. This is a temporary concession ending 2022.
- The 32.5% tax threshold will be raised from $87,000 to $90,000. The goal for the current government is to have this 32.5% tax threshold increased all the way to $200,000 before the maximum 45% tax threshold kicks in. This would be in place by July 2024.
From 1 July 2019
- If you have inactive super accounts where no employer contributions are going in, and the balance below $6000, these will be transferred to the ATO for consolidation with an active account.
- New super accounts for people under 25 and balances below $6000, will need to ‘Opt-In’ for life insurance cover, rather than have premiums automatically deducted from their balance when they join a new employer plan.
- Expansion of Pension Loans Scheme. This allows pensioners to increase their income from Centrelink to a maximum of 150% of the maximum Age Pension through a combination of loan scheme and Age Pension. This is effectively a ‘reverse mortgage’ funded by the government, where they take security over your property. When you sell your house or pass away, the property is sold, and loan plus accrued interest (5.25% p.a. compounded) is paid back to the government.
Some hidden proposals not widely reported by the media:
From 1 July 2018
- Small businesses can continue to instantly write-off eligible assets that cost less than $20,000 in one year, rather than depreciate these purchases over a number of years. This instant write-off allowing small businesses to claim a higher amount of deductions was due to end this financial year, but now has been extended another 12 months.
- Employees who have multiple employers and are earning over $263,157, will be able to opt-out of super guarantee payments that would otherwise result in excess concessional contributions. For example, a doctor working at 2 different hospitals may now be able to negotiate a higher income in lieu of super guarantee contributions.
From 1 July 2019
- Work test exemption for members age 65 to 74, who have balances less than $300,000, will be able to make voluntary contributions to super in the first year that they do not meet the work test requirements.
- Self Managed Super Funds and small APRA funds will be able to increase the maximum number of members in the fund from 4 to 6. This may appeal to some larger families looking at intergenerational wealth transfers.
- The government will introduce favourable means testing (assets and income test) for retirees who choose to use new pooled lifetime income streams. Over the next year, we are likely to see the development of new comprehensive income products for retirement to give clients certainty of cash flow in retirement, as well as receiving more favourable treatment by Centrelink means testing.