The Australian Government announced its Budget for the coming year on Tuesday 8 May 2018 (with implications for the ‘forward estimates period’ and beyond), heralding it as ‘A budget to strengthen the economy, create jobs and guarantee essential services while ensuring the Australian Government lives within its means…’.
- delivers personal income tax cuts,
- extends/ provides incentives for small to medium-sized businesses,
- moves to keep older Australians working for longer; and
- takes measures to curb ‘the black economy’.
To the extent that the government is successful in implementing its Budget, your adviser at Continuum Financial Planners Pty Ltd (ContinuumFP) will be prepared and ready to advise you as to any aspects that may affect your wealth management plans.
Budget Highlights 2018 – Personal Income Tax (Taxation)
A sequence of changes has been proposed to reduce personal income tax on a progressive basis, commencing on 1 July 2018.
Increase in tax bracket thresholds
From 1 July 2018, the 32.5 per cent upper threshold will be increased from $87,000 to $90,000. This reduces the tax liability of those earning $90,000 or more by $135.
From 1 July 2022 there is proposed to be a further increase in this threshold (to $120,000) coincidental with the 19 per cent upper threshold proposed to increase from $37,000 to $41,000.
From 1 July 2024, the top threshold of the 32.5 per cent personal income tax bracket is proposed to be extended from $120,000 to $200,000, in recognition of inflation and wage growth impacts in the interim.
As from that date (1 July 2024) the proposal is that the tax scales will be as follows for personal taxpayers:
| Annual taxable income | Marginal tax rate applicable (excl. Medicare) |
| 0 – 19,000 | 0% |
| 19,001 – 41,000 | 19% |
| 41,001 – 200,000 | 32.5% |
| 200,001 and beyond | 45% |
Ensuring tax compliance for individuals
Additional funding will be provided to the ATO to strengthen the ATO’s data matching and pre-filling activities, assisting it to improve its compliance-monitoring activities around taxpayers that over-claim deductions or entitlements.
Denying deductions for vacant land
Expenses associated with holding vacant land will cease to be deductible for income tax purposes from 1 July 2019: the position in relation to capitalising these costs against capital gains tax calculations is yet to be announced.
Such expenses for land that was previously vacant will only become deductible for income tax purposes, when:
- construction is complete, approval for occupancy has been granted and the property is available for rent, or
- the land is used in carrying on a business.
Economy wide cash payment limit of $10,000
From 1 July 2019, any payments to businesses where the amount exceeds $10,000 for goods or services will cease to be allowed to be settled with cash. They will have to be paid by cheque, or electronically.
Because of existing anti-money laundering provisions, transactions with financial institutions will not be subject to this limit; and consumer to consumer (non-business) transactions will also be excluded.
Budget Highlights 2018 – Superannuation
SMSF member limit increase.
From 1 July 2019, it is proposed that the maximum number of members allowable in self-managed superannuation funds (SMSFs) and small APRA funds will increase from four to six.
SMSF three-yearly audit cycle
From 1 July 2019, SMSFs with an acceptable record-keeping and compliance history (ie three consecutive clear audit reports and lodged their annual returns on time) will move from annual, to a three-yearly audit.
Work test exemption for those with balances of less than $300,000
From 1 July 2019, Australian residents aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year next following their satisfying the work test without having to satisfy that test for the contribution year.
Account balance eligibility will be assessed based on the individual’s total superannuation balances at the beginning of the financial year following the year that they last met the work test. An example was provided at Budget time in a since removed, Budget Fact Sheet 3.2.
If there has been a break in contributions and a work test year occurs during the eligible age period, this exemption may be able to be activated subject to the legislative provisions when passed in the Parliament.
Individuals with multiple employers able to opt out of Superannuation Guarantee
From 1 July 2018, individuals whose income is derived from multiple employers (including self-employment) – and who anticipate earning in excess of $263,157 in a financial year – will be able to elect that their wages from nominated employers be not subject to the Superannuation Guarantee (SG) amount. This measure will minimise the risk for eligible individuals, of unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could seek to negotiate to receive additional income, taxed at marginal tax rates. (Where this is not able to be negotiated, Continuum Financial Planners Pty ltd has a strategy by which a similar effect can be achieved.)
Opt-in basis for default insurance inside superannuation
The Government proposes to amend the default insurance arrangements typically found in Industry Superannuation Funds (and some employer-sponsored funds), which currently require members to opt-out of cover, to be offered on an opt-in basis. This change will affect members:
- with a balance of less than $6,000 in any one superannuation account;
- are under the age of 25 years, or
- with an account that has been inactive for 13 months or more.
The changes are proposed to take affect from 1 July 2019 and will have a 14 months transition period during which affected members can decide whether or not to opt-in.
Passive fees, exit fees and inactive super
From 1 July 2019, a 3% annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts.
Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.
Budget Highlights 2018 – Social Security
Expansion of the Pension Loan Scheme
From 1 July 2019, in a form of reverse mortgage:
- all Australians of age pension age including full rate age pensioners, will be eligible to participate in this scheme (Note: full rate age pension recipients are currently excluded from the scheme)
- the maximum loan amount will increase from 100 per cent to 150 per cent of age pension benefit entitlement.
The loan is drawn fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent per annum on the outstanding balance.
Extension of the Pension Work Bonus
From 1 July 2019, the pension work bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test: and in a progressive move, eligibility will be extended to the self-employed, subject to a ‘personal exertion’ test. The bonus is not intended to apply to investment income.
New means testing rules for lifetime retirement income products
From 1 July 2019, a fixed 60 % of all pooled lifetime product payments will be assessed as income. Sixty per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.
Budget Highlights 2018 – Estate Planning
Improving the taxation of testamentary trusts
Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust.
From 1 July 2019, the taxation rules relating to testamentary trusts will ensure that minors are taxed in a manner consistent with other income earned. The measure is intended to prevent assets being placed into a testamentary trust that were not related to the deceased estate.
Budget Highlights 2018 – Aged Care
Improving access to residential and home care
The Government will provide additional funding to deliver a package of measures to improve access to aged care for older Australians. The More Choices for a Longer Life package (scroll down the linked page) includes 14,000 new high level home care packages over four years from 2018/19 and 13,500 residential aged care places in 2018/19.
Budget Highlights 2018 – Small Business
Significant changes to the calculation of the R&D tax incentive will commence for income years beginning on or after 1 July 2018. Additionally, a maximum cash refund will also apply for some entities.
The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019. Businesses with an aggregated turnover of less than $10 million will continue to have access to the $20,000 instant asset write-off for another 12 months. A small business will get an immediate deduction for assets costing less than $20,000, and installed and ready for use before 30 June 2019. The current rules regarding accelerated depreciation for small businesses remain in place. Therefore, assets (including grouped assets purchased as a set) costing more than $20,000 and installed ready for use prior to 30 June 2019 will need to be pooled at an initial rate of 15 per cent in the first year. Also, small business depreciation pools valued under $20,000 as at 1 July 2018 can be immediately written off in the 2018-19 income year. The current “lock out” laws for simplified depreciation rules, which prevent small businesses from re-entering the pooling rules for five years if they opt out, will continue to be suspended until 30 June 2019.
From 1 July 2019, amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules. Division 7A of ITAA 1936 will be amended to clarify the circumstances in which it applies to unpaid present entitlements (UPEs) — where a related private company becomes entitled to a share of trust income as a beneficiary but has not been paid that amount.
(Division 7A is an integrity rule that requires benefits provided by private companies to related taxpayers to be taxed as dividends unless they are structured as Div 7A complying loans or another exception applies. This measure will ensure the UPE is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend. The start date of targeted amendments to Div 7A will be deferred from 1 July 2018 to 1 July 2019. Those reforms, announced in the 10-Year Enterprise Tax Plan in the 2016-17 Budget, will enable all Div 7A amendments to be progressed as part of a consolidated package.)
Remember that the measures covered in Budget Highlights 2018 (this article) will not take effect until the Parliament passes the relevant legislation. Before you act on any of the measures, please check that the law is in place: your ContinuumFP financial planner will be able to answer questions regarding the Budget that may affect your circumstances.
To contact ContinuumFP’s team, call our office (on 07-3421 3456), or complete the website Contact Us form – and be assured of a prompt response.
