The federal government handed down its 2018/19 federal budget. We look at some of the relevant sections of the budget and how that impacts you.
Tax plan
The government is proposing amendments to the existing tax rates and intends to introduce these amendments over a 3-phase process.
Phase 1 – 2018-19 to 2021-22
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A proposed Low and Middle-Income Tax Offset (LMITO), in addition to the Low-Income Tax Offset (LITO).
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An increase of the 32.5% personal income tax bracket from $87,000 to $90,000
Phase 2 – 2022-23 to 2023 -24
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An increase of the top threshold for the 19% income tax bracket from $37,000 to $41,000.
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An extension of the upper limits on the 32.5% personal tax income bracket from $90,000 to $120,000.
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An increase of the Low-Income Tax Offset (LITO) from $445 to $645
Phase 3 – 2024-25 onwards
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The government is proposing a complete abolishment of the 37% personal income tax bracket and
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Extending the upper threshold for the 32.5% income tax bracket from $120,000 to $200,000
So What?
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If you’re eligible for LMITO, you could qualify for a non-refundable lump sum payment of up to $530 per annum beginning in the 2018-19 tax years through to 2021-22 tax year.
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Increasing the top threshold to $90,000 will see incomes around $90,000 see a tax savings of about $665 pa.
Medicare Levy
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In the last budget, the government proposed to increase the Medicare levy from 2% to 2.5% of taxable income; which was passed into law to take effect from 1 July 2019. In this budget, the government has stated their intention to not proceed with the increase.
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From 1 July 2018, the government proposes to increase the Medicare levy’s low-income thresholds for 2017-18 income year.
So What?
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As an example, a taxable income of $100,000 will save $500 as a result of this decision.
Superannuation
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From 1 July 2019, retirees aged between 65-74, with a total superannuation balance under $300,000 can make contributions for 12 months from the end of the financial year they last satisfied the work test.
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The government is proposing an increase in members for new SMSFs from 4 to 6 members. This extends to small APRA funds as well.
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From 1 July 2019, the government proposes that SMSFs with good compliance records for 3 consecutive years, can move to a 3-yearly audits as opposed to annual audits.
So What?
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Allowing contributions will mean that if eligible, you can continue to grow your superannuation benefits for retirement.
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Increasing the members in SMSF will allow larger families to form a single fund. However, you should be mindful of complexities and voting arguments having too many people making decisions.
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Reducing the number of times SMSFs are auditeds will reduce cost for the SMSFs. However, if errors are made, it is now going to be increasingly difficult to rectify and if it can be rectified, it could be more expensive to rectify as it won’t be picked up on time.
Age pension
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The government is proposing that from 1 July 2019, there will be new testing rules for pooled lifetime income streams. The ones purchased prior to this date will be grandfathered.
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From 1 July 2019, an increase in the pension work bonus from $250 per fortnight to $300 per fortnight.
So What?
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The proposed changes are designed to combat longevity risk – where you outlive your retirement income. This will ensure you have more income during retirement.
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This change will ensure that should pensioners choose to engage in paid employment, they can earn up to $7,800 as opposed to $6,500 without impacting their age pension entitlements.
There’re a lot of proposed changes – many of which won’t take effect immediately. However, some will take effect from 1 July 2018. It’s important that you seek professional advice from a qualified Accountant and a qualified Financial Adviser to see how these proposed changes will impact your individual circumstances.
General Advice Disclaimer
Note: – this article is of a general nature only and does not take into account your objectives, financial situation or needs. Please consult a qualified Financial Adviser, like Wealth Peak Financial Advice, before making any decisions on the basis of this article. Wealth Peak Financial Advice Ltd ABN: 24 615 007 326, is a Corporate Authorised Representative of Total Financial Solutions Ltd. AFSL 224954 and ABN 94 003 771 579
