On Tuesday, 2 April 2019, Treasurer Josh Frydenberg handed down his first Federal Budget. In an election Budget, the Treasurer announced the first Budget surplus in more than a decade at $7.1 billion for the 2019-20 financial year. The Government forecasts a total of $45 billion of surpluses over the next 4 years. Total revenue for 2019-20 is expected to be $513.8 billion, an increase of 3.6% on estimated revenue in 2018-19.
In the next few days, Prime Minister Scott Morrison is expected to announce an election date of either Saturday 11 or 18 May 2019. This Budget is unique because of its close timing to the election for two reasons. Firstly, the Liberal Government is unlikely to be able to legislate any of the measures announced prior to the election, so many of the proposals and tax incentives discussed in this analysis may not come to fruition. Secondly, the Morrison Government also announced $3.2 billion in Budget expense measures under the heading “decisions taken but not yet announced”. Therefore, expect to see some further ‘sweeteners’ announced prior to election day as the Coalition tries to win some ground back on the polls.
This places the current Government distinctly apart from the Australian Labor Party which has a superannuation policy platform that will negatively impact many retirees because of the proposed changes to remove excess franking credit refunds, and restrict super contributions. In addition, Labor has also proposed that if elected, they will remove the tax deductions for negative gearing when investing in property (except for new build houses), and reduce the Capital Gains Tax (CGT) discount to 25%. Concerns are that this could contribute to a slowdown in the Australian economy, put further downward pressure on property prices, and create a negative wealth effect overall.
Taxation – Personal
On personal taxation, the Government announced two significant changes designed to deliver $158 billion of additional tax relief:
1. More than doubling the low & middle income tax offset (LMITO) up to $1,080 from 2018-19.
In 2018-19
- The Government will further reduce taxes for low and middle-income earners to ease cost of living pressures and support consumption growth.
- Low and middle-income earners will have their tax reduced by up to $1,080 for single earners or up to $2,160 for dual income families, after lodging their tax returns as early as 1 July 2019.
- Taxpayers earning up to $126,000 a year will receive this tax cut.
The new targeted offset will benefit over 10 million low and middle‑income earners
In 2022-23
The Government will preserve the tax relief provided by the larger low and middle income tax offset by increasing the top threshold of the 19 per cent tax bracket from $41,000 to $45,000 and increasing the low income tax offset (LITO) from $645 to $700.
2. Lowering the 32.5% tax rate to 30% from 1 July 2024.
In 2024-25
The Government will reduce the 32.5 per cent tax rate to 30 per cent, more closely aligning the middle tax bracket with corporate tax rates. This will cover around 13.3 million taxpayers earning between $45,000 and $200,000 and will mean that 94% of taxpayers are projected to face a marginal rate of 30 per cent or less.
2024-25: With the announced changes there would only be three personal income tax rates of 19%, 30% and 45%
* Average full-time earnings includes both males and females, and excludes earnings from overnight work.
Proposed changes to personal tax rates and thresholds over time
| Rates in 2017-18 |
Thresholds in 2017-18 |
New Rates in 2024-25 |
New Thresholds in 2024-25 |
| Nil | Up to $18,200 | Nil | Up to $18,200 |
| 19 per cent | $18,201 – $37,000 | 19 per cent | $18,201 – $45,000 |
| 32.5 per cent | $37,001 – $87,000 | 30 per cent | $45,001 – $200,000 |
| 37 per cent | $87,001 – $180,000 | – | – |
| 45 per cent | Above $180,000 | 45 per cent | Above $200,000 |
| Low income tax offset in 2017-18 | Up to $445 | Low income tax offset in 2024-25 | Up to $700 |
Medicare levy changes
From 1 July 2018
While the Medicare levy remains unchanged at 2% of taxable income, the thresholds for low-income singles, families, and seniors and pensioners will increase in the 2018–19 income year.
The threshold for singles will increase to $22,398. The family threshold will increase to $37,794 plus $3,471 for each dependent child or student.
For single seniors and pensioners, the threshold will increase to $35,418. The family threshold for seniors and pensioners will increase to $49,304 plus $3,471 for each dependent child or student.
Taxation – Small and Medium Business
Instant asset write-off threshold increased to $30,000
until 30 June 2020
On Small Business tax, the Government has proposed to increase the instant asset write-off threshold to $30,000 until 30 June 2020. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets. This builds on the Government’s earlier announcement that the instant asset write-off threshold would be increased from $20,000 to $25,000 and extended to 30 June 2020. More than 350,000 businesses have already taken advantage of the instant asset write‑off.
The Government is also expanding access to the instant asset write-off to include medium‑sized businesses by increasing the annual turnover threshold from $10 million to $50 million. Around 22,000 additional businesses employing around 1.7 million workers will now be eligible to access the instant asset write-off.
These changes will benefit small and medium‑sized businesses and improve their cash flow as they will be able to immediately deduct purchases of eligible assets each costing less than $30,000.
Around 3.4 million businesses, employing around 7.7 million workers will be eligible.
If legislated, the increased threshold and expanded eligibility will apply from 7.30pm (AEDT) on 2 April 2019 to 30 June 2020.
Superannuation
Superannuation contributions for older Australians
From 1 July 2020
The work test will no longer need to be met to make voluntary contributions to superannuation from 1 July 2020 for those aged 65 and 66. The ability to utilise the bring-forward rule will also be amended to allow individuals less than age 67 to contribute a greater amount to superannuation. This means the work test requirements will align with Age Pension age which will be 67 from 1 July 2023.
There is no change to other criteria, such as the total superannuation balance, which will limit the ability to make non-concessional contributions.
The removal of the work test would provide the opportunity for those eligible clients to:
- Make non-concessional contributions
- Make concessional contributions including catch-up contributions
- Implement the recontribution strategy
- Manage tax, including capital gains tax
- Claim the spouse contribution tax offset or co-contributions (if eligible), and
- Transfer foreign superannuation into an Australian superannuation account.
Spouse contributions up to age 74
From 1 July 2020
The age limit for spouse contributions will increase to 74. Currently spouse contribution can only be made if the receiving spouse is under age 70.
Additional flexibility will be provided by the removal of the work test for those aged 65 and 66. This would enable spouse contributions to be made for the receiving spouse without the need to satisfy the work test up to age 66. From age 67 to 74, the work test would need to be satisfied by the receiving spouse.
Making spouse contributions is a simple strategy that enables that spouse’s superannuation to be boosted. This may be used as a means of equalising the superannuation interests of both members of the couple. It may also entitle the contributing spouse access to the spouse contribution tax offset.
There is no change to other criteria, such as the total superannuation balance, which will limit the ability to make non-concessional contributions.
Insurance in superannuation
From 1 October 2019
Part of the Government’s Protecting Super Package included the provision of insurance in superannuation on an opt-in basis for accounts with balances of less than $6,000 and for members under age 25. The original start date for this was 1 July 2019, however it has been deferred until 1 October 2019.
Calculation of exempt current pension income
From 1 July 2020
Trustees of superannuation funds will be able to choose the method they use to calculate exempt current pension income (ECPI) for funds with members in both pension and accumulation phases.
The requirement for superannuation funds to obtain an actuarial certificate to calculate ECPI under the proportionate method when all the members are in retirement phase will be removed.
This measure would be primarily of interest to Self Managed Super Fund (SMSF) trustees.
Social Security
One-off energy payment
From 1 June 2019
A one-off payment of $75 for singles and $62.50 for each eligible member of a couple will be made to assist with the cost of energy bills. To be eligible, an individual must be a resident in Australia and be eligible for a qualifying payment on 2 April 2019. Qualifying payments are:
- Age Pension
- Disability Support Pension
- Carer Payment
- Parenting Payment (Single)
- Veterans’ Service Pension
- Veterans’ Income Support Supplement
- Veterans’ Disability Payments
- War Widow(er)s Pension, and
- Certain permanent impairment payments
The payment will be tax free and not counted as income for social security purposes.
Partner Service Pension – eligibility alignment
From 1 July 2019
Former spouses and former de-facto partners of veterans will be able to access the Partner Service Pension when they separate from their veteran partner.
Aged Care
Better access to care
From 1 July 2018
More funding will be available to improve the quality, safety and accessibility of residential and home care services, including:
- The release of an additional 10,000 home care packages across the four package levels, and
- Developing an end-to-end compliance framework for the Home Care program, including increasing auditing and monitoring of home care providers.
Other Measures
Infrastructure
The budget includes a in funding for road and around the country over the next decade.
Extending FTB to ABSTUDY recipients aged 16 and over who study away from home
The Government announced that it will provide $36.4 million over 5 years from 2018-19 to extend Family Tax Benefit (FTB) eligibility to the families of ABSTUDY (secondary) student recipients who are aged 16 years and over, and are required to live away from home to attend school.
Tax Avoidance Taskforce on Large Corporates etc: more funding
The Government will provide $1.0bn over 4 years from 2019-20 to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.
The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure is intended to allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
The Government has also provided $24.2m in 2018-19 to Treasury to conduct a communications campaign focused on improving the integrity of the Australian tax system.
Tax exemption for North Queensland floods grants
The Government will provide an income tax exemption for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods.
Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, and grants provided under the On-Farm Restocking and Replanting Grants Program and the On-Farm Infrastructure Grants Program.
The exemption will apply where the grants relate to the monsoonal trough, which produced flooding that started on or after 25 January 2019 and continued into February 2019. The grants will be non-assessable non-exempt income for tax purposes.
Tax exemption for primary producers affected by Queensland storms
The Government will provide an income tax exemption to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018.
The tax exemption relates to payments distributed to affected taxpayers through a grant totalling $1.0 million to the Foundation for Rural and Regional Renewal, working with the Salvation Army and a local community panel.
Please contact our office if you would like to review your situation and determine the financial strategy options that will assist you secure your future.
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