Treasurer Scott Morrison confirmed in last night’s Federal Budget personal tax cuts for low income earners and a number of social security measures for retirees including an extension of the Pension Loans Scheme to all older Australians and the expansion of the Pension Work Bonus
He also announced a generous aged care package which will increase the number of home care places by 14,000 by 2021/22 at a cost of $1.6 billion plus $146 million to help elderly Australians in rural, regional and remote locations access aged care facilities and a further $83 million for mental health services
Retirees, pensioners and the education and health care sectors are the big winners from this year’s Budget but there’s arguably little in it for low to middle-income earners and young families with tax relief starting on July 1 equating to only $200 for those earning up to $37,000 per annum and up to $530 for those earning more than $37,000 per annum
There were however, no additional tax cuts for small to medium-sized enterprises although the $20,000 instant asset write off for businesses with revenue up to $10 million has been extended for a further 12 months to 30 June 2019
Pleasantly, there are no major superannuation changes this year, however, under changes to group life insurance, Australians under age 25 and those with low superannuation account balances will no longer be forced to pay for life insurance they did not ask for or do not need. From 1 July 2019, young people will need to deliberately opt-in for life insurance inside super
The Budget also contained a ban on exit fees for super accounts, a 3% cap on fees for accounts under $6,000 and an initiative to track and consolidate lost super to minimise fees and charges
What the key changes mean for you
Individuals
- A seven year Personal Income Tax Plan will be implemented in three steps to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket
- Medicare levy increase from 2% to 2.5% will not proceed
- The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year
- Supplementary amounts (pension supplements, rental assistance and remote area allowance) paid to a veteran and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018
Superannuation
- Maximum number of members in a self-managed superannuation fund (SMSF) and small APRA fund increased from four to six
- The annual audit requirements for a self-managed superannuation fund will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance
- Individuals whose income exceeds $263,157 and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018
- Individuals will be required to confirm in their income tax returns that they have complied with 'Notice of Intent' requirements in relation to their personal superannuation contributions, effective 1 July 2018
- An exemption from the work test for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65 to 74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements
- A Low and Middle Income Tax Offset to be introduced from 1 July 2019 to provide tax relief of up to $530 per annum for those earning below $90,000
- Opt-in for life insurance inside superannuation for young workers and those with low account balances
- Exit fees on all superannuation accounts to be banned and a 3% maximum cap fee applied to accounts with balances below $6,000
Pensioners and Retirees
- The introduction of an aged care package that will increase the number of home care places by 14,000 by 2021-22 plus additional funding for aged care facilities and mental health services
- From 1 July 2019, the Government will increase the Pension Work Bonus from $250 to $300 per fortnight to allow single individuals to earn up to $7,800 each year without impacting on their pension. As a result, an eligible single person with no other income will be able to earn up to $468 per fortnight from work (when you factor in the income free component of $168 per fortnight) and still receive the maximum rate of Age Pension under the Income Test
- The Government is also extending eligibility for the Pension Work Bonus to earnings from self-employment. This means that a pensioner can earn $7,800 per year through self-employment without impacting on their pension
- From 1 July 2019, the Pension Loans Scheme (PLS - the Government sanctioned reverse mortgage scheme) will increase the maximum allowable combined Age Pension and PLS income stream to 150% of the Age Pension Rate. The scheme eligibility will be expanded to all Australians of Age Pension age
Small Businesses
- Instant asset write-off for businesses with revenue up to $10 million for purchases of up to $20,000 to be extended to 1 July 2019
- Initiatives to help mature age Australians adapt to changing workforce including funding of up to $2,000 for workers aged 45 to 70 years of age to take up re-skilling or upskilling opportunities
The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate
- Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been extended
A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts
Other Matters
- Amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules from 1 July 2019
- Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied
- The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income
- Payments to employees and contractors are no longer deductible where any amounts that are required to be withheld are not paid, from 1 July 2019
- The thin capitalisation rules will be amended, effective 1 July 2019, to treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for thin capitalisation purposes
- Tax exempt entities that become taxable after 8 May 2018 will not be able to claim tax deductions that arise on the repayment of the principal of a concessional loan
- The 50% capital gains discount for managed investment funds (MITs) and attribution MITs (AMITs) will be removed at the trust level
- A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts
- The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate