The Federal Budget for 2018-19, delivered on 8th May, has been trailed by the Government as a ‘Plan for a Stronger Economy’. It has also been referred to unofficially as ‘Christmas in May’.
Given that a Federal election is due sometime in the coming year, we might have expected a giveaway budget. However, the Government has largely stuck with the main principles that underpinned last year’s plans, i.e. stronger growth, protecting the essentials, and living within our means.
The Government has restated its commitment to returning the budget to surplus. This year’s budget forecast is for a $14.5 billion deficit in 2018-19, a $2.2 billion surplus in 2019-20, an $11 billion surplus in 2020-21, and a $16.6 billion surplus in 2021-22. This promises a return to budget surplus a year earlier than previously predicted. This has become possible because of higher than expected revenues.
Here are some of the main proposals by which the Government hopes to return the budget to surplus during the forthcoming year and the impact they might have on you and your personal finances.
The good news is that all Australians will enjoy tax cuts in 2018-19.
Changes to the marginal tax rate
From July 2018, the 32.5% upper threshold will increase from $87,000 to $90,000. This will increase to $120,000 from July 2022, before increasing again to $200,000 from July 2024.
According to the Treasury, this means that, when these increases are implemented and combined with the tax offset, 94% of taxpayers will be on a marginal tax rate of 32.5%.
Introduction of a low- and middle-income tax offset
The Government is also introducing a low and middle-income tax offset which will apply from July 2018 to June 2022. The offset will be based on your income and, if you are eligible, will be paid in addition to the current $445 Low Income Tax Offset.
The Government is extending for a further year the measure that allows business assets of up to $20,000 to be written off for tax purposes. This measure was originally due to expire on 30th June this year.
From July 2019, payments in cash for goods and services valued over $10,000 will be banned. This is to crack down on the black economy, where cash is used to make payments so that tax can be avoided.
For the same reason, from July 2019 business owners will no longer be able to make tax deductions when they have not withheld any PAYG in their staff payments or when a contractor has not supplied an ABN.
From 1 July 2019, you will also no longer be able to claim a tax deduction on vacant land.
From July 2019, regardless of the balance, exit fees will be banned on all super accounts. This will make the consolidation of multiple accounts easier.
For accounts with a balance of less than $6,000, fees will be capped at 3% and automatic insurance cover will be banned for new accounts where the member is under age 25, for accounts under $6,000, and for accounts that have been inactive for 13 months. This will add further protection to the value of your super.
What is more, accounts with a balance of less than $6,000, which have been inactive for more than 13 months, will have their balances automatically transferred to the ATO, which will merge this balance with active accounts with a balance of more than $6,000.
SMSFs and SAFs
From July 2019, self-managed super funds (SMSFs) and small APRA funds (SAFs) will be permitted to increase the number of their members from four to six.
In addition, SMSFs that have clear audit reports for three consecutive years will move to a three-year audit cycle.
From July 2019, members aged 65-74 who have balances lower than $300,000 will be able to make voluntary contributions in the first year they do not meet the work test requirements.
Pension Work Bonus
Under the Pension Work Bonus, if you receive the Age Pension or the Veterans’ Affairs Pension, you will be able to earn up to $300 per fortnight without it affecting your pension. This is an increase on the current level of $250 per fortnight.
The Bonus will also be expanded to include self-employed people. It will not, however, apply to income from financial or real estate investments.
Pension Loans Scheme
The Government currently offers a reverse mortgage arrangement to part-pensioners and some nil-rate pensioners through the Pension Loans Scheme (PLS). The loan amounts accumulate as a debt to the Government, which is repaid when the house is sold or any time before. This allows part-pensioners to ‘top up’ their Age Pension to the maximum rate.
From July 2019, full-rate pensioners will be able use the scheme to increase their income by up to $11,799 (for a single person) or $17,787 (for couples) per year. The maximum allowable combined Age Pension and PLS income stream will be increased to 150% of the Age Pension rate. The current PLS interest rate of 5.25% per year will apply to existing and new loans.
The Carer Allowance is currently not means tested. However, as part of the 2018 Budget, the Government will introduce a $250,000 family income test threshold to the Carer Allowance payment.
From July of this year, the Government will be combining its Residential Care and Home Care programs. This will give older people greater flexibility when choosing a mix of home care and residential care places.
An additional 14,000 high-level home care support packages are to be introduced over the next four years to help older people with tasks such as cooking and getting around. An additional 13,500 residential care places and 775 short-term restorative care places will also be introduced.
These are just some of the main proposals contained in the Budget for 2018-19. Please contact us if you wish to discuss any aspects of this year’s Federal Budget or how it may affect you on 1300 755 521 or email at firstname.lastname@example.org
TGFS Financial Planning is an Authorised Representative of Consultum Financial Advisers Pty Ltd. ABN 65 006 373 995 AFSL No 230323 (Consultum). This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.