The Federal Budget was handed down on 8th May 2018. Compared to both 2016 and 2017, this Budget was not as significant in terms of its overall impact on our clients, strategies and the broader industry. There were however some important announcements that may impact you, or may provide you with new opportunities.

Use the tabs below to read up on how the proposed budget may affect you.

Funding for home care services and residential aged care will increase, including:

  • 14,000 new home care packages over four years
  • 13,500 new residential aged care places, and
  • grants for aged care facilities in rural, regional and remote areas.
While not as significant as the changes to super we have seen in the previous couple of Budgets, there are a number of proposed changes to super. These include:

  • opt in insurance requirements for certain members
  • changes to protect small super balances
  • work test exemption to recent retirees with super balances of less than $300,000
  • an increase to the limit on members in SMSFs
  • reduced audit requirement for eligible SMSFs, and
  • changes to address certain inadvertent breaches of the CC cap
In many superannuation funds, including MySuper and employer funds, insurance is offered as a default option. It is proposed to move from this default position to an opt-in basis for members:

  • with balances of less than $6,000
  • who are under the age of 25, and
  • whose account has not received a contribution in 13 months and are considered inactive.

Insurance cover opt-in

Protection of small super balances

The Government has proposed measures to reduce the impact of fees on low superannuation balance and focus on returning lost superannuation to individuals.

Protection will be provided to superannuation accounts by limiting administration and investment fees to a 3% annual cap. This cap will apply to accounts with balances below $6,000.

Exit fees will also be banned on all superannuation accounts.

A person aged 65-74 is able to make contributions to superannuation if the work test has been satisfied (ie has worked at least 40 hours in 30 consecutive days) in the financial year the contribution is made. A one year exemption from the work test will apply to older Australians who have less than $300,000 in total superannuation savings. The one year exemption applies to the financial year following the last year the work test was satisfied. This will allow an additional period of time for those eligible to contribute to superannuation.

Work test exemption

Limits on SMSF members

Self-managed superannuation fund (SMSFs) are limited to having four members. This threshold will increase to six to provide greater flexibility for families to all be members of the same SMSF.
SMSFs with a history of good record-keeping and compliance will move from providing an audit on an annual basis to three-yearly cycle. Eligible SMSFs will be those with a history of three consecutive years of clear audit reports and have lodged fund’s annual return on time.

SMSF audit requirements

Inadvertant concessional cap breaches

Employers are required to pay Superannuation Guarantee (SG) based on an individual employee’s income. For some individuals this means their concessional contribution cap is breached by the total of multiple employers’ compulsory contributions.

Individuals who have a total income exceeding $263,157 pa and multiple employers will have the option to elect to no longer have SG contributions paid on certain income from their employer. This overcomes the inadvertent breach of the concessional contribution cap and associated tax penalties. Instead, you may be able to make arrangements with your employer to instead direct these additional amounts to you as salary.

Taxation

There are a number of changes to taxation this year. These include confirmation that the Medicare Levy will remain on hold at 2%, some relatively significant reductions in the personal tax rates which will be staggered over a number of years, and an extension of a previously announced measure for small businesses for another year, relating to the upfront deductibility of eligible purchases.
The proposed increase of the Medicare levy to 2.5% proposed in the last Budget is formally abandoned.

Personal taxation

Personal tax thresholds

The income threshold at which the 32.5% marginal tax rate applies will progressively increase to $200,000 by 1 July 2024. This table summarises the new income tax thresholds as they will apply to various levels of income from 1 July 2018 to 1 July 2024.
Table 2 below illustrates the tax payable in future financial years (and the potential tax savings compared to 2017/18) for a range of taxable incomes. These figures take into account the proposed personal income threshold and tax offset changes.

Personal tax thresholds

Personal tax offsets

Introducing the Low and Middle Income Earners Tax Offset (LMIEO) which will apply from 1 July 2018 to 30 June 2022. From 1 July 2022 the Low Income Tax Offset will increase by $200, this, along with increasing the upper limit of the 19% tax band to $41,000 will compensate lower income earners for the withdrawal of LMIEO at that time.
Currently, small businesses with an annual turnover of $10 million or less are able to claim an immediate deduction for eligible assets costing less than $20,000 each. This measure will be extended for a further 12 months, until 30 June 2019.

Taxation – small business

Pension loans scheme

The Pension Loans Scheme allows eligible individuals to access some of the equity in the home or other property via a Government loan, which is advanced in fortnightly instalments.

This scheme will be available to all Australians over Age Pension age and the maximum loan payments will increase to 150% of the full Age Pension.

For a full age pension recipient, the total fortnightly payment they can receive may be up to 150% of the full rate of pension which means that based on the current rates, a single person could increase their annual income payments by up to $11,799, or $17,787 for couples combined. A person who has no Age Pension entitlement may be eligible to receive a larger fortnightly loan instalment. This could be up to $35,397 for a single person or $53,360 for a couple combined.

Pension loans scheme

Work bonus

Entitlement to Age Pension is determined based on calculating your entitlement under the income test, then under the assets test, and the lower resulting entitlement is the Age Pension you’re eligible to receive.
Income includes net rental income earned from real estate, deemed rates of income on what we call ‘financial investments’ (for example, cash and shares), and if you (or your partner) continues to be employed, income earned from employment will also impact entitlement under the income test.

Currently, the Work Bonus allows the first $250 of employment income you earn per fortnight to be exempt under the income test. Any employment income above this amount is pooled with your other income, and applied against the income thresholds. If this assessable income exceeds the lower thresholds (which are currently $168 for a single person or $300 for a couple), your entitlement will reduce under the income test.

Work bonus

Work bonus

From 1 July 2019, the Work Bonus will increase to $300 per fortnight. In addition to this change, income earned from self employment will also qualify for the Work Bonus.

As is the case currently, an Age Pensioner can accumulate unused Work Bonus amounts and carry these amounts forward to offset employment income in a future fortnight. Up to one years’ worth (or $7,800) of Work Bonus can be accumulated in total in an ‘Income Bank’.

A physical exertion test will also apply to ensure that only income derived from ‘gainful employment’ which is generally doing a job for gain or reward, will qualify for the Work Bonus. This means that passively earned income from investments (for example) does not qualify. It is not clear how this test will be applied.

Impacts & Opportunities