09 May 2018 Budget Summary
Overnight the treasurer Scott Morrison has handed down a pre-election budget with headlined tax savings, commitments to aged care and small business spending incentives. Whilst these are the areas getting most of the media attention, there are some proposed changes that have implications in a number of other areas.
Below is a brief summary of the changes proposed in the budget, remember that none of these are currently legislation.
Whilst the headlines cover the initial benefit for low income earners of just over $10 per week the long term implications are a streamlined personal taxation system in the future with only two tax rates to apply after 2024. This is the end-game for a seven year plan to modify the income tax system.
The Medicare Levy will not increase as previously proposed and will remain at 2% of income. The low income threshold below which the Medicare Levy is not payable is increasing.
One for property investors to be aware of is, no deductions will be allowed for expenses related to vacant land, except where that land earns income or is used to carry on a business including primary production.
From 1 July 2019 it is proposed that people aged 65 to 74 and retire will still be able to make contributions in the financial year following the financial year in which they retire, if their existing total superannuation balance is less than $300,000.
Those who want to keep working can take advantage of an increase in the pension work bonus being raised from $250 to $300 a fortnight. This will allow them to earn up to $7,800 without having their Centrelink pensions reduced under income testing. The self-employed income will also now be included under the work bonus assessment.
The pension loan scheme will be expanded to include everyone over Age Pension age and the maximum amount than can be borrowed will be increased from 100% of the Age Pension to 150%. The amounts are borrowed using the home as security and are repaid when the property is sold or the person passes away.
To make pooled lifetime income more attractive as it can form a secure income for retirees, the Age Pension means testing rules for these will change from 1 July 2019. Pooled lifetime income streams purchased before 1 July 2019 will be grandfathered and assessed under the current rules.
For those trustees who have had too many children to fit under the old limit of 4 members in an SMSF the government has increased the limit to 6.
Further, from 1 July 2019. those funds that have been well behaved and have a good audit history, will be able to save on their annual audit costs and instead only need to be audited once every 3 years.
Superannuation Fees and Insurance Changes
Changes to personal deductible notices will include the ATO modifying tax returns to require individuals to confirm they have provided a valid “NO” to their super fund when claiming a tax deduction for their personal contribution. The ATO will also provide guidance to individuals on how to comply if they haven’t already done so.
Trying to reduce inadvertent concessional cap breaches, from 1 July 2018 if an individual’s income exceeds $263,157 and they have multiple employers, they can nominate certain employers not contribute to superannuation and pay these as wages.
From 1 July 2019 fees on super accounts with balances $6,000 or under will be capped at 3% of the balance e.g. The maximum charge on a $2,000 balance will be $60 p.a. which is lower than the current rate that most funds apply.
Those annoying and nasty exit fees will be banned on all super accounts, regardless of the balance. Whether this will be retrospectively applied (to existing accounts) will be interesting. I would expect some resistance as a number of older products were constructed with a high exit fee.
Members will not automatically have or keep life default life insurance in their funds. The member will need to ‘opt-in’ to keep the cover if:
- the member is under 25, or
- their account balance is under $6,000 or
- their super fund hasn’t received contributions for 13 months.
From 1 July 2019 all inactive super accounts with balances under $6,000 will needs to be transferred to the ATO. The ATO will then use data matching to proactively combine these accounts with the individuals active account where possible.
Centrelink Benefit Changes
Effective from 20 September 2018, in order to receive Carer Allowance or a Carer Allowance Health Care Card, the combined income of the carer and their partner must be under $250,000 per annum.
To reduce the impacts of immigration on the welfare system and increase the incentives to find and stay in employment, the Newly Arrived Resident’s Waiting Period (NARWP) will be increased for a number of welfare payments to four years.