On 8 May 2018, Treasurer Scott Morrison delivered his third Australian Budget and likely the last before the next Federal Election—so it comes as no surprise that this year has been termed the ‘blue skies budget’.
The first welcome move is that there are no further tweaks to the tax implications for non-residents owning Australian property. While we still face some significant deadlines—notably the removal of previous principal residence CGT exemptions come 30 June 2019—we can breathe a collective sigh of relief that there are no additional surprises.
The other is minimal change to superannuation—compared to the 2017 Budget, which saw a raft of restrictive changes introduced and limits placed on how much members can contribute to super as well as hold in retirement phase.
When it comes to personal income tax and superannuation, these key initiatives were announced:
1. Changes to Personal Income Tax Rates
A three-step process to flatten the tax structure and minimise bracket creep was announced:
Targeted tax relief for low and middle income earners: A new tax offset will be introduced for Australians earning less than A$125,000 a year. The maximum offset will be set at A$530 per annum, and will apply from 1 July 2018 to 30 June 2022.
Increase in thresholds to minimise bracket creep for middle income earners
Simplify the system by flattening out marginal tax rates
Here is a summary of the proposed tax bracket changes between 1 July 2018 and 1 July 2024. As a result, only 6% of Australians will fall into the top income tax bracket.
2. Initiatives relating to super
A. Introduction of insurance inside super opt-in arrangements
From 1 July 2019, the following members will have to opt in for insurance inside super:
Balance of less than A$6,000
Under the age of 25 years
Inactive accounts (no contributions received for 13 months)
The intention here is to ensure young members or those will smaller balances are not adversely affected over time by cost of premiums, of which they may not be aware.
B. Opt out from Super Guarantee for some high-income earners
Given the concessional contribution cap of A$25,000 per annum, some high income earners will unintentionally breach the limit if they have multiple employers, all of whom are obliged to contribute the 9.5% super guarantee (SG).
From 1 July 2018, these individuals will be able to nominate some of their employers to not pay SG, and renegotiate to receive foregone contributions as salary, wages, and any other salary packaging benefits their employer may afford. This will apply to those with:
C. Work test exemption for recent retirees
Currently, those aged between 65 and 74 years and want to contribute further to super must meet the work test—that is, to work 40 hours over 30 consecutive days during the financial year.
From 1 July 2019, retirees will be given a bit more flexibility to get their affairs in order. Those with super balances of less than A$300,000 at retirement and are between the ages of 65 and 74 years will be able to voluntarily contribute for 12 months from the end of the financial year in which they were last employed.
D. Banning of exit penalties and capping of fees for lower balances
All exit fees will be banned on super funds
3% annual cap on all passive fees (such as administration costs) charged by your super provider for balances below A$6,000
This is by no means an exhaustive list, and as with any Budget, all of these changes are subject to legislation being passed. And with much of the proposed changes being tiered over the next 6 years, it’s perhaps worthwhile being a little circumspect. Six years ago, we had Wayne Swan deliver his 5th budget under the Gillard government. At the time, it was suggested they could return the Budget to a surplus of A$1.5b by the 2012/2013 financial year. Fast forward to today, we have a deficit of A$18.2b and an expectation to return to a slim surplus of A$2.2b in 2019/2020.
Much can happen between today and 2024!
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