Nina Kazmierczak- Partner and Principal Adviser
Sovereign Wealth Partners
The Federal Treasurer, the Hon. Scott Morrison MP, delivered his third Federal Budget on 8 May 2018. This is likely to be the last Budget before the next election and thankfully there were no real surprises.
Below we highlight some key proposals which may impact you, however, it is important to note that before any of these announcements can be implemented they will require the passage of legislation and they may be subject to change.
- Low to middle income immediate tax cuts- from 1 July 2018, the government will increase the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000. A further increase in this threshold to $120,000 is proposed from 1 July 2022 and a little far-fetched… from 1 July 2024, the Government will extend the top threshold of the 32.5% personal income tax bracket from $120,000 to $200,000, thereby removing the 37% tax bracket completely. In addition, the 19% upper threshold will increase from $37,000 to $41,000 from 1 July 2022. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.
- The Medicare levy rate will no longer be increased from 2% to 2.5% of taxable income from 1 July 2019 as previously announced.
- Easier to contribute for older Australian- from 1 July 2019 those aged between 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the FY following the year they last met the work test. Existing annual concessional and non-concessional caps will continue to apply, furthermore, eligible individuals will also have access to the carry forward cap rules which may permit larger concessional contributions.
- Some changes to SMSF- the maximum number of members in a self-managed superannuation fund will increase from 4 to 6 from 1 July 2019; and those with good record-keeping and compliance history may move to a three-yearly audit cycle. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.
- Opt out of Superannuation Guarantee- individuals who earn over $263,157 from 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. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers.
- The Government will introduce a retirement income covenant into the Superannuation Industry (Supervision) Act 1993 that requires trustees to develop a strategy that would help members achieve their retirement income objectives. The covenant will require trustees to offer Comprehensive income products for retirement (CIPRs) which provide individuals with income for life.
The Government will be releasing a position paper for consultation on this measure shortly.
- Denial of deductions for vacant land- from 1 July 2019, the Government will deny deductions for expenses associated with holding vacant land. This measure will apply to land held for residential or commercial purposes.
- Extension to instant asset write-off- the Government will extend the $20,000 accelerated depreciation for small businesses by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover of less than $10M.
- Testamentary Trusts- from 1 July 2019, minors will be taxed in a manner consistent with other income earned. Current rules allow minors to be taxed as adults. The concessional tax rates will be limited to income derived from assets that are transferred from a deceased estate or proceeds of their disposal or investment of those assets.