Welcome to nabtrade’s wrap up of Federal Budget 2019. I’m Gemma Dale, nabtrade’s Director of SMSF and Investor Behaviour.
This year’s Budget is unique in its timing, and also in the fact that it has been released immediately before the announcement of the next Federal election. Voters should be aware that all of the proposals in this Budget need to be passed into law before they become effective, and since the Parliament will shortly be dissolved, and the current Federal Government may not be returned to power, there is far less certainty about the likely impact of some of these measures than there has been in prior years.
KEY TAKEOUT 1 - PROPOSED TAXATION CHANGES
This year’s Budget centrepiece is a series of tax measures, clearly targeting individuals and eligible small and medium sized businesses.
Let’s have a look at individuals first. The Low and Middle Income Tax Offset will increase from a maximum of $530 to $1,080 per annum. The base rate of this offset will also be increased, and if legislated, this will be effective from the current financial year.
The amount of offset you’re entitled to will vary depending on your income. It’s important to note that this offset is paid in a lump sum after you submit your tax return, not on a pay as you go basis, so the impact will be felt after 1 July. It should be noted that the Opposition have previously indicated they will support tax measures aimed at mid and lower income Australians, so the Government would like to pass these through the Parliament prior to the election, with the support of the Opposition. There are only a couple of sitting days in which this could occur though, so you will want to wait for confirmation.
In terms of detail, the Low and Middle income offset will be available for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
Individuals with taxable incomes up to $37,000 will have their tax reduced by up to $255. This will increase incrementally for those earning between $37,000 and $48,000. The maximum offset of $1,080 will be available to taxpayers with taxable incomes between $48,000 and $90,000. The offset then gradually reduces to zero at a taxable income of $126,000. There is a calculator available if you’d like to understand what the likely impact is on your personal income.
From 1 July 2024, it is proposed that the 32.5 percent tax bracket will be reduced to 30 percent. Together with the already legislated removal of the 37% tax bracket from 1 July 2024, it’s estimated that this will mean 94% of taxpayers will have a marginal tax rate of no more than 30% from the 24/25 financial year.
The existing instant asset write off regime will be increased and expanded. If passed, this will apply from Budget night through to 30 June 2020.
An upfront immediate deduction will be available to eligible businesses, for assets costing less than $30,000 (this is up from the previous threshold of $20,000 and the proposed threshold of $25,000).
Small businesses with an aggregated annual turnover of <$10m are already eligible for the immediate deduction. This measure, if passed, will apply to businesses with aggregated annual turnover of up to $50m, and it’s worth noting, applies to each asset purchased, not to one single asset per business.
KEY TAKEOUT 2 - PROPOSED SUPERANNUATION CHANGES
There have been a couple of proposed amendments to superannuation this year -very quiet relative to previous years, which many investors will be pleased about.
The two significant proposals from this Budget relate to the ability to contribute for those over age 65. Currently you need to meet the work test if you want to contribute to super between age 65 and 75, which means you need to have worked at least 40 hours over a consecutive 30 day period each year.
The age at which the work test requirement kicks in will be raised to age 67. This effectively gives you an additional 2 years to contribute to super, even if you’re no longer working. These contributions will still be assessed against the current contributions caps, which haven’t changed, despite some speculation. These caps are $25,000 per annum for pre tax contributions, and $100,000 for after tax contributions. You can currently bring forward up to 3 years worth of post tax contributions or $300,000, in a single year, if you’re less than 65 at the beginning of the financial year – this will also be available to those aged under 67 with these new measures. These measures, if passed, will apply from 1 July 2020.
The obvious benefit of these changes, if they’re passed, is that they allow people to contribute to their superannuation for longer. If you have less than $1.6m in super, this could allow you to boost your super, remembering that super remains a very attractive environment for tax purposes, with retirees paying no tax on income or earnings in the pension phase of their super.
Finally, spouse contributions will be able to be made for a spouse aged under 75. Currently this is only available if the spouse you’re contributing for is under age 70. Your spouse does need to meet the work test to receive the contribution if they’re over 65 currently or over 67 from 1 July next year if that change gets legislated, but depending on their income, you may also be eligible to receive a tax offset of up to $540. There are a few eligibility rules worth checking to ensure you should be using this one; these are detailed on the ATO website.
KEY TAKEOUT 3 - PROPOSED SOCIAL SECURITY CHANGES
And finally, if you were eligible for certain social security payments on Budget night, you will receive a one off Energy Assistance Payment.
This is a payment of either $75 for a single person, or $62.50 for each member of a couple, which will be received by those eligible to receive Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, and certain Dept of Veterans Affairs payments. This measure has support from the Opposition and is likely to be passed before Parliament is dissolved; it will be paid automatically by the Department of Human Services from June 2019.
Well that’s a wrap for this year’s Federal Budget. You’ll no doubt receive many reminders in the coming weeks that the Federal election is just around the corner and these measures must be passed, either by the existing Government or after the election in order for them to take effect.