Federal Budget 2018-19 Summary

On 8 May 2018, the Government delivered the 2018-19 Federal Budget. The positive news from this year’s Budget is that the changes are minimal in number compared to prior years and largely positive in nature. Some of the proposed changes are to personal taxation thresholds and tax offsets from 1 July 2018 over a seven year period, measures to reduce possible erosion of super balances (in particular for low balance accounts) and allowing Age Pensioners to earn more before their pension is reduced. As is always the case, these measures will need to pass through the legislative process before they become law and may change during that process.

Following is a summary of some of the major proposals and how they may affect you:-

The major piece of taxation reform centres on the Government’s proposed “Personal Income Tax Plan”. Under this proposal, income tax relief will progressively be provided over a seven year period commencing 1 July 2018.

The main focus for the first four years from 1 July 2018 is the introduction of a new “Low and Middle Income Tax Offset”, this will provide a tax offset valued at up to $530. The maximum benefit will flow to those with taxable incomes ranging from $48,000 to $90,000, but there is some benefit if your taxable income is below $48,000 and also if it is up to $125,333.

In conjunction with this, changes will progressively be made to the marginal tax rate thresholds, with the ultimate goal of removing the 37% tax rate altogether. These changes are reflected in the following table:

Resident marginal tax rates and thresholds (excluding Medicare levy) – click on below table to enlarge:

The Government has also announced it will not proceed with its measure announced in the 2017 Budget which would have seen the Medicare levy increase to 2.5% from 1 July 2019. Instead, it will remain at the existing rate of 2.0%.

Small business owners will also gain the benefit of a further 12 month extension until 30 June 2019 of the ability to claim an instant asset write off for eligible assets purchased that are worth up to $20,000.

Thankfully, superannuation remained largely untouched. There was re-confirmation of a pre-Budget announcement that from 1 July 2019, the maximum number of members permitted to be in a self managed super fund will increase from four to six.

Some relief was provided to those aged 65-74 who have stopped working, allowing them a one-off opportunity to make a contribution to super from 1 July 2019 without meeting the work test, but only where they have less than $300,000 in super.

Other measures were announced that also take effect from 1 July 2019, which will help protect and perhaps preserve balances in super accounts that have fallen to below $6,000. This includes a capping on certain fees that can be applied, as well as the removal of default insurance arrangements. In addition, super funds will not be able to impose exit fees if you choose to roll your super from one fund to another.

Social Security
Again from 1 July 2019, changes will be made to certain entitlements under the Age Pension regime, which will allow certain Age Pensioners to earn additional income from employment activities (including self employment) before their pension may be reduced. Additionally, more pensioners will be eligible to access some of the equity in their own home under the Pension Loan Scheme. The Government has also proposed a number of changes to the aged care system, with a goal of providing more choices to people as to how they wish to live later in life.

Concluding thoughts
Overall, the number of changes announced in this year’s Federal Budget are small compared to prior years, but if you have any queries, please do not hesitate to contact us.