Tax proposals were the major focus.
|Planned year||Budget projection|
The Budget announcements outlined in this article have not been legislated yet. The details are still to be worked through, and both Houses of Parliament need to pass legislation before taking effect.
If you have questions about how these changes might affect you, contact us for an appointment with a super adviser or a financial planner.
- Changes in super
- Major proposals to personal income tax over seven years proposed
- Significant funding boosts for aged care, education, childcare
- Pension Work Bonus and Pension Loan Scheme.
1. Superannuation (effective 1 July 2019)
- If you are aged 65-74, you will be exempt from the work test for voluntary contributions to super for the first year that you do not meet the work test, if super balance is below $300,000
- Inactive balances below $6,000 will be transferred to the Australian Tax Office (ATO). The ATO will use data matching to identify an active account and where possible, transfer inactive balances into your active account
- Proposal to cap fees on accounts less than $6,000 at 3% and exit fees on all super accounts removed
- If you are under 25, or have a superannuation balance below $6,000 or your super account does not receive a contribution for 13 months, you will be required to opt-in to continuing insurance cover in your superannuation.
From 1 July 2018, if your income exceeds $263,157, and you have multiple employers, you will be able to nominate that wages from certain employers are not subject to the superannuation guarantee (SG) to avoid unintentionally breaching the concessional cap.
- A three-step, seven-year plan to make personal income tax ‘lower, fairer and simpler’
- Initially target low to middle income earners.
3. Pension changes
- Changes to Work Bonus and Pension Loan Scheme.
4. Aged care
- Increased expenditure in home care and skill schemes to keep older Australians in the workforce for longer.
5. Education, childcare, health and medical research
- $24.5 billion will be provided on the needs-based funding model, supporting recommendations of the Review to Achieve Educational Excellence in Australian Schools
- New Child Care Package; Child Care Safety Net; Universal Access to Early Childhood Education
- $30 billion, five year public hospital agreement with states and territories for the years from 2020-21 to 2024-25
- Funding commitment to Medicare
- $1.3 billion investment in National Health and Medical Industry Growth Plan.
- $75 billion go to the states and territories, with funding spread across road, rail and congestion management.
Extra year to contribute
From 1 July 2019, individuals transitioning out of work aged 65-74 will find it easier to contribute more to super. You will be exempt from the work test for voluntary contributions to superannuation for the first year that you do not meet the work test, if your superannuation balance is below $300,000.
Under current law, if you are over 65 you can only make voluntary contributions if you have worked at least 40 hours within 30 consecutive days in the financial year you make the contribution. Existing annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply.
Lisa retires on 1 June 2020 with a super balance of $150,000 and does not meet the work test in the 2020-21 financial year. Under the new rules, she could contribute up to $25,000 of concessional contributions and $100,000 in non-concessional contributions in the 2020-21 financial year, even though she did not meet the work test in that year.
Inactive super accounts
If you have an inactive super account with a balance below $6,000 this account will automatically be transferred to the Australian Tax Office (ATO). The ATO will use data matching to identify an active account and where possible, the ATO will transfer these inactive balances into your active account. You can currently search for lost super using MyGov.
Fee caps and exit fees
Total fees on super accounts less than $6,000 are proposed to be capped at 3% annually, and exit fees banned on all super accounts.
Insurance in superannuation changes to opt in for some
Insurance through super is a low maintenance and cost-effective way to protect your income and continue providing for your family if life takes an unexpected turn.
If you are under 25, or have a superannuation balance below $6,000 or your super account is inactive, you will be required to opt-in to continuing insurance cover in your superannuation. You will have 14 months to opt-in to the insurance cover before it is switched off.
These proposed superannuation changes will come in effect on 1 July 2019.
High income earners with multiple employers
Individuals whose income exceeds $263,157, and who have 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.
What this means to you
Currently, high-income earners who have multiple employers could exceed their concessional contributions cap of $25,000 per annum. This results in the individual receiving an excess determination from the ATO and a penalty charge. This proposal will allow individuals to negotiate with their employer for increased salary to offset the loss of SG.
|From 2018-19||From 2022-23||From 2024-25|
|Lower taxes for low and middle income earners with up to $530 tax relief||Adjustments to tax brackets||Simplify tax brackets by removing the 37% tax bracket
The government proposed a suite of taxation changes which will be introduced gradually over the coming seven years. In early years, these changes target low-middle income earners.
Tax relief for low and middle income earners
From 1 July 2018, low and middle income earners will receive up to $530 in tax relief. The government estimates that around 4.4 million people will receive the $530 benefit in 2018-19. The tax relief will be paid after next year’s income tax returns have been assessed.
- Those earning up to $37,000 will see their annual tax reduced by up to $200, or about $3.85 per week, which would buy one large coffee each week in a city cafe, or one annual discount return airfare between major cities
- The amount of tax relief will increase for those earning between $37,000 and $48,000
- The maximum offset of $530 will be available to those earning between $48,000 and $90,000, or about $10.19 per week, maybe two-and-a-bit large coffees a week, or a short- stay holiday.
This measure will continue through to 2021-22 and will be in addition to the low income tax offset.
Source: Treasury fact sheet “Lower, fairer and simpler taxes”
Bracket creep adjustments
From 1 July 2018, around 3 million people will receive a tax cut of up to $135 per year when the tax ceiling or top threshold of the 32.5% bracket goes from $87,000 to $90,000.
In 2021-22, the low and middle income tax offset will finish, and will be replaced by increasing the ceiling of the 19% tax bracket from $37,000 to $41,000.
From 1 July 2022, the low income tax offset will increase from $445 to $645.
From 1 July 2022, the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000, which will give a tax cut of up to $1,350 per year.
Simplifying personal income tax brackets
From 1 July 2024, the government will increase the ceiling of the 32.5% tax bracket from $120,000 to $200,000, removing the 37% tax bracket completely. The top marginal tax rate of 45% will apply to incomes above $200,000.
The government estimates that around 94% of all taxpayers will have a marginal tax rate of 32.5% or less in 2024-25, compared with a projected 63% of taxpayers if there is no change to the current tax brackets. There will be no change to the Medicare levy.
Summary of proposed changes
|Taxation rate %||Thresholds in 2017-18||Proposed thresholds 2024-2025|
|0%||Up to $18,200||Up to $18,200|
|19%||$18,201 – 37,000||$18,201 – 41,000|
|32.5%||$37,001 – 87,000||$41,001 – 200,000|
|37%||$87,001 – 180,000||-|
|45%||Over $180,000||Over $200,000|
Pension work bonus
If you are receiving the age pension, the Work Bonus will increase. This means the first $300 you earn per fortnight will not count towards the pension income test. This will now also apply if you are self employed. In combination with the income free area, a single pensioner will be able to earn $468 a fortnight and still receive the full age pension. You will be able to accrue the unused Work Bonus to be exempt from future earnings up to $7,800. The earnings must pass a ‘personal exertion’ test as returns on financial or real estate investments are not intended to be included.
Pension loan scheme
If you are of aged pension age and own your home, you will be able to use the value of your house to increase your retirement income.
The government offers a reverse mortgage through the Pension Loan Scheme which will be available to all Australians of aged pension age. In a reverse mortgage you borrow to receive an income and then pay back with interest when you sell your house.
The maximum income you can receive from the age pension and Pension Loan Scheme combined will be one and a half times the full rate of the age pension. The amount you owe the government will never exceed the value of your house, and you can pay it back before you sell your house if you wish. The interest rate on the Pension Loan scheme for new and existing loans will be 5.25%. The income streams from the Pension Loan Scheme are not taxed and generally not means tested, although if you save it rather than spend it, the saved amount may be means tested.
Bob and Sue are a 70 year old maximum rate pensioner couple, with a house valued at $850,000. Their combined age pension income is currently $1,368.20 per fortnight ($35,573 per year).
Bob and Sue are now able to access some of the value in their home. They choose to receive $2,052 per fortnight ($53,360 per year), the full amount of 150 per cent of the maximum rate of the age pension. The value of the income stream increases over time in line with pension indexation.
After 20 years, Bob and Sue sell the house for $1.6 million. While the balance of the PLS loan owed to the government has grown to around $900,000, Bob and Sue pay out this balance from the sale proceeds and retain $700,000.
Over the 20 years, Bob and Sue receive around $500,000 in additional income to support their standard of living in retirement.
Supporting choice and a healthy long life
With Australians now expected to live almost ten years longer than they were 50 years ago, the government is improving services to our ageing population. Aged care is a priority for current and future governments due to the imminent retirement of the ageing baby boomers.
The budget announces:
- Additional $1.6bn over the next 4 years to provide 14,000 extra HomeCare packages and help ease the backlog of ageing retirees wanting to access care in their own home
- Increased government funding to keep people ageing in place in their own homes rather than residential aged care
- Current wait list of 60,000 people approved for government funded HomeCare package, will be provided with aged care support in their own homes
- Another 40,000 people are receiving HomeCare below the level required
- Extra funding to support aged care accommodation and services in rural areas
- $83M to fund specific mental health services in aged care
- Additional $1.4Bn funding to add medications to PBS to help people age well and remain healthier for longer
- Appointment of an Aged Care Quality and Safety Commissioner
- Supporting access to aged care services in rural, regional and remote Australia
- Improving the My Aged Care website to make the aged care system easier to navigate; and
- Providing additional funding to support the mental and physical health of older Australians.
The care industry is seen as a key driver of the economy, with the health sector providing 7% of the economy and 14% of jobs. Initiatives will focus on:
- Australia transitioning from a mining and resource driven economy to the care industry as a major employment driver over the next 10-20 years
- The significant shortage of aged care and age appropriate housing is expected to increase employment and economic activity in the construction industry.
Education and child care
Over the next 10 years, an additional $24.5 billion will be provided on the needs-based funding model, supporting recommendations of the Review to Achieve Educational Excellence in Australian Schools (the “Gonski Report”).
From 2018-19, the government will commit an additional $247 million over four years to the chaplaincy program.
From 2 July 2018, the New Child Care Package means families with incomes of up to around $187,000 will not have an annual limit on the amount of Child Care Subsidy they receive. Families will need to complete an online Child Care Subsidy assessment on their Centrelink online through the MyGov website.
The Child Care Safety Net package includes $1.2 billion for the most vulnerable and disadvantaged children, and those in regional and remote communities.
The budget provides for $440 million to extend the national partnership agreement on Universal Access to Early Childhood Education until the end of 2019.
Public hospitals, Medicare and health research
The Budget proposes to fully fund a new, $30 billion, five year public hospital agreement with states and territories for the years from 2020-21 to 2024-25.
The Budget also includes funding commitment to Medicare, (the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme). The Government is not proceeding with the previous plan to increase the Medicare levy to fund the National Disability Insurance Scheme.
The budget proposes $1.3 billion investment in National Health and Medical Industry Growth Plan, largely funded from the $20 billion Medical Research Future Fund. This will fund genomic research projects investigating medicines tailored to individual patients, clinical trials of new drugs and development of new medical technologies.
The government’s headline investment in infrastructure for the decade from 2018-19 to 2027-28 covers transport infrastructure through a mix of grant funding and financing (equity and debt financing).
Some of these projects could be invested in by super funds, and become assets for superannuation members in coming years.
Key points include:
- $24.5 billion in spending on projects for states and territories
- $5 billion for Melbourne Airport Rail Link
- $9.3 billion in equity and grant funding to the Australian Rail Track Corporation
- $5.3 billion equity investment in Western Sydney Airport (WSA Co)
- $3.5 billion for the Roads of Strategic Importance
- $1 billion for an Urban Congestion Fund
- $250 million Major Project Business Case Fund
- $3.3 billion for the Bruce Highway, Queensland
- $1.4 billion for North-South Corridor, South Australia
- $1.1 billion for METRONET in Western Australia
- $461 million Bridgewater Bridge, Tasmania
- $280 million upgrades, Northern Territory
- $100 million Monaro Highway, ACT
The Australian and New South Wales Governments will be equal partners in funding the first stage of the North South Rail Link in Western Sydney.