Changes for individuals & superannuation
With an Australian election due by 18th May latest, this year’s Federal Budget is an obvious election campaign platform. The Coalition has made it clear that their economic management over the last six years makes them worthy of re-election, along with the often repeated statement that they believe in lowering taxes. Given that Labor has long campaigned for similar middle income tax relief, the budgeted tax cuts alone do not provide a point of difference for the election.
However the good news for individuals is that some 10 million people earning less than $126,000 will receive tax cuts, and improvements can be expected to community infrastructure, with massive infrastructure spending across the country and funding commitments made to schools, healthcare, science and medicine.
Personal tax rate cuts
Long term changes to the personal income tax system are central to this Budget, just as they were the year before. The immediate impact is for low and middle-income earners, with more substantial changes to eliminate bracket creep and simplify the tax rates occurring outside the four year forward estimates.
Little else was announced outside of personal tax cuts, although conspicuous by its absence was any update on last year’s announcement in relation to removing the main residence exemption for non-residents.
The second stage changes to personal tax rates announced are:
- Tax relief for 10 million people earning up to $126,000. This is delivered not by way of rate change, but by another increase in the non-refundable Low Income Tax Offset (LITO). This is from 1 July 2018 to 30 June 2022 and the offset increases from $530 to $1,080. Approximately 4.5 million people will get the full $1,080 benefit, with the rest having the benefit scale back as their income increases up to $126,000.
- Reduction of the 32.5% tax rate to 30% and applying this to taxable incomes ranging from $45,001 – $200,000, meaning 94% of taxpayers will not pay more than 30%. This is intended to occur from 1 July 2024.
Skills package – apprentices
Part of the skills package announced relates to new apprenticeships and incentive payments. In addition to increased incentives for employers, new apprentices themselves will receive a $2,000 payment split between $1,000 after 12 months and $1,000 at completion.
Energy assistance payment
The Government will make a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 April 2019 and who are resident in Australia.
Qualifying payments are the Age Pension, Carer Payment, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.
CGT main residence exemption changes for non-residents update
This measure was announced in the 2017-18 budget and has been met with criticism and lobbying efforts since announced. It was intended to apply from 9 May 2017 with a transitional period to 30 June 2019, however, has not progressed through the Senate. It passed the House of Reps without change on 1 March 2018.
In summary, the measure as announced sought to remove any concessional CGT treatment available for periods of using the dwelling as a principal residence, if the dwelling was sold whilst a person was a non-resident for tax purposes. Although refreshingly clear, it is draconian and retrospective in application to say the least. It is likely the Bill containing this change will lapse when the election is called.
Superannuation announcements are once again limited to some minor tweaks for existing retirees, along with some changes designed to protect the retirement savings of younger people and simplify compliance for self-managed superannuation funds. Contribution caps themselves remain untouched for another year. The key measures announced are:
Super contributions work test exemption extends to age 66
Currently, a person aged 65 – 74 must meet a ‘works’ test to make a (concessional or non-concessional) contribution into superannuation. The works test requires that after their 65th birthday and prior to the contribution being made for the financial year, they must work at least 40 hours in a 30 day period.
The proposed extension of this test would mean that people aged 65 and 66 would not need to meet the works test prior to making their contributions. Furthermore, the tax law will be amended so that these people can also access the three years to bring forward rule for non-concessional contributions, subject to those particular rules still being satisfied.
This is intended to apply from 1 July 2020. It is expected that 55,000 people aged 65 and 66 could benefit from this change.
Spouse contributions age limit increase
The age limit for making spouse contributions is currently set at 70, meaning that people aged over 70 cannot receive contributions made by another person on their behalf. From 1 July 2020, this age limit will be increased from 69 to 74.
Simplification of Exempt Current Pension Income (ECPI) calculation
This will affect superannuation funds that have members in both pension and accumulation phase, along with self-managed superannuation funds that have all members in pension retirement phase.
From 1 July 2020:
- Trustees can choose their preferred method of calculating ECPI, being either the proportionate method or segregated method. The segregated method was removed as an option from 1 July 2017.
- An actuarial certificate is not required for a fund that has all members in retirement pension phase for the whole income year.
Superannuation insurance opt-in rules confirmed to start 1 October 2019
The Government will delay the start date for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years to 1 October 2019.
Labor party key tax policies
Although at the time of writing the Labor Party had not given a formal Budget response or details on their tax policies for the election campaign itself, below is a summary of key policy announcements made over the past year:
- Removal of imputation credit refunds
- Temporary budget levy of 2% additional tax on incomes over $180,000, bring the top tax rate to 49%
- Minimum 30% tax rate on discretionary trust distributions to adult beneficiaries
- Negative gearing restrictions for passive investments to commence from 1 January 2020, with existing assets to be grandfathered
- CGT general 50% discount to be reduced to 25% from 1 January 2020, with existing assets to be grandfathered
- Personal tax cuts targeted to low and middle-income earners
- $3,000 cap on tax deductions for management of tax affairs
- Non-concessional contribution cap reduced from $100,000 to $75,000
- Abolish catch up concessional contributions
- The threshold for an additional 15% on superannuation contributions lowered from $250,000 adjusted taxable income to $200,000
- Remove deductibility of personal superannuation contributions for employed people
- Prohibit all forms of borrowing by self-managed superannuation funds
- Superannuation guarantee extended to include parental leave and salary and wages of less than $450 per month
- Retain existing Government’s corporate tax rate reduction schedule
- Investment guarantee of 20% capital allowance/depreciation write-off in year 1 of purchase
- Eliminate safe harbour and arm’s length debt tests in thin capitalisation rules, leaving only a world-wide gearing ratio test