The federal budget was passed down on 8th May 2018 by Treasurer Scott Morrison and contained proposed changes that will affect a significant proportion of the Australian public. Take a look as we review the highlights.
Personal Income Tax
This year’s budget focuses its attention on simplifying the individual tax structure and proposes a series of income tax cuts for individuals over 3 stages.
Stage 1: Starting 1st July 2018, the upper threshold of the 32.5% tax rate will be increased from $87,000 to $90,000.
Stage 2: From 1 July 2022 this threshold will be increased to $120,000, and the 19% tax rate will apply for income up to $41,000.
Stage 3: Finally the 37% tax rate will be completed abolished from 2025 tax rate and the 32.5% tax rate will apply for incomes up to $200,000.
From the 1st July 2018 a new tax offset was proposed called Low and Middle Income Tax Offset (LAMITO), which varies depending on your taxable income:
- <$37,000 you receive LAMITO of $200
- $37,000-$48,000 you receive LAMITO between $200 and $530
- $48,001-$90,000 you receive LAMITO of $530
- $90,001-$125,333 your LAMITO reduces from $530 to $1
You don’t need to apply for the tax offset, it will automatically be applied when you lodge your tax returns for 2019 to 2022.
Medicare levy remains at 2%
The previous recommendation that the Medicare levy be increased to 2.5% of taxable income will not be proceeding leaving the levy at 2%.
Removal of CGT discount for MITs & AMITs
The Government proposes to remove the availability of the capital gains tax 50% general discount to Managed Investment Trusts (MIT) and Attributed MITs (AMIT). Eligible beneficiaries such as individuals will still be able to apply to 50% discount, however companies will not benefit from this discount.
Vacant land expenses
From 1 July 2019, expenses made on holding vacant land will cease to be deductible. Depending on the nature of the expense, the expense may or may not be included in the cost base of the vacant land when calculating any capital gain upon the land’s disposal.
Taxation of testamentary trusts
From 1 July 2019 income derived from non-estate assets that is distributed to children will now fall under the childrens’ tax thresholds rather than the adults as previously applied.
Cash Payment Limit of $10,000
In an attempt to crack down on the ‘black economy’, cash payments above $10,000 will be banned economy wide. Payments for goods and services that exceed this amount will need to be paid electronically or via cheque from 1 July 2019.
$20,000 asset write off extended
Small businesses will be able to immediately depreciate assets that cost $20,000 or less until 30 June 2019. Originally scheduled to terminate 30 June 2018, this tax concession will be extended and can be used on multiple assets in one financial year.
SMSF – New member limit
From 1 July 2019, the government is proposing more flexibility by allowing up to six members in a super fund rather than four.
Audit cycle increased to 3 years
SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. Eligible funds must have lodged their tax returns on time for the last 3 years and have 3 years of clear audits.
Work test relaxed
For individuals with <$300,000 in super and aged between 65 and 74, the work test does not need to be satified to make voluntary contributions in the year after retirement.
Administration, investment and exit fees
From 1 July 2019, it has been proposed that superanniation exit fees will be prohibited. Further, if the superannuation balance is <$6,000 then there will be a cap imposed on the administration and investment fees to 1.5% of the balance of the fund.
The government proposes to move the default insurance arrangement in superannuation funds from opt-out to opt in for select superannuation accounts.
Opt- out of Superannuation Guarantee for multiple employers
Employees earning >$263,157 from multiple employers will be able to apply for an exemption for wages subject to superannuation guarantee from certain employers. This aims to help eligible individuals to avoid unintentionally breaching the concessional contributions cap.
Expansion of Pension Loan Scheme
All Australians of age pension age that qualify for a pension will be eligible to get a loan secured by their home from the government, with the maximum loan amount increased from 100% to 150% of the age pension.
Extension of Pension Work Bonus
The Pension work bonus allows Australians to earn $250 per fortnight from work before any income counts towards their pension income test. From 1 July 2019, this will increase to $300.
As always, if you have any questions or queries relating to the proposed budget or you wish to discuss your individual circumstances, please feel free to contact the office on 02 9970 7186.