Aon Hewitt Financial Advice
The Federal Government has handed down the 2018 Budget with a focus on tax cuts for low and middle income earners. With an election due soon and the economy performing better than expected the Government released a high spending budget, while still forecasting a return to a surplus in 2019/20.
From 1 July 2018
The Government will provide approximately ten million low and middle income earners who earn up to $90,000 a year a small tax cut of about $10 a week. This is achieved through the introduction of a new low and middle income tax offset and increasing the upper threshold on the 32.5% tax rate from $87,000 to $90,000.
Seven year plan
Higher income earners will need to wait a bit longer under the Governments proposed seven year plan. By 2024/25 the Government aims to eliminate the 37% marginal tax rate and those on incomes between $41,001 and $200,000 (94% of taxpayers) will pay marginal tax at 32.5%.
Other tax changes
As previously announced the Government will not proceed with the proposed 0.5% increase in the Medicare levy from 1 July 2019, to fund the National Disability Insurance Scheme. There will also be small increases in the Medicare levy low income threshold for singles, families and pensioners.
Small businesses with a turnover of less than $10 million will be able to continue to immediately write off the cost of assets they purchase for less than $20,000 until 30 June 2019.
The tax cuts will be partially funded by a $5.3 billion crackdown on the black economy. The ATO will receive a $260 million funding boost from July 2018 to pursue taxpayers who over claim on work-related expenses.
Company tax cuts
The Government is continuing with its push to cut the amount of tax companies, including big banks, will pay. They have combined the company tax cuts with the proposed personal tax cuts in an attempt to force the Senate to agree to them, but this is not guaranteed.
The Government will fund $24.5 billion worth of infrastructure projects to create jobs and promote economic growth. This includes in Queensland, $1 billion for the M1 between Brisbane and the Gold Coast. While in Victoria major projects include $5 billion for a Melbourne Airport rail link and 1.75 billion to build Melbourne’s North East Link and new tunnels and lanes for the Eastern Freeway. In NSW, $971 million is set aside for the Coffs Harbour bypass and in West Australia, $500 million to upgrade the Ellenbrook rail line.
Superannuation fees reduced and changes to Self-Managed Super Funds
Young Australians and those with small balances will get a better deal on their super from 1 July 2019. Fees on accounts with balances $6,000 or under will be capped at 3% of the balance.
Exit fees will be banned on all super accounts, regardless of the balance.
If you are under 25, or your account balance is under $6,000 or your super fund hasn’t received contributions for 13 months, you will need to actively opt-in to hold your life insurance under your super fund.
Self-managed super funds will be able to have 6 members, instead of the current 4 from 1 July 2019. In addition those SMSFs with a good audit history will only need to be audited once every three years instead of annually from 1 July 2019, making it cheaper to run the SMSF.
From 1 July 2019 if you are aged 65 -74 you will be able to contribute to your super in the first year after you stop work, without having to meet the work test, if you have less than $300,000 in super. This gives you a period of time to get your affairs in order after stopping work.
Pension work bonus
Older Australians who want to keep working can take advantage of an increase in the pension work bonus being raised from $250 to $300 a fortnight. This will allow them to earn up to $7,800 without having their pensions reduced. Self-employed income will also now be included under the bonus.
Pension loan scheme
The pension loan scheme will be expanded to include everyone over Age Pension age and the maximum amount than can be borrowed will be increased from 100% of the Age Pension to 150%. The amounts are borrowed using the home as security and are repaid when the property is sold or the person passes away.
Expansion of home care and residential aged care funding
From 1 July 2018 the Government will increase the number of high level home care packages that will be available over the next four years by 14,000. This increase is in addition to the 6,000 high level home care packages that were previously announced.
An additional $60 million will be spent to increase the number of residential aged care and short term restorative care places. $82.5 million will be used to support mental health services for residents of aged care facilities, as well as $61.7 million to make the My Aged Care website easier to use.
Keeping Australians Safe
The Government also announced it will strengthen airport security, manage biosecurity risks to protect our environment, exports and agricultural and tourism sectors, improve the national security architecture and continue Operation Sovereign Borders to combat the threat of people smugglers.
It is important to remember that the Budget announcements are still only proposals at this stage and will need to pass through both Houses of Parliament before taking effect.
Contact us for more information on the 2018 Federal Budget Update
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This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.
© May 2018 Aon Hewitt Financial Advice Limited.
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