2019-20 Federal Budget Breakdown – Early Insights from the Experts at Soundbridge
The 2019-20 Federal Budget was announced on 2 April with highlights including a return to a surplus position sooner than expected, catering for a stronger economy and securing a better future by giving back to Australians. This is demonstrated by the Government’s strong commitments to increased investment in infrastructure and essential services to the tune of $100 billion over the next ten years.
As could be expected in an election year, the proposals pertaining to personal financial planning and wealth are largely positive and include changes to personal taxation thresholds and tax offsets originally announced in the 2018-19 Budget. Further expansion of these benefits includes allowing people to contribute to their super for a longer period of time, and support to assist welfare recipients to overcome increasing living costs.
Our experienced financial planners have prepared an overview of the major proposals and how they may affect you, to help you get the most out of the new budget.
The most significant aspect of taxation reform focuses on the ongoing implementation of the Government’s ‘Personal Income Tax Plan,” with a proposal to more than double the maximum benefit of the ‘The Low and Middle Income Tax Offset’ to $1,080 per annum from 1 July 2018. If this proposal becomes law, the benefit will impact eligible individuals when they lodge their tax return for the current financial year.
The maximum benefit will flow to those with taxable income ranging from $48,000 to $90,000, but there will be some benefit if your taxable income is below $48,000 or between $90,000 and $126,000.
Additional relief is also being provided through further changes to the thresholds and rates, as per the table below.
Resident Marginal Tax Rates and Thresholds (excluding Medicare Levy)
|Current taxable income thresholds (from 1 July 2018)||Tax rate||Taxable income thresholds from 1 July 2022||Tax rate||Taxable income thresholds from 1 July 2024||Tax rate|
|Up to $18,200||Nil||Up to $18,200||Nil||Up to $18,200||Nil|
|$18,201 - $37,000||19.0%||$18,201 - $45,000||19.0%||$18,201 - $45,000||19.0%|
|$37,001 - $90,000||32.5%||$45,001 - $120,000||32.5%||$45,001 - $200,000||30.0%|
|$90,001 - $180,000||37.0%||$120,001 - $180,000||37.0%||Removed||Removed|
|$180,001 and over||45.0%||$180,001 and over||45.0%||$200,001 and over||45% of each dollar over $200,000|
Superannuation is relatively unchanged except for several adjustments to existing policies, including giving individuals greater flexibility to contribute to super.
The key measures include:
- Work test for contributions to super to apply from age 67
From 1 July 2020, if you are aged 65 or 66, you will be able to make additional voluntary contributions to super even if you’re no longer working, which will be a welcome adjustment for many Australians looking to boost their income in retirement. It will also provide an alignment to the qualification age for the age pension, which is progressively rising to age 67 (from 1 July 2023).
- Bring-forward rule extended to age 66
The Government will update the superannuation contribution rules to allow people aged under 67 to make three years’ worth of after-tax (non-concessional) contributions in a single year. Under current contribution caps, that would enable under-67-year-olds to contribute up to $300,000 in one year.
Currently, you must be under age 65 at any time during a financial year to trigger the bring forward rule. The bring forward rule allows you to make up to three years’ worth of non-concessional contributions, which are capped at $100,000 a year, to your superannuation fund in a single year. (The ability to use the bring-forward rule will remain subject to your total superannuation balance on 30 June prior to the financial year of the contribution).
- Increase the age limit for spouse contributions from age 69 to 74
From 1 July 2020 there will be an increased ability to make spouse contributions to super. Currently, this option is only available if your spouse hasn’t turned 70, which may restrict the ability of an individual, or members of a couple, to implement appropriate contribution planning strategies as they approach retirement. The existing age limit will be increased to allow you to make contributions on behalf of your spouse, up to age 74.
- Streamlining administrative requirements for calculating Exempt Current Pension Income
Superfund trustees will be allowed to choose their preferred method of calculating ECPI when a fund has interests in both accumulation and retirement phase during an income year.
- Permanent tax relief for merging superannuation funds
The Government has announced permanent tax relief for merging superannuation funds. The relief was due to expire on 1 July 2020. This permanent relief will ensure member balances are not affected by tax when funds merge.
The Government has committed to increased funding to make more aged care spaces available for Australians in the future – an important commitment for those in need.
The proposed measures include:
- A one-off increase to the basic subsidy for residential aged care recipients
- The release of an additional 10,000 home care packages across the four package levels over the five years from 2018-19
- To trial a residential care needs assessment funding tool as an alternative to the existing Aged Care Funding Instrument
- To strengthen aged care regulation through the establishment of a risk-based compliance and information sharing system
- Increased auditing and monitoring of home care providers
Of more current impact however, is an immediate one-off Energy Assistance payment of $75 for individuals and $125 per couple for eligible welfare recipients to assist with their next power bill.
With many Australians feeling pressure from increased costs of living and the resulting impact on tightened household budgets, the proposed acceleration of personal tax cuts is a positive, and many will look to benefit from income tax changes.
It’s important to remember that any possible benefit gained, should the proposed budget come into law, is only one part of the equation. What you do with those savings is also important. The best thing you can do is to seek advice that is personal to your own circumstances by speaking with a professional adviser. As always, the experts at Soundbridge are ready to partner with you in the creation of wealth. Levering our knowledge of you, our client, as a unique individual, we can tailor the optimal investment strategy for where you are on your financial journey, to help you be a winner with this year’s budget.
Posted on April 3rd, 2019