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Federal Budget 2018 - A brief summary...

Good morning everybody,

In case you haven't yet devoured the daily newspapers, I'm pleased to provide a summary of the major announcements from last nights Federal Government Budget. I will also post this in the Knowledge Centre on our website.

Firstly, my age-old preface, that as per usual, lots of things are announced but typically, following consultations and arm-wrestling in Parliament, much less is actually implemented. So please don't rely on anything announced until and unless it actually becomes law.

Secondly, I have endeavoured to focus on areas that I feel are more likely to have some relevance to our clientele. Here is a brief summary of the main points:


- The Government has announced a 3-step personal income tax plan/re-alignment (over a 7 year period).

- Step 1: 1 July 2018 - 30 June 2022: A tax offset of varying amounts is proposed for lower to middle income earners. This amounts to a maximum of $530 pa and is in addition to the existing 'Low Income Tax Offset'. If the tax payer is eligible, it will paid after the tax return for that year has been lodged (so there may be some delay in receiving it) and being 'non-refundable', only if that tax payer still has a tax liability. So it won't work like Franking Credits on Shares which are rebatable in any case.

- Step 2 - Tax Rates and Thresholds: 1 July 2022: The 19% marginal tax rate is to apply up to $41,000 income rather than the current $37,000. 1 July 2018: The marginal tax rate of 32.5% has been proposed to now apply up to $90,000 income rather than the current $87,000.

1 July 2022: The marginal tax rate of 32.5% has been proposed to then apply up to $120,000 of income rather than $90,000. 1 July 2022: The marginal tax rate of 45% has been proposed to apply up to $180,000 income rather than the current $120,000.

- Step 3:

1 July 2024: The 37% tax bracket is to be removed entirely. 32.5% is to be the marginal tax rate for those earning income between $41,000 and $200,000 pa.

- So lower to middle income earners are due to receive a benefit sooner with higher income earners later, if the rules haven't changed by then....

- Medicare Levy: The above rate do not include the Medicare Levy. This however was announced to not be increased as was originally announced in the 2017 Budget. So it remains on 2%.

- Medicare Levy 2: The low-income levels at which the medicare levy needs to be paid is to be raised (slightly).

- Small Business: The current $20,000 immediate asset tax write off for small business was due to end this FY. That is to be extended for another 12 months.

- Vacant Land: Deductions for vacant land (on which no assessable income is earned) are to cease from 1 July 2019.

- Unpaid Present Entitlements: This is seen as a strengthening of the existing Div 7a provisions dealing with loans from companies/trusts. Essentially, from 1 July 2019, where a private company is entitled to a distribution from a trust but this hasn't been paid by the trust, it constitutes a loan and needs to be repaid as a complying loan or otherwise be subject to tax.

- Tax Exemption for Veterans Payments: From 1 May 2018, certain payments to Veterans are to be exempt from income tax.


- Tax deductions for Personal Contributions: More an administrative measure...individuals who make personal contributions into Superannuation and would like to obtain a tax deduction for these, need to inform the Super fund of this intention before making such a claim. This is to ensure that the fund is able to report these contributions correctly and also to deduct contributions tax if required. The tax payer will now need to indicate that they have done so in their tax return.

- The Work Test: Persons over age 65 who want to make a voluntary contribution into Superannuation need to meet the work test (to have worked 40 hours in any 30 day period in that FY). That requirement is to be loosened somewhat for those recently retired. From 1 July 2019, clients age 65-74, who have recently retired (definition to follow) and who have less than $300,000 in their Super can make a contribution regardless of their work test.

SUPERANNUATION - Self-Managed Funds:

There is some potentially good news here:

- Number of Members to Increase: it is proposed increase the maximum number of members in an SMSF from 4 to 6 from 1 July 2019. That could be of advantage to families or work groups, in providing greater flexibility, greater scope to pool capital etc.

- Less Audits - 3 yearly cycle: it is proposed that from 1 July 2019, SMSFs with a good recordkeeping and compliance histories will need to be audited only every 3 years rather than yearly. So funds that have a history of doing the right thing can save money on audit fees. The right things would include tax returns being lodged on time, no compliance issues etc. So clearly, good professional management is all the more important.


- A wide range of measures in this area were announced. These include:

* An expansion/Loosening of the 'Pensioner Loan Scheme' (similar to reverse mortgages).

* An expansion of the 'Pension Work Bonus' (allowing pensioner to stay in the workforce and earn money up to an increased amount, without affecting their pension).

* Better access to Age Care through a variety of measures

* A number of additions to the PDS for medicines treating Cancers, MS, HIV, Spinal Muscular Atrophy etc.


Again, I have sought to only highlight what I feel are more relevant announcements for our clients and these are all proposals only at this stage and as per usual, more detailed is required to be able to advise/act on these and this is expected from the Government over coming weeks/months. So please let me know if I can assist with anything here or provide further information as it comes to hand.

Feel free to also read the attached summaries by BT and the FPA for further details.

Budget 2018 - BT

Budget 2018 - FPA

Budget 2018 - Life Insurance Announcements

Budget 2018 - SMSF Announcements

Best regards,

Dietmar Birkmann

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