The 2019 Federal Budget is the first in a decade to use the word “surplus” as a column heading, not an aspiration. The Budget also announces a major tax cut plan, including tax relief for low and middle-income earners that will swell the hip pocket this year. If it retains government, the Coalition is promising to abolish the 32-cent tax bracket and aim for a world where 94% of taxpayers pay less than 30 cents in the dollar.
Treasurer Frydenberg’s speech also contained measures that are good news for older Australians, small business and commuters.
It’s budget time, but it’s also an election year - so Labor policies may affect your budget more than last night’s news from Canberra. Over the next few months Perpetual Private’s financial planning experts will share more insights on the policy battleground and what it means for you.
It is important to remember that this material relates to proposals which have not yet been legislated, and our analysis contained here should be viewed in that context. We recommend that you do not take any specific action until the Government provides greater detail in relevant draft legislation.
Details and insights
Immediate tax relief for low to middle income earners
The Low and Middle-Income Tax Offset (LMITO) will effectively double to a maximum non-refundable offset amount of $1,080 per annum. This provides an immediate tax saving to eligible taxpayers applying in the current tax year and continuing through to 2021/22.
The taxable income levels at which the LMITO will apply are:
Up to $37,000
$255 base offset
$37,000 - $48,000
$255 + 7.5 cents for each dollar over $37,000
$48,000 - $90,000
$1,080 maximum offset
$90,000 - $126,000
The maximum offset reduces by 3 cents per dollar for income between this threshold
No offset available
The Low Income Tax Offset (LITO) will also continue to be available to eligible taxpayers and will increase from $645 to $700 from 1 July 2022. The maximum LITO is available to taxpayers with taxable incomes up to $37,500, decreasing by 5 cents for each dollar between $37,500 and $45,000, and then decreasing by 1.5 cents for each dollar above $45,000. It reduces to nil for taxable incomes above $66,667.
What this means for you:
These measures benefit Australians who have not seen an increase in their take home pay, given low wage growth.
Longer term ‘reverse bracket creep’
In this Budget, the Coalition set a long-term target of having 94% of taxpayers pay less than 30 cents tax in the dollar. It starts the process by lifting the upper income threshold of the 19% and 32.5% tax brackets on 1 July 2022. This ‘reverse bracket creep’ lifts the amount you can earn before you move into a higher tax bracket.
Further, the 37% personal income tax bracket will be removed from 1 July 2024. On the same date, the Government proposes to cut the 32.5% personal income tax bracket to 30%.
What this means for you:
If enacted, these tax cuts (in combination with already legislated changes) may result in additional cashflow you can use for expenses, other investments or for contributions to superannuation.
More super for longer
Currently, individuals aged 65 to 74 are required to satisfy the work test in order to make voluntary personal contributions and have voluntary employer contributions made on their behalf.
The work test requires an individual be gainfully employed for at least 40 hours within 30 consecutive days, during the year in which the contribution is made.
To better align the work test with the Age Pension age, the Government proposes to lift the age where the work test is required to 66.
Extension of the bring-forward provisions
Currently, individuals aged 64 or less, can, subject to their contribution caps and total super balance, make Non-Concessional Contributions of $100,000 - or $300,000 under the bring-forward provisions.
The Budget proposes extending the ability to use the bring-forward provisions to individuals aged 65 or 66.
Changes to eligibility for spouse contributions
Currently, an individual may be eligible for a tax offset of up to $540 on superannuation contributions made on behalf of their spouse.
To be eligible, the recipient spouse must satisfy some income, super cap and balance conditions – and be under age 70. The Government proposes to increase the qualifying age from age 69 to 74.
Notably, the proposal only increases the qualifying age of the recipient spouse. All other eligibility criteria continue to apply.
What this means for you
In short, the government is offering opportunities to put more money into super.
- If eligible, these measures give you an extra 12 months to make additional Concessional Contribution of $25,000 and/or Non-Concessional Contributions of $100,000 (or $300,000 if the proposed change to the bring-forward provision is legislated), without having to satisfy the work test.
- The increase in the qualifying age for spouse contributions - to age 74 - will provide couples with more flexibility to equalise their super balances, and/or maximise both individuals’ $1.6 million Transfer Balance Cap.
Increases to the Medicare levy thresholds
The Government proposes to increase the Medicare levy thresholds for low-income earners in the 2019/20 financial year.
The threshold for singles will be increased to $22,398. For couples with no children, the threshold will be increased to $37,794 and the additional amount of threshold for each dependent child or student will be increased to $3,471.
For single seniors and pensioners, the threshold will be increased to $35,418. For senior and pensioner couples with no children, the threshold will be increased to $49,304 and the additional amount of threshold for each dependent child or student will be increased to $3,471.
Lower income Australians – including seniors and pensioners - will continue to be exempt from paying the Medicare levy.
Increased access to the instant asset write-off for small businesses
The instant asset write-off is being expanded in two ways.
Firstly, the ‘per asset threshold’ is increasing from $25,000 to $30,000. Businesses can obtain an immediate tax deduction for a single asset or multiple assets acquired up to this threshold.
Previous threshold changes mean there are now three different thresholds applicable for 2018/19:
- $20,000 - assets acquired between 1 July 2018 – 28 January 2019
- $25,000 - assets acquired between 29 January 2019 – 2 April 2019
- $30,000 - assets acquired between 3 April 2019 – 30 June 2019 and continuing throughout the 2019/20 tax year.
Business owners need to maintain good records of acquisitions during the year, so they can be eligible to access the appropriate threshold.
Secondly, the aggregated turnover threshold for a business to enjoy the higher $30,000 threshold increases from a turnover of less than $10 million to less than $50 million. As a result, both small and medium sized businesses can utilise this deduction. This change will apply from Budget night (2 April 2019) until 30 June 2020. The assets acquired must be used or installed ready for use in this timeframe.
In a tightened lending environment this tax relief may help small businesses who are having difficulty financing new tools, plant and equipment.
What does it mean for you?
A Perpetual financial adviser can help you assess how the Budget – and the upcoming Federal election tax battle – could affect you and your family.