On the evening of Tuesday, 8th May 2018, the Federal Government handed down its budget for the 2018-19 financial year. Given that it will likely be the final budget before the next federal election; it comes as no surprise that there are plenty of promised tax-cuts. Let’s take a look:

Taxation

A seven-year personal income tax plan which consists of the introduction of a new Low & Middle-Income Tax Offset (LMITO); an increase to the existing Low-Income Tax Offset (LITO); extending the upper thresholds for certain income tax brackets, and the eventual removal of the 37% personal income tax bracket. Set to take place over the course of the next 7 years.

No change to Medicare Levy which means it will no longer be increased from 2% to 2.50% as legislated to commence from 1 July 2019. The Medicare Levy low-income thresholds will also be slightly increased.

Small businesses will continue to benefit from the accelerated depreciation measure; whilst some restraints have been placed on partnerships accessing the capital gains tax (CGT) concession.  The CGT concession however has remained unchanged.

Deductions for vacant land will be denied effective 1 July 2019.

 Superannuation

For individuals aged 65 to 74 the superannuation contribution rules will be amended to allow them more time to make contributions to super after they have retired and finished working. Special conditions will apply (e.g. super balance must be less than $300,000).

SMSF membership will increase from 4 to 6 which provides greater flexibility for larger families. The uptake on this is expected to remain relatively low, given that only about 7% of SMSFs have more than two members currently.

A three-year audit cycle for some SMSFs instead of every year will be allowed for certain SMSFs who have historically demonstrated good compliance and return lodgments. As a result, it could make future running costs cheaper by reducing audit costs from annual to every 3 years; however, an increased risk of compliance breach consequences should they occur. Proceed with caution on this one.

Individuals who earn more than $263,157 and who have multiple jobs may be able to negotiate to receive additional salary / wages in lieu of lost SG that would otherwise trigger a breach in the concessional contribution cap. The finer details of this measure remain unclear, so watch this space!

Personal deductible contribution notice of intent integrity changes will now require tax payers to confirm (at the time of lodging their tax return) that they have provided a valid notice of intent to their fund when claiming a tax deduction for their personal contributions.

Super balances under $6,000 have some new proposals:

Insurance within superannuation will move from a default framework to an ‘opt-in’ basis for individuals under age 25, whose accounts have not received a contribution in 13 months and are inactive.

Changes to fees charged within super will result in a ban of exit fees on all super accounts and introduce a 3% annual cap on passive fees charged by super funds.

Transfer to ATO: All inactive super accounts with balances below $6,000 will be transferred to the ATO.

Older Australians

An increase to Pension Work Bonus will allow pensioners to disregard employment income up to $300 fn (currently $250 fn). In addition, the Pension Work Bonus will be extended to earnings from self-employment.

Means testing of pooled income steams will apply to new accounts whereas existing pooled income streams purchased before 1 July 2019 will be grandfathered.

Comprehensive Income Products for Retirement (CIPR) will be introduced which requires trustees to develop a strategy that would help members achieve their retirement income objectives. The Govt will release a position paper outlining its proposed approach.

Expansion of Home Care increases the number of high level home care packages available over the next four years by 14,000; in addition to the 6,000 packages that were previously announced.

Residential aged care will be given a cash injection to the tune of $60m to support new residential aged care places and short-term restorative care places.

National register of enduring powers of attorney will see a new register established which aims to protect older Australians from abuse through ensuring that only one enduring document can be registered at any one time, enable easy identification and clarity as to the precise roles and powers of attorney.

Remember, these are proposals only at this stage.