Jayson Forrest is the managing editor of Money & Life Magazine.
On 2 April, the Federal Treasurer, Josh Frydenberg, handed down his first Budget. The following are the key Budget 2019-20 highlights that are likely to affect planners and their clients.
A cornerstone of the 2019-20 Budget was a strengthening of the tax cuts outlined in last year’s Budget, with the Government announcing it will build on its Personal Income Tax Plan.
Low and Middle Income Tax Offset
The Government proposes to increase the Low and Middle Income Tax Offset (LMITO) from the 2018-19 tax year onwards by increasing the base amount from $200 to $255 per year and the maximum amount from $530 to $1,080 per year.
Taxpayers with income between $48,000 and $90,000 will be eligible to receive the maximum offset of $1,080. The offset phases out with incomes up to $126,000.
2022-23 Personal Income Tax Cuts
The upper threshold of the 19 per cent tax bracket is proposed to increase from $41,000 to $45,000 from 1 July, 2022. This proposed change complements the already legislated increase in the upper threshold of the 32.5 per cent tax bracket.
The LMITO is legislated to cease at the end of the 2021-22 tax year, at which point the maximum amount of the Lower Income Tax Offset (LITO) is currently legislated to increase from $445 to $645. However, this year’s Budget proposes to increase the maximum amount of LITO to $700, with the taper rate to be 5c for every dollar from $37,000 to $45,000, rather than the current 6.5c per dollar from $37,000 to $41,000.
2024-25 Personal Income Tax Cuts
From I July 2024, the Government proposes to reduce the 32.5 per cent tax rate to 30 per cent, abolish the 37 per cent tax bracket and increase the threshold for the 30 per cent tax rate to $200,000.
Medicare levy thresholds
The Medicare levy thresholds will increase from the 2018-19 income year. They are:
For singles – from $21,980 to $22,398;
For families1 – from $37,089 to $37,794;
For single seniors and pensioners – from $34,758 to$35,418; and
For senior and pensioner couples – from $48,385 to $49,304.
An additional amount for each dependant child or student increases from $3,406 to $3,471.
Asset Tax write-off
The Government will increase the instant asset tax write-off from $25,000 to $30,000, and extend this write-off to medium sized businesses (those with an aggregated annual turnover of between $10 million and $50 million), as well as small businesses.
The increased threshold and eligibility are effective from the release of the Budget on 2 April 2019, and the write-off will operate until 30 June 2020. Small businesses will also continue to have access to the simplified depreciation rules.
Work test and bring-forward contributions age thresholds
The Government will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without having to meet the work test from 1 July 2020.
Individuals aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule.
Those aged up to and including 74 will be able to receive spouse contributions, with those aged 65 and 66 no longer needing to meet the work test.
Effective from 1 July 2020, the upper age limit at which a client’s super fund can accept spouse contributions on the client’s behalf will increase from age 69 to 74.
This increase in the upper age limit for spouse contributions will enable the contributing spouse to qualify for the spouse contribution tax offset for longer. The offset is subject to an income limit ($40,000), residence requirements and a restriction on the contribution being claimed as a tax deduction. The offset can be as much as $540 on a $3,000 contribution.
Protecting Your Super Package
The Government will delay the start date of the Protecting Your Super Package to 1 October 2019. This delay is to ensure insurance within superannuation is only offered on an opt-in basis for amounts with balances of less than $6,000 and for new accounts belonging to members under the age of 25.
These changes (currently before Parliament) will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of.
The changes will also reduce the incidence of duplicated cover, so that individuals are not paying for multiple insurance policies, which they may not be able to claim on. However, these changes will not prevent anyone who wants insurance from being able to obtain it, with low balance and young account holders still able to opt-in to insurance cover within superannuation.
SuperStream for SMSFs
The Government has announced an increase in the range of superannuation fund transactions required to be made using the SuperStream protocols from March 31 2021. As such, it is also proposed that SMSFs will not be required to adhere to the SuperStream protocols until that date. The previous date from which SMSFs were due to adhere to the SuperStream protocols was November 30, 2019.
Energy Assistance Payment
The Government will make a one-off payment of $75 for singles and $125 for couples who receive a qualifying payment on 2 April 2019, to help them with the rising cost of electricity. Those eligible for this payment include recipients of the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment Single, Newstart Allowance and a range of Department of Veterans’ Affairs pensions and payments.
Family Tax Benefit
The Government will provide $36.4 million over five years from 2018-19 to extend Family Tax Benefit eligibility to the families of ABSTUDY (secondary) student recipients who are aged 16 years and over, and are required to live away from home to attend school. This will improve access to secondary education for indigenous Australians and help reduce the gap in outcomes between indigenous and non-indigenous Australians in the completion of high school.
Access to Aged Care
The Government will provide $320 million for a one-off increase to the basic subsidy for residential aged care recipients. An increase of $35.7 million will be provided for the dementia and the veterans’ home care supplements, which supports home care recipients who require additional care to stay in their homes longer.
The Government will provide $4.6 million to trial a residential care needs assessment funding tool as an alternative to the existing Aged Care Funding Instrument.
A total of $7.1 million will be provided over two years to improve payment administration arrangements for home care packages to align home care arrangements with other Government programs, such as the National Disability Insurance Scheme.
Home Care Packages
The Government’s Home Care Packages Program supports Australians who choose to receive care in their own homes. The Government is providing $282.4 million over five years from 2018-19 for an additional 10,000 home care packages across all levels.
Australians with dementia or requiring cognition support will benefit from additional funding for home care supplements, and the Government is providing $7.7 million to develop an end-to-end compliance framework for home care.
Commonwealth Home Support Programme
The Government will provide $5.9 billion over two years from 2020-21 to extend the Commonwealth Home Support Programme (CHSP) funding arrangements. The CHSP contributes to essential home support services, such as meals, personal care, nursing, domestic assistance, home maintenance and community transport, to assist older people to keep living independently in their own home.
The Government has announced a national plan to respond to the abuse of older Australians. The plan includes $18 million to create a new national hotline and conduct trials of frontline services for victims of abuse. The Government is also contributing $1.5 million towards developing a Serious Incident Response Scheme.
The Government has announced an additional 13,500 residential aged care places will be made available, combined with a $60 million investment in infrastructure. The Government is providing a $320 million general subsidy for residential aged care and $8.4 million will be provided to introduce mandatory reporting against several national residential care quality indicators.
The Government has also provided additional funding for the regulators, including $606.7 million to relevant government departments and agencies to support the Government’s response to the Royal Commission’s recommendations.
Money & Life kindly acknowledges the FPA and wealthdigital for their assistance with this Budget analysis. For more details on the Budget, go to fpa.com.au.