Federal Budget 2018 Snapshot

On Tuesday 8 May, the Federal Government handed down its Budget for the 2018-19 financial year. This is the third Budget delivered by Treasurer Scott Morrison and is likely to be the final Budget before the next federal election.

According to the Treasurer, this year's Budget measures aim to provide tax relief to ordinary Australians, while supporting small-to-medium businesses and improving Australia's essential services. The Treasurer claims that these measures will help to end Australia's decade-long deficit and return a modest surplus of $2.2 billion by 2019–20.

Here are some of the announced Budget changes that could affect you. However, it's important to remember that these are only proposals at this stage, and each proposal will only become law once it's passed by Parliament.

Tax changes

Seven-year personal income tax plan
The government's three-point plan for personal income tax reform will be delivered over the next seven years as follows.

Stage 1 from 2018–19:

  • A new Low and Middle Income Tax Offset (LMITO) worth up to $530 p.a. will be introduced, in addition to the current Low Income Tax Offset (LITO).
  • The top threshold for the 32.5% personal income tax bracket will increase from $87,000 to $90,000.

Stage 2 from 2022–23:

  • The top threshold for the 19% personal income tax bracket will increase from $37,000 to $41,000.
  • The top threshold for the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
  • The LITO will increase from $445 to $645.

Stage 3 from 2024­–25:

  • The 37% personal income tax bracket will be removed.
  • The top threshold for the 32.5% personal income tax bracket will increase from $120,000 to $200,000.

What this could mean for you
If you're eligible for the LMITO, it will be available each year from the 2018–19 financial year until the 2021–22 financial year. You'll receive the payment as a lump sum after lodging your tax return. For more information about the proposed changes to tax thresholds and offsets, speak to your O'Brien Accountant.

Business changes

Extending accelerated depreciation for small businesses
From 1 July 2018, the government will extend the existing $20,000 instant asset write-off by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.

Assets valued at $20,000 or more that cannot be immediately deducted can still be placed into the small business simplified depreciation pool. These assets can be depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

What this could mean for you
Under this measure, small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 that are installed and ready for use before 30 June 2019.

Deductions denied for non-compliant PAYG withholding
From 1 July 2019, taxpayers will be unable to claim tax deductions for wage and contractor payments they make where they have not withheld tax under the Pay-As-You-Go (PAYG) withholding regime when required to do so.

What this could mean for you
Under these proposed measures, the ability to claim a tax deduction for payments to employees or contractors will be denied if taxpayers fail to deduct tax and remit it to the ATO under the PAYG regime.

UPEs to be treated as loans under Division 7A
Unpaid present entitlements (UPEs) will be treated as loans under Division 7A, with effect from 1 July 2019. Other previously announced measures regarding Division 7A have also been delayed, commencing 1 July 2019.

What this could mean for you
The announcement is silent regarding whether this measure will be limited to new UPEs created on or after 1 July 2019, or whether it will also capture pre-existing UPEs still on foot as at 1 July 2019. We note that existing UPEs may include both pre 16 December 2009 UPEs as well as post 16 December 2009 UPEs placed on sub-trust arrangements.

Directors to become personally liable for GST and other indirect tax debts
Currently, the Director Penalty Regime is limited to a company's unpaid Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) obligations. Subject to certain requirements, the ATO can act to recover these amounts personally from directors.

The Government has announced it intends to extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company's debts to the ATO in respect of those taxes. There is currently no date of effect contained in the Budget announcement.

What this could mean for you
Expectations are that this measure to have broad ranging implications for all company directors, particularly in the GST space. To deal with this new level of personal risk, we recommend directors take steps now to understand their potential exposure, and put in place internal controls and measures to give them some level of comfort regarding their company's GST compliance.

Round robin distributions
This measure applies to closely held trusts that undertake circular trust distributions in a “round robin" manner that arguably does not give rise to a tax liability. From 1 July 2019, these types of arrangements will give rise to tax on such distributions at the top marginal tax rate plus Medicare Levy

What this could mean for you
Our main concern with this announcement is that it could introduce a significant level of compliance for trusts to trace and report ultimate trust distributions where there are no round-robin distributions

Superannuation adjustments

A work test exemption for retirees
From 1 July 2019, people aged 65–74 who have a total superannuation balance of under $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year when they last satisfied the work test.

What this could mean for you
This initiative will make it easier to keep contributing to super after you've left the workforce. For example, if you retire on 30 March 2020 and your super balance is below $300,000 on 30 June at the end of the year, you'll still be able to make voluntary contributions during the 2020–21 financial year. The usual concessional and non-concessional contribution caps will still apply.

Increasing the maximum Self-Managed Super Fund (SMSF) membership from 4 to 6 members
From 1 July 2019, the Superannuation Industry (Supervision) Act will be amended to allow the number of members in new and existing SMSFs to increase from 4 to 6. This change will also apply to Small APRA funds (funds regulated by Australian Prudential Regulation Authority).

What this could mean for you
This initiative will provide more flexibility for larger families to be members of a single SMSF, but may also increase the risk of disputes among members. It's also important to consider the need for:

  • multiple investment strategies to cater for members with different risk profiles
  • a corporate trustee, to avoid the risk of additional trustee penalties and to address the increased risk of fund membership changes.

Introducing a three-year audit cycle for some SMSFs
From 1 July 2019, SMSFs will have the option to move from an annual to a three-yearly audit cycle if they have:

  • three consecutive years of clear audit reports, and
  • lodged the fund's annual returns in a timely manner.

What this could mean for you
If your SMSF has a good compliance and lodgement record, this initiative could make it cheaper to operate your SMSF, as it will remove the need for an annual audit. If a compliance breach does occur, however, it might not be detected for up to three years, potentially making it more difficult and expensive to rectify.

Supporting mature Australians

New means testing rules for certain lifetime income streams
From 1 July 2019, new age pension means testing rules will be introduced for pooled lifetime income streams. Those purchased before 1 July 2019 will be grandfathered.

At this stage, however, it's unclear exactly which income streams will meet the definition of 'pooled lifetime income streams'.

What this could mean for you
This initiative is designed to help you avoid the risk of outliving your income. Under the new rules:

  • 60% of all income payments will be assessed as income, and
  • 60% of the purchase price will be assessed as an asset until you turn 84 (or a minimum of 5 years) and then 30% of the purchase price will be assessed as an asset for the rest of your life.

Expanding the Pension Work Bonus
The Pension Work Bonus currently allows age and service pension recipients to earn up to $250 per fortnight without it impacting their pension entitlements. Under the proposed changes, this amount will increase to $300 per fortnight from 1 July 2019. The scheme will also be extended to pensioners who are self-employed.

Pensioners will still be able to accrue unused amounts of the bonus, so that their future earnings will also be exempt from the pension income test. The maximum accrual amount will increase from $6,500 to $7,800 a year.

What this could mean for you
The Pension Work Bonus is provided in addition to the income-free area of your pension. So if you're a single person with no other income source apart from your pension and wages, you could earn up to $468 a fortnight from working and still be entitled to the maximum age pension.

Extending eligibility for the Pension Loan Scheme
Under the current rules, pensioners can top up their age pension to the maximum rate if they:

  • receive a part pension under the income or assets test, or
  • don't receive an age pension under either the income or assets test (but not both).

This allows pensioners to take advantage of a voluntary reverse mortgage scheme, under which Centrelink treats the top-up payments as a loan that is secured by the pensioner's property. This loan must be repaid when the pensioner either sells the property or passes away.

From 1 July 2019, the government proposes to expand the scheme by making all age pensioners eligible and increasing the maximum top-up payments from 100% to 150% of the maximum age pension rate.

What this could mean for you
If you're receiving the maximum age pension, you could be eligible for annual top-up pension payments of up to $11,799 for singles or $17,877 for couples. However, some restrictions may apply, depending on factors such as:

  • your age
  • whether you are single or a member of a couple
  • the value of your home
  • the expected duration of these top-up payments.

Increasing the availability of home care packages
Since last year's Federal Budget announcement, the government has provided an additional 6,000 high-level home care packages. From 1 July 2018, the government will supplement this with a further 14,000 new packages over the next four years.

What this could mean for you
As at 31 December 2017, there were over 100,000 people in the national queue waiting for either their first home care package or an interim package, with 54.4% waiting for a high-level (Level 4) package. If you're in this situation, the initiative could help you access a home care package sooner.

Additional funding for residential aged care and short-term restorative care
During the 2018–19 financial year, the government will provide $60 million to fund additional places in residential aged care and short-term restorative care. A further $82.5 million will support mental health services for residents of aged care facilities.

What this could mean for you
As part of this initiative, the government will simplify the aged care assessment forms available via the My Aged Care website. This will make it easier to access the aged care services that you or your loved ones need.

Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your plans for the future. If you have any concerns, or would like to discuss your financial strategy, please don't hesitate to contact us on 03 8850 3333 or email obrien@obbc.com.au to arrange an appointment.

To see how we can assist you in managing your financial affairs see our Service Offerings.

Full Budget Report

Important information: This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.
This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count Wealth Accountants® is the business name of Count. Count advisers are authorised representatives of Count.
Information in this document is based on current regulatory requirements and laws as at 8 May 2018, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.
Count is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your authorised representative may not be a Registered Tax Agent. Consequently, tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent.

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