Even more super tinkering – The Budget
Posted May 10, 2018
Changes to Super and Federal Budgets go hand-in-hand.
The Australian economy is in its 27th year of consecutive growth and business conditions are at the highest level since the global financial crisis. In what could possibly be an election year (must be held between August 2018 and May 2019) the Federal Budget was unveiled last night by Federal Treasurer, Honourable Scott Morrison MP (his third budget).
2018/19 Budget statement
This budget is about sticking to the plan for a stronger economy to benefit all Australians. It is a plan that will provide tax relief to encourage and reward working Australians, back businesses to invest and create more jobs, guarantee the essential services that Australians rely on and keep Australians safe, all while ensuring the Government lives within its means.
Are we heading toward a surplus?
Every year the budget papers contain a theme and below is a snapshot of the previous years:
2015/16: “The 2015 Budget boosts jobs, growth and opportunity.”
2016/17: “The Government is sticking to its national economic plan for jobs and growth.”
2017/18: “This Budget is about making those right choices, to secure the better days ahead.”
The table below shows the published estimates and actual’s (in blue) over the past 4 budgets and the current budget estimates that the budget will return to surplus in 2019/20.
Changes around personal Tax
The Government has proposed to introduce a personal income tax plan over a seven year period with the first step planned for financial year 2018/19 to 2021/22:
- The Government will introduce a new tax offset called the Low and Middle Income Tax Offset (LMITO). This is in addition to the Low Income Tax Offset (LITO). LMITO is a non-refundable tax offset of up to $530 per annum payable to Australian residents on low and middle incomes. The offset will be available for the 2018-19, 2019-20, 2020-21 and 2021-22 income years and will be received as a lump sum on assessment after an individual lodges their tax return.
- The Government will also increase the top bracket of the 32.5% personal income tax bracket from $87,000 to $90,000 (proposed to start in 2018/19 financial year).
- The Government will not increase the Medicare Levy rate from 2.0% to 2.5% of taxable income as legislated to commence from 1 July 2019.
- From 1 July 2019, insurance within superannuation will move from a default framework to be offered on an opt-in basis for the following groups of members:
- Low balances of less than $6,000,
- Under the age of 25 years and
- Accounts that have not received a contribution in 13 months and are inactive.
The government says these changes are required to 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 government also says the changes will reduce the incidence of duplicate cover. Impacted members will have approximately 14 months from budget night to decide whether they will opt-in to the existing cover or allow it to switch-off.
- From 1 July 2019, a new measure will introduce a 3% annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000.
- The Government also announced it will require all inactive superannuation accounts with balances below $6,000 to be transferred to the ATO. The ATO will then use data matching to proactively reunite these inactive accounts with a member’s active account, where possible.
- From 1 July 2019, the Government will abolish superannuation fund exit fees charged when people consolidate their super funds.
- The Government will increase the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds from four to six, from 1 July 2019. This will provide greater flexibility for joint management of retirement savings, in particular for large families.
- The Government will introduce an exemption from the work test for voluntary contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements. The work test exemption will give recent retirees additional flexibility to get their financial affairs in order in the transition to retirement. Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who self-report as working a minimum of 40 hours in any 30 day period in the financial year. This measure will take effect from 1 July 2019.
- The Government will allow individuals whose income exceeds $263,157 and have multiple employers to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018. The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions. Breaching the cap otherwise results in these individuals being liable to pay excess contributions tax, as well as a shortfall interest charge. Employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates.
- From 1 July 2018, the ATO will modify income tax returns to require individuals to confirm they have provided a valid notice of intent (NOI) to their fund when claiming a tax deduction for their personal contributions. The ATO will also provide guidance to individuals on how to comply if they have not yet done so. Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so. This results in their superannuation funds not applying the appropriate 15 per cent tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.
A stronger economy
This budget is about sticking to the plan for a stronger economy to benefit all Australians by focusing on:
- Stronger growth – more jobs and stronger wage growth are expected,
- Guaranteeing the essentials – Investing in the essential services Australians rely on and
- Living within our means – sticking to our plan to return the budget to balance.
Let’s hope they stick to the plan as Net Debt is estimated to be $349.9bn in FY 2018/19 (18.4% of GDP) with Net interest payments of $14.5bn.
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