Treasurer, Mr Scott Morrison, outlined a seven-year tax plan at the centre of the 2018 Federal Budget. After the next 2 elections, the government is proposing moving towards a flat tax system with tax relief for the middle income and low-income earners. A further proposal is to axe the current 37% bracket which was received with mixed reactions.
However, the first phase of this seven-year plan is the intention of giving cash rebates to around 4.5 million taxpayers whose income fall between $48,000 – $90,000 dollars. With that in mind, how will the 2018 Federal Budget affect you?
Tax savings for the individual
The key message from this government is that they recognised the need for tax relief to the larger number of earners who do not hit the higher income bracket. They can see the pressures on the global economy, and its impact on what happens back on home turf with the possibility of downturns and a tighter squeeze on the household budget.
So, what is proposed are tax relief measures that will provide a small but practical impact on the household income. From 1 July 2018 to 30 June 2022 there will be a targeted tax offset for around 10 million taxpayers which will manifest in around $10 per week ($530 per tax year). This will only be received once tax returns have been lodged. It is really important to ensure these are returned on time and are accurate. Tax agents and accountants can help with any tax returns and ensure that individuals start to receive the tax relief to which they are entitled.
There will also be an increase to the rebates starting on 1 July 2022, which would net up to $645 dollars a year and there are changes to the tax brackets too. A change to the 32.5% tax bracket should give around a $135 tax cut. However, this will only affect about 3 million of the taxpaying public. Any cuts in taxation that releases money back to the earner is not to be ignored.
Medicare is partly funded by the taxpayer to the tune of 2% of their taxable income. This levy is reduced if you fall below a certain income bracket. There are going to be changes to this levy and it was thought that a 0.5% increase was on the table, but this is currently being retained at 2% for this year. Those on lower incomes will see the low-income threshold increased in line with the consumer price index.
Retired and still earning?
There is good news for those pensioners who still take on some paid work. Under the Work Bonus programme, they currently can earn up to $250 a fortnight without impacting on fortnightly pension payments. This cap is set to increase to $300 which means earning an additional $1,300 dollars a year, and still drawing down the pension.
The Pension Loans scheme has also seen a change during the 2018 Federal Budget. At present, eligible retired individuals who need access to cash for a short period or longer, can borrow through the Pensions Loan Scheme. The maximum amount that can be lent has increased up to 150% of the pension value. It has also been extended so that all retirees of pension age are eligible to apply, not just the part rate pensioner. As with any loan repayment scheme, it is really important to seek professional advice with regard to the terms and conditions as well as ensuring it is factored into current tax returns. This is where a consultation with a tax accountant and agent is invaluable.
The Government have introduced a “Protecting Your Super Packet” with measures starting from 1 July 2019. This includes an opt in proposal for insurance arrangements for those under 25 years old.
For those who have more than one employer, certain taxpayers will be able to nominate which of their pay packet the superannuation guarantee applies to. It means that staff will not be able to breach the $25,000 contribution cap but again, if this applies to you and you are not sure which of your wages to apply this to, speak to a tax professional. Other areas which may affect your superannuation scheme are there will be a banning of exit fees on accounts of less than $6,000, and a 3% cap on passive fees.
If you are aged between 65 to 74, in order to contribute to your superannuation package, currently a person has to work a minimum of 40 hours in a consecutive 30-day period (in the same tax year). This is known as the work test. From 1 July 2019, the proposal will be that individuals with a super balance that is less than $300,000 are going to be able to make a voluntary contribution to their super. This contribution will be for up to a year (which follows the financial year in which they met the criteria for the work test). The idea is that it supports those who have recently retired, allowing them some flexibility to get their budget in order as they move towards their retirement.
It is important to get professional advice as everyone’s financial circumstances are different. A tax accountant will be able to ensure that you claim back everything you are entitled to and not miss out on the changes the 2018 Federal Budget will bring. We are here to help. Get in touch with Bunnett and Bassal today.