What the 2019 Federal Budget means for you

Written by Shereen Churchill (Financial Adviser)

On 2 April 2019, the Morrison Government delivered the 2019/20 Federal Budget which focused on “a plan for a stronger economy and securing a better future”.

From a pure financial planning and wealth perspective, the positive news is that the changes are minimal and largely positive. This is a very welcome outcome.

As is always the case, these measures will need to pass through the legislative process before they become law, and may change during that process. With the election to occur in May 2019, it is possible that these proposals will become law if the current Government is successfully returned. However, should the election be a Labor victory, Bill Shorten’s budget reply speech (which he will make tonight), will become of greater importance. We will provide a wrap up of Shorten’s reply speech post the election, should Labor win.

To help you understand the key announcements made by the Treasurer, ITL Financial Planning have put together a written summary of the key areas specific to self-funded retirees, professional families and successful business owners. BT’s Bryan Ashenden provides an overview for all Australians as well as for SMSF members via video.

Self-Funded Retirees

For our self-funded retirees, the major announcement was in relation to improving the ability to contribute to super and for longer.

From 1 July 2020, if you are aged 65 or 66, you will be able to make additional contributions to super even if you’re no longer working. Bring-forward arrangements, which currently allow those aged less than 65 years on 1 July to make up to three years’ worth of non-concessional contributions (currently capped at $100,000 a year) to their super in a single year, will also be extended to those aged 65 and 66. This is a welcome change for all clients looking to boost their income in retirement. It is also intended to provide an alignment to the qualification age for the age pension, which is progressively rising to age 67 (from 1 July 2023).

In addition, from 1 July 2020 there will be an increased ability to make spouse contributions to super. Currently, this is only an option provided your spouse hasn’t turned 70. The existing age limit will be increased to allow you to make contributions on behalf of your spouse, up to age 74.

Proposed tax relief will also benefit many self-funded retirees. These changes are outlined under the “professional families” heading.

Professional Families

For our professional families, the biggest proposals were in relation to tax relief in the lower and middle income bands. You may not be a low or middle income earner, but you will still benefit from having more of your income taxed in a lower tax bracket.

The Government has announced they will:

  1. From 2018-19, increase the Medicare levy low income thresholds for singles, families, seniors and pensioners.
  2. From 2018-2022, further reduce tax via the non-refundable low and middle income tax offset (LMITO). This measure will increase LMITO from a maximum of $530 to $1,080 per annum. LMITO will benefit anyone with income up to $126,000 and automatically be received on assessment of your lodged individual tax return. This offset will cease to apply from 1 July 2022.
  3. From 1 July 2022, ensure those benefiting from LMITO continue to do so when it ceases 1 July 2022, by increasing the upper threshold of the 19% personal income tax bracket as well as make changes to the low income tax offset (LITO).
  4. From 1 July 2024, the 32.5% tax rate will be reduced to 30%. This closely aligns the middle income tax rate with the company tax rate.

Proposed improvements to contributing to super and for longer will also benefit professional families. The proposed super changes are outlined under the “self-funded retiree” heading.

Successful Business Owners

For our successful business owners, the biggest proposal was in relation to the extension of the instant asset write off.

Small business owners will also gain the benefit of a further 12 month extension (until 30 June 2020) of the ability to claim an instant asset write off for eligible assets purchased, and an increase in the write off up to $30,000 (increased from the current level of $20,000) from 3 April 2019. In addition, this measure will be extended to medium businesses with aggregated annual turnover of less than $50 million.

The reduced tax liability resulting from the tax deduction frees up cash flow for small and medium business owners which can be used to sustain and/or expand their businesses.

The other major announcements were in relation to improving the ability to contribute to super and for longer as well as tax relief in the lower and middle income bands. These last two proposals are outlined under the “self-funded retirees” and “professional families” headings respectively.

Concluding thoughts

Overall, the number of changes announced in this year’s Federal Budget are small compared to prior years. For many, this is important as it allows a continued focus on the significant changes to superannuation which took effect from 1 July 2017. As indicated earlier, these measures will need to pass through the legislative process before they become law, and may change during that process. Furthermore, should the election be a Labor victory, Bill Shorten’s budget reply speech (which he will make tonight), will become of greater importance. We will provide a wrap up of Shorten’s reply speech post the election, should Labor win.

 

This information has been prepared and issued by ITL Financial Planning and is current as at 3 April 2019. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. ITL Financial Planning does not accept responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.