The 2018 budget was in my view a positive budget in relation to Financial Advice, Taxation and Superannuation. You will hear lots of negatives from the media, they really do not know anything else.
What we have been given are tax cuts for those earning below $200,000, tightening measures on business and family trusts which are either avoiding tax or not completing correct documentation and some sensible changes to Superannuation to protect small balances, find lost super and allow older people to top up their super.
You will hear negatives in relation to the tax cuts, complaints will be in relation to the size of the tax cuts for different income earners. The person earning $40,000 will save $540 in tax where as the person making $200,000 will save $7000 in tax. I agree that the figures vary greatly, however, we have a staggered tax system and there is no way around this, the increase in the low income rebate has helped in this area.
Measures around business are positive, the government is trying to ensure that all compliance work is being completed and tax avoidance measures are being closed down.
This is a positive for business owners; it will save business owners from more red tape and stop future tax increases. I have little concern for those who want to try to exploit the system and pay less tax. It only increases the tax cost to the rest of us who play by the rules.
With the ABC having had its budget cut by $84 million, I do not expect to see any positive comments from them about the 2018 Budget. Keep in mind that their annual budget is still $1.2 Billion per annum.
Below is some more detail on the measures that this Budget will undertake.
Let’s talk tax.
Individuals will see less tax taken form their pockets with a range of measures which for 94% of Australian workers will leave them better off.
1. Low income tax offset threshold will be increased starting 2017-2018 meaning the lower income earner will start feeling the benefits in their tax return this year.
2. Medicare levy will NOT be increased from 2% to 2.5% - No need for NDIS funding.
3. Supplementary payments to veterans or spouses will no longer be taxed from the 01/05/2018.
4. Tax bracket changes from July 2024 will see significant tax savings for anyone earning less than $200,000. However this is still 6 years away, not time to get excited yet, but it will eliminate bracket creep for the majority of tax payers.
Business will have a number of measures affecting them most are to ensure that businesses are paying the correct amount of tax. It will facilitate shutting down a number of tax avoidance schemes and ensure that businesses are working within the taxation framework. It will also focus on contract workers to ensure all payments are declared to the ATO and the correct level of tax is paid. This will ensure that the ATO is collecting the correct amount of tax and put pressure on those businesses doing the wrong thing.
1. Small Business $20,000 instant write off will be extended to June 2019. That is good news and should stimulate spending.
2. Research and Development rules for claims will be tightened. This area was subject to excessive claims.
3. Rules around Div 7A loans will be tightened ensuring tax is paid correctly. Focus is on trust distributions, ensuring that the rules are complied with and correct tax is paid.
4. Deductions for vacant land will be denied bringing these expenses back to being capital in nature if the property is not held for development or farming.
5. Non-compliant payments to employees or contractors will not be an allowable deduction forcing businesses who employ contractors to report all payments made to contractors to the ATO, at the same time some new industries will be added into this category.
6. Tightening up on significant global entities to ensure that the correct amount of tax in paid on worldwide income.
7. Capital Gains Tax (GCT) Discount is removed from Managed investment trusts. The CGT will be paid by the beneficiary and GCT relief applied depending on their tax status.
8. Tightening up on Family Trust tax avoidance schemes in relation to circular trust distributions. These are Trust behaving badly and avoiding tax. These measures will ensure everyone is paying their share.
9. Increase in information exchange regards tax between countries to ensure overseas income is included in the Australian tax return.
We have only seen sensible changes to the Superannuation rules, all of which enhance superannuation benefits.
1. Self-Managed Super Funds (SMSF’s) from July 2019 will be able to have as many as 6 members. Most funds have 1 or 2 members; not sure if there will be a big demand for 6 members but we may see kids start to get involved in the parent’s SMSF. The catch will come if one party is in Pension Mode as you will not be able to segregate assets.
2. ATO will put measures in place to ensure that any Personal Concessional deductions are correctly recorded on the individual’s tax return as well as their SMSF return. Ensuring that tax is paid in the super fund and the member gets the benefit of the deduction.
3. Work test exemption for people age 65-74 with less than $300,000 in super. This will allow these retirees to add to their superannuation. Given that qualification to the age pension is looking to be extended out to age 70, this work test exemption is a sensible and a well over due change.
4. Insurance Opt In - if you meet the following requirements Superannuation funds will need you to opt in for insurance from July 2019. This measure will protect small superannuation balances from being eaten up by fees. The conditions for this to apply are:
a. Balance less than $6000
b. Members under age 25
c. Super funds who have not received a contribution for 13 months
5. Fee protection measures:
a. Funds with a balance of less the $6000 cannot be charged more than 3% pa in fees
b. Exit fees on all superannuation balances will be banned
c. ATO will expand their matching rules to ensure any super fund with balances below $6000 which are sent to the ATO are proactively processed in an effort to re-unite them with their owner. No more lost super.
For the majority of us already doing the right thing this budget is all positives and no negatives. For anyone a bit slack on compliance you have time to get it right and sorted before the required dates. You cannot say you have not be warned.
This budget will deliver a plan to get back to a surplus on a steady and sensible path. The only problem is that LNP will need to be in government for the next 10 years before the full benefits will be felt. So it is up to you Australia to decide what our future will look like.
Short term gratification, or long term plan to prosperity!