How the Budget may affect high net individuals

This year’s Federal Budget is an ‘election budget’ with future tax cuts for all Australians, but especially low and middle income earners. Overall, there were minimal changes to super proposed in the Budget, with minor changes to super contributions for older Australians.

We’ve summarised some of the key points from the Budget below, but remember these are subject to the passing of legislation.

• From 1 July 2022, the upper personal income tax threshold for the 19% tax rate will increase to $45,000.
• From 1 July 2024, the 32.5% tax rate will reduce to 30%.
• Increase to the age at which people can contribute to super without meeting the work-test.

Tax

Personal income tax cuts

The Government proposes the following personal income tax rates.

• From 1 July 2022, the upper threshold of the 19% tax bracket will increase from $41,000 to $45,000 and the low income tax offset (LITO) will increase from $645 to $700.
• From 1 July 2024, the 32.5% tax rate will reduce to 30%.

Proposed personal tax rates and thresholds

Medicare levy low income thresholds

From 1 July 2018, the Medicare levy low income thresholds will be increased to reflect movements in the consumer price index (CPI).

Superannuation

Superannuation contributions for pre-retirees

From 1 July 2020, there will be no work test for people aged 65 and 66 when making concessional and nonconcessional contributions. Currently, you need to work at least 40 hours over a 30 day period to contribute.

Also, the three-year bring-forward for non-concessional contributions is proposed to be extended to people aged 65 and 66 which means they could contribute up to $300,000 in non concessional and $25,000 concessional contributions in one year.

Spouse contributions

From 1 July 2020, you can continue to receive spouse contributions up to age 74, up from age 69, if the work test is met. This will help couples even up their super balances as they near retirement.

Self-managed super funds

From 1 July 2020, the Government proposes to streamline the calculation of ECPI which will simplify reporting and reduce costs. Funds with interests in both the accumulation and retirement phases during an income year will be able to choose their preferred method of calculating ECPI.

From 1 July 2020, the Government will also remove the requirement for funds to obtain an actuarial certificate when calculating ECPI for funds that have ‘disregarded small fund assets’, where all members of the fund are fully in the retirement phase for all of the income year.

Government agency funding

The Government will provide additional funding to facilitate the Government’s response to the Royal Commission, including additional resources for the Australian Taxation Office (ATO), Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

Aged Care

Additional Home Care packages

As previously announced on 10 February 2019, the Government will provide funding for an additional 10,000 Home Care places over five years from 2018/19.

What’s next

The announcements in the update are proposals unless stated otherwise. These proposals need to be successfully passed through Parliament before becoming law and may be subject to change.