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Federal Budget Overview – 2019

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On 2 April 2019, The Hon Josh Frydenberg delivered his first Budget as Federal Treasurer.

The good news is that the Budget has forecasted a return to surplus of around $7.1bn in 2019-20. Australian will earn more than it spends!

Ten million low and middle-income earners are the winners as they will receive an immediate tax cut, which is being delivered by way of an increase in the Low and Middle-Income Tax Offset (LMITO). The increase will be available for the next three years and will see the LIMITO more than double. An amount of $1,080 for Australians with taxable income of between $48,000 and $90,000. A more modest offset is available for those on lower incomes, and the offset cuts out when taxable income reaches $126,000.

It has been estimated that by 2024, 94% of Australians will have a marginal tax rate of 30% or less.

By contrast, the top 5% of income earners will pay a third of all taxes collected.

Australians who receive a range of government income support benefits will receive a one-off payment of $75 for singles, and $125 for couples, to help with their energy bills. This payment is planned to be made before 30 June 2019.

Superannuation was largely untouched in this year’s Budget, however, from 1 July 2020, people aged 65 and 66 will be able to make super contributions without having to meet the work test and the maximum age spouse contributions can be made is to be extended from 69 to 74.

Infrastructure and health received injections of cash.

Expect to see the skyline silhouetted with cranes. The Government has announced further significant spending on roads, rails, airports and the like.

Included in the Budget was an allocation of $500m to get cars off the roads by building more commuter car parks, therefore encouraging people to travel by train. For anyone who tries to navigate capital city peak hour traffic, this will be welcome news.

Small to medium businesses will benefit from the planned increase in the instant asset write-off for purchases of up to $30,000.

Older Australians have not been ignored with an additional 10,000 aged care home care packages being announced and a further 13,500 residential aged care places being made available. With the aged care system being strained with the increasing demand for services and support this is welcome news but sadly is nowhere near enough.

Additional funding has also been directed towards the delivery of primary and frontline health care.

Legislation will need to be passed in order for the changes to be implemented.

 

Source:  Peter Kelly | Centrepoint Alliance

Change for good or change for the sake of change?

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With the significant swing against the Coalition at the October by-election in the Sydney seat of Wentworth, we turn our attention to next year’s Federal Election, expected to be held in May 2019.

If present trends are an indication of the future, we will see a change of government with the Australian Labor Party (ALP) taking the reins of power in Canberra.

So, what will a change of government mean for our super?

Hardly a month goes by without someone proposing that we change some aspect of the superannuation system. It is no wonder that the average super fund member is so disengaged with their super.

In July 2017, we saw the most significant changes to superannuation in the previous 10 years. Some changes were good, and others not so good, depending on your perspective.

Some of the initiatives the ALP has previously expressed opposition to may provide hints to changes that might be made. These include:

  1. Reducing the annual limit (cap) for non-concessional contributions from $100,000 to $75,000 per annum.
  2. Reducing the income threshold, at which the additional 15% tax becomes payable on concessional contributions from $250,000 to $200,000. Interestingly, the ALP originally proposed reducing the threshold from $300,000 to $250,000, but when the Coalition government reduced it to $250,000, the Opposition responded by announcing a reduction to $200,000.
  3. Opposition to the ability of people, with less than $500,000, in super to carry forward the unused portion of their concessional contribution cap.
  4. The ability for people to claim a tax deduction for their personal superannuation contributions.

On the positive side, the ALP recently announced plans to give women a better chance to achieve equality in superannuation by requiring superannuation guarantee contributions (currently 9.5% of salary) to continue to be paid while on government paid maternity leave. This would also be extended to men, who take paid paternity leave following the birth of a child.

Currently, employers are not required to make superannuation guarantee contributions for employees earning less than $450 per month. However, the ALP proposes to remove the minimum income threshold before superannuation guarantee contributions become payable. Unfortunately, this may lead to very small amounts being contributed to super only to be swallowed up in fees and charges by super funds and otherwise being lost to the members.

The Opposition has also made some other significant tax-related announcements, including the controversial plan to eliminate the cash refunds of excess franking credits and making changes to negative gearing for existing properties. By all accounts, negative gearing will still be available for newly-built residential properties, but not for established properties.

Without a doubt, as the next election approaches, we are going to see much posturing by political parties of all persuasions, as they jockey for control over Australia’s $2.7 trillion superannuation nest-egg.

 

Source:  Peter Kelly | Centrepoint Alliance

Super contributions – Concessional & Non-Concessional

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Most people are aware there are two main types of superannuation contributions:
1. Non-concessional contributions, and
2. Concessional contributions

Non-concessional are personal contributions we make to super, for example; contributions we make for our spouse and for our children under 18 years of age.

These are contributions we do not intend to claim tax deductions for and are usually made from our after-tax income, from savings or from the proceeds from the sale of something such as an investment property.

There are a number of important rules around making non-concessional contributions, including:

  • The usual rules around age limits. That is, contributions may be made by someone under the age of 65. However, if aged between 65 and 75, a work test must be met in the year the contribution is being made. Non-concessional contributions can’t be made by people aged 75 or over.
  •  Non-concessional contributions are subject to an annual limit of $100,000 per year. However, where a person has a ‘total superannuation balance’ that exceeds $1.6m, they are no longer able to make non-concessional contributions. The total superannuation balance is the total of all amounts a person had in super at the end of the previous financial year.
  • A unique feature of non-concessional contributions is the ability to bring forward up to three years contributions, if under age 65. This means you may contribute up to $300,000 in one year, but then nothing in the next two financial years. The contributions that may be made under the three year bring forward rule are scaled back when your total superannuation balance exceeds $1.4m.

Concessional contributions are virtually any contributions that are not a non-concessional contribution. They include contributions made by an employer, tax-deductible personal contributions, and contributions made by third parties. Also, contributions made by a parent or grandparent for children aged 18 or older are treated as concessional contributions.

When concessional contributions are received by a super fund, they are treated as income of the fund and are taxable at a rate of 15%. This is often referred to as ‘contributions tax’.

Concessional contributions are subject to a maximum cap or annual limit of $25,000. This is a reduction in the limits that applied in 2016-17.
Exceeding either the concessional or non-concessional contribution cap can have tax implications, so this is best avoided.
If planning to make either non-concessional or concessional contributions before 30 June this year, consider seeking the assistance of a qualified financial planner.

Source: Peter Kelly | Centrepoint Alliance

Planning on making super contributions this financial year?

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As we move into the fourth quarter of the financial year, it is time we turn our mind to tax planning and the things we need to be considering as 30 June approaches.

You need to be very careful of the correct timing to make superannuation contributions. Every year we hear stories of people who made contributions to super, only to find out their contribution wasn’t made in time.

You would think that in this modern age of electronic transactions, making a super contribution by way of electronic transfer or BPAY would be pretty straightforward.

Let’s assume that I plan to make a personal contribution to super. On top of that, I intend to claim a tax deduction for my contribution in the current financial year.

Being like most people, I will leave it to the very last minute and on 29 June I will go online and transfer the contribution from my bank account to my super fund. I will use their BPAY code for the payment.

It is all so simple – what could possibly go wrong?

  1. When making a super contribution by way of electronic funds transfer, the contribution is not deemed to be made until it appears in my super fund’s bank account. If I initiate the transfer on 29 June 2018 (a Friday), it may not appear in my super fund’s bank account until early in the following week – around 2 or 3 July.
  2. As my contribution was not technically received by my super fund until early July, it is unlikely I will be able to claim a tax deduction for my contribution until the 2018-19 financial year. This may result in me paying more tax than planned this year.
  3. My contribution will be counted against my contribution cap for the 2018-19 financial year. While this may generally be fine, it can create an undesirable outcome if I have also planned to maximise my contributions in the 2018-19 year.
  4. What if I have turned 65 in the 2017-18 financial year and had retired at some point during the year. As I am now 65, I will need to meet the work test (be gainfully employed for at least 40 hours worked within a period of 30 consecutive days) for my super fund to be able to accept my (2018-19) contribution.
  5. Even if I wasn’t intending to claim a tax deduction for my contributions, but instead I wanted to maximise my non-concessional contributions, not having made my 2017-18 contribution in time will have similar ramifications, particularly where I intended to maximise contributions both this year and next.

As 30 June falls on a Saturday this year, planning ahead is so important.

Where possible make your super contributions early so there is plenty of time for it to be received.

 

Source:  Peter Kelly | Centrepoint Alliance