Treasurer Josh Frydenberg handed down his first Federal Budget, promising personal and small business tax cuts and the first Budget surplus in 12 years.
Some of the proposed measures include:
- Tax cuts for low and middle income earners and small business
- Changes to voluntary superannuation contribution rules for people aged 65 and over
- A one-off Energy Assistance Payment for Centrelink income support recipients
- An increase to the value and eligibility for the instant asset write off for small and medium sized businesses.
Tax cuts
Tax cuts will be delivered through a combination of changes to tax offsets, adjustments to personal income tax brackets and marginal tax rates.
Reduced marginal tax rate and increased thresholds
The Government has proposed increasing the upper threshold of the 19% personal income tax bracket from $41,000 to $45,000 from 1 July 2022. Two years after that, they will reduce the 32.5% marginal tax rate to 30% and the 37% tax bracket will be abolished.
This means that by 2024-25 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Increases in Low and Middle Income Tax Offsets
Low Income Tax Offset (LITO) is set to increase from $445 to $700 from 1 July 2022.
A new Low and Middle Income Tax Offset (LMITO) will be introduced from the 2018-19 tax year. LMITO will provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less.
Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. For taxpayers with taxable income above $90,000, LMITO will phase out at a rate of $0.03 per $1 with no LMITO paid on incomes greater than $126,000.
Summary of new proposed rates and thresholds:
For 2018-19, the combination of LITO and LMITO, will mean the effective tax free threshold for individuals under Age Pension age will be $21,884.
Increase in Medicare Levy Thresholds
While the Medicare levy remains unchanged at 2% of taxable income, the thresholds for low-income singles, families, seniors and pensioners will increase in the 2018–19 tax year.
The threshold for singles will increase to $22,398. The family threshold will increase to $37,794 plus $3,471 for each dependent child or student.
For threshold for single seniors and pensioners will increase to $35,418. The family threshold for seniors and pensioners will increase to $49,304 plus $3,471 for each dependent child or student.
Perks for Small Business
Increase to the instant asset write off
Effective 7.30pm on 2nd April 2019, the Government is increasing the instant asset write-off threshold to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
The table below summarises the interactions between the various changes and how they apply.
| Asset first used or installed ready for use between | Small business (turnover less than $10m) | Medium-sized business ($10m-$50m) |
| 1 July 2018 to 28 January 2019 | < $20,000 | n/a |
| 29 January 2019 to 2 April 2019 | < $25,000 | n/a |
| 3 April 2019 to 30 June 2020 | < $30,000 | < $30,000 |
Reduced tax rate for medium-sized companies
Aiming to give a boost to “the engine-room” of the economy, companies with less than $50 million annual turnover will have their tax rate reduced to from 30% to 25% by 2021-22. Frydenberg anticipates this move will benefit around 970,000 companies employing about 5.2 million workers.
Superannuation
It wouldn’t be a Budget without some announcements about changes to superannuation and this year was no exception.
Changes to the work test
Currently, people aged 65 to 74 must be in paid work for a minimum of 40 hours in any consecutive 30-day period in the financial year to make voluntary super contributions. From 1 July 2020, this ‘work test’ will only be necessary where contributions are made by people aged 67 to 74.
This proposed change means that people aged 65 or 66 who don’ t meet the work test because they, for example, only work one day a week, or do volunteer work, will be allowed to make voluntary concessional and non-concessional contributions to their super.
Age limit increase for spouse contributions
Currently, Australians aged 70 years and over cannot receive contributions made by their spouse on their behalf. The government is proposing to increase the age limit for spouse super contributions from 69 to 74 years from 1 July 2020.
Spouse super contributions are counted towards the receiving spouse’s non-concessional contribution cap. It is expected that the receiving spouse will need to continue to meet the work test from the work test age (please see above).
Age limit increase for ‘bringing forward’ non-concessional contributions
The government is proposing to extend the ‘bring-forward’ rules which allow Australians aged less than 65 at the start of the financial year to make up to three years’ worth of non-concessional contributions to their super in a single financial year.
From 1 July 2020, the bring-forward rules will be extended so they also apply to people aged 65 and 66 at the start of the financial year.
Defence Force Superannuation Scheme
The Government will amend the Australian Defence Force Superannuation Scheme (ADF Super) to allow ADF Super members to continue contributing to ADF Super after they have discharged from the Australian Defence Force.
‘Opt in’ superannuation insurance delayed
The Government will delay (to 1 October 2019) the start date for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years.
Social Security
The Government will provide a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple who is eligible for qualifying payments on 2 April 2019 and is resident in Australia.
Payments which will qualify for this benefit are the:
- Age Pension
- Carer Payment
- Disability Support Pension
- Parenting Payment Single
- Veterans’ Service Pension and the Veterans’ Income Support Supplement
- Veterans’ disability payments
- War Widow(er)s Pension, and
- Permanent impairment payments under the Military Rehabilitation and Compensation Act 2004(including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.
Aged Care
The government has allocated $320 million for a one-off increase to the basic care subsidy for aged care residents.
Also, 10,000 extra home care packages will be released over the next five years.
As with all Federal Budgets, these are simply proposals. Amendments can be made as legislation passes through parliament (if passed at all).
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