Josh Frydenberg’s Back In Black Tour

We have reviewed and consolidated a wide range of market commentary into this summary of the 2019-20 Federal Budget.

The Budget contains proposals at this stage, they are not law and will only become law if passed by Parliament.

The centrepiece of the 2019-20 Federal Budget was $158 billion in tax relief over a decade. In all, 10 million individuals and 3 million small businesses are set to be beneficiaries of lower taxes.

The nation’s finances are forecast to return into the black during 2019-20 and, if this eventuates, it will be the first surplus in twelve years, since the global financial crisis.

We start by providing a Summary Table, followed by more detailed insights, then links with even further information.

In Summary

Tax changes	Immediate tax cuts for low-to-middle income earners Extension to personal income tax cuts announced in last year’s Budget Increase to the Medicare Levy low-income threshold
Superannuation adjustments from 1 July 2020	No work test for voluntary contributions by people aged up to 66 Bring-forward rule extended to people up to 66 Age limit for spouse contributions will increase to 74
Aged care	Funding for 10,000 extra home care packages and 13,500 residential care places
Small business	The instant asset write-off threshold will increase from $20,000 to $30,000 for businesses with turnover less than $50 million

More Detailed Insights

Higher tax receipts and strong commodity prices have added to treasury coffers, amid a prolonged period of sluggish wage growth. As record household debt, high underemployment and falling house prices grip the nation, the Coalition has set about winning votes through income tax reform and infrastructure spending.

Personal Tax

Immediate Tax Relief

The low and middle income tax offset (LMITO) will increase to $1,080 per person ($2,160 for dual income families), up from $530. The maximum applies to those with taxable incomes between $48,000 and $90,000. This can be claimed within the current 2018-19 tax year.

Medium Term – From 1 July 2022

From 1 July 2022, the low income tax offset (LITO) is proposed to increase to $700 from $445, whilst the upper threshold for the 19% marginal tax bracket is proposed to increase to $45,000.

Long Term – From 1 July 2024

From 1 July 2024, the Government proposes to reduce the current 32.5% marginal tax rate to 30% for those with income between $45,000 and $200,000, so ~94% of taxpayers will have a marginal tax rate of no more than 30%.

Medicare Levy

The Medicare Levy remains unchanged at 2% of taxable income.

The Medicare levy thresholds, which link to CPI, will increase to $22,398 for singles and $37,794 for families. For single seniors and pensioners, the threshold will increase to $35,418, whilst the family threshold to $49,304.

Business

Small Business Tax Rate

Already legislated is a reduction to the corporate tax rate to 25% (from 30%) by the 2021-22 income year for small to medium-sized companies, with turnover less than $50 million.

Increase in Instant Asset Write-Off

The instant asset write-off will be extended to June 2020 and will be increased to $30,000, up from $20,000. This applies on a per asset basis, so eligible businesses can instantly write off multiple assets. It has also been broadened to include businesses with up to $50 million in turnover.

ABN Status

Australian Business Number (ABN) holders will be required to lodge their income tax return and confirm the accuracy of their details on the Australian Business Register annually to retain their ABN status.

Sham Contracting

A dedicated sham contracting unit will be established within the Fair Work Ombudsman to address sham contracting behaviour by those who knowingly or recklessly misrepresent employment relationships as independent contracts, to avoid statutory obligations and employment entitlements.

Superannuation

The Work Test and Voluntary Contributions

Limitations on contributing to super are to be eased to ensure older citizens are not retiring with insufficient retirement assets. It is proposed that those aged 65 and 66 years will be able to make voluntary contributions without satisfying the work test, from 1 July 2020. Currently, those aged 65 and older must work a minimum of 40 hours over a 30-day period to satisfy the work test.

The age limit for spouse contributions will increase from 69 years to 74 years from 1 July 2020, although they will still need to meet the work test from age 67.

Bring-forward Arrangements

People aged 65 and 66 will also be eligible to utilise the “bring- forward arrangements” to make three years’ worth of non-concessional contributions (capped at $100,000) to their super in a single year. This is currently not available from age 65.

By way of example, for an individual with a superannuation balance of $1 million, the change could enable an additional $450,000 (through a combination of concessional and non-concessional contributions over a period of two years) to be contributed that would otherwise not have been permitted under current rules. If an individual’s superannuation balance is already above $1.6 million, additional contributions will likely be limited to annual concessional contributions of only $25,000.

Exempt Current Pension Income

The Government has proposed measures to start on 1 July 2020 to reduce costs and simplify reporting for superannuation funds.

The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose either the segregated or proportionate method in calculating the exempt current pension income (ECPI).

Where all members of the fund are fully in the retirement phase for all of the income year, the Government is proposing the removal of the requirement to obtain an actuarial certificate.

Infrastructure & Jobs

Roads and Rail

The Government intends on investing $100 billion over the next decade, an increase from $75 billion at the last budget. Regional areas were the winners with a focus on roads and rail.

Apprenticeships

The unveiling of a $525 million package aimed at addressing Australia’s skills shortages will fund an estimated 80,000 apprenticeships over the next five years.

Social Security

There will be a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 April 2019.

Health / Aged Care

Home Care Packages

$282 million for 10,000 new home care packages for those who want to remain in their homes and 13,500 residential care places.

Health Sector

The government has committed to improving access to a range of healthcare services for all Australians through significant investment in primary care. This will be achieved by decreasing out of pocket costs for imaging services, and increasing the number of medications available on the Pharmaceutical Benefits Scheme (PBS).

Aged Care Providers

Financial sustainability for aged care providers has been strengthened after the Government announced a $320 million increase to the basic subsidy for residential aged care.

Tax Administration

Division 7A

Division 7A is an anti-avoidance measure designed to stop private companies distributing tax-free profits to shareholders or their associates. The start date for Division 7A measures announced last year has been delayed from 1 July 2019 to 1 July 2020 to allow further consultation.

Multinationals

In an effort to maintain integrity across the tax system, $1 billion will be granted to the ATO to target multinationals not paying correct tax. This is predicted to raise $4.6 billion over the next four years.

Black Economy

The Government will progress additional measures to make it harder for businesses to pay cash wages and under-report their income. In addition, the ABN system will be strengthened to combat black economy behaviour.

Funding for ATO Investigations

The ATO will receive funding to increase activities to recover unpaid tax and superannuation liabilities with a focus on large businesses and high wealth individuals.

Implications for Australian Assets

Cash and term deposits – with interest rates set to fall, returns from cash and bank term deposits will remain low.

Bonds – a major impact on the bond market from the Budget is unlikely. With Australian five-year bond yields at 1.4%, it’s hard to see great returns from bonds over the next few years albeit Australian bonds will likely outperform US/global bonds.

Shares – the boost to household spending power could be a small positive for the Australian share market (via consumer stocks) and there is an ongoing boost for construction companies. But it’s hard to see much impact on shares.

Property – the Budget is unlikely to have much impact on the property market. Sydney and Melbourne home prices are expected to fall further.

Infrastructure – continuing strong infrastructure spending should in time provide more opportunities for private investors as many of the resultant assets are ultimately privatised.

The $A – the Budget alone won’t have much impact on the $A. With the interest rate differential in favour of Australia continuing to narrow the downtrend in the $A has further to go.

In Conclusion

It’s important that you take the time to understand what the Budget proposals mean – and how they might affect you personally.

Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your financial plans for the future. We are here to help support you through any changes, so if you have any concerns, please contact us on 08 9227 6300 or clientservices@austasiagroup.com

Sources: MLC, AMP, Euroz, Pitcher Partners, CPA Australia and ANZ

Please click on these links for further information:

The Federal Government Tax Relief Estimator tool

CPA Australia’s Budget Briefing Paper

AMP’s Take

MLC’s Federal Budget Infographic