Budget 2019 - Individuals and Families
Posted 03 April 19
With the hallmarks of a pre-election cash splash, this budget seeks to expand upon its already-legislated Personal Income Tax Plan announced in last year’s budget to provide the largest personal tax cuts in over a decade.
Two significant changes to personal tax are expected to benefit the majority of taxpayers:
Immediate boost to low and middle-income taxpayers: the Low and Middle-Income Tax Offset (LMITO) of up to $530 that became effective from 1 July last year will be more than doubled. For individuals with incomes of up to $125,000, that offset will now be worth up to $1,080 per taxpayer, or $2,160 for dual-income families. Those with incomes between $48,000 and $90,000 are the biggest beneficiaries, receiving the maximum offset of $1,080.
The vote-winning sweetener is its retrospective application, meaning the extra offset will be delivered to taxpayers as soon as July when their 2018/19 tax returns are lodged. This offset is a temporary one, available for four years through to 30 June 2022.
Lowering the system’s most prevalent tax bracket: from 1 July 2024, the 32.5% marginal tax rate will be reduced to 30%, providing relief to those on incomes above $45,000. At a cost of $158 billion over ten years, the proposed tax cut measures further flatten the marginal tax system and will see 94% of all taxpayers pay no more than 30%, more closely aligning personal rates with the corporate tax rate:
Marginal Tax Rates
For an average full-time income earner on $80,000, this will put almost $1,500 in their pocket each year from 1 July 2024, over and above last budget’s changes already legislated changes to come into effect in the future.
To support and sustain these initiatives, additional changes include:
- Adjusting the upper threshold of the 19% tax bracket to $45,000 from 1 July 2022 (it is currently $37,000)
- At the same time, increasing the Low Income Tax Offset (LITO) from $645 to $700 on a sliding scale with those on incomes up to $37,000 receiving the full $700 offset
Not surprisingly, the Coalition has not upset the superannuation apple-cart, preferring to sit on the sidelines this year and leave Labor to feel the wrath amongst self-funded retirees with its own pre-election tax policies.
Changes quietly proposed in this year’s budget to more closely align with the increasing Age Pension age include:
Extending contributions opportunities for older members: at present, members between the ages of 65 and 74 years are only permitted to make voluntary contributions to superannuation if they are gainfully employed for at least part of the year. From 1 July 2020, those aged 65 and 66 years will be permitted to make both concessional (deductible) and non-concessional (non-deductible) contributions without having to meet the ‘work test’, subject to the usual caps:
Superannuation Contribution Caps
This provides members an extra two years opportunity to contribute and most significantly, these members will be able to utilise the three-year bring-forward provisions to contribute up to $300,000 at one time. This is particularly attractive for those who continue to work and accumulate income post the age of 65 years, and those who experience an asset realisation event, such as the sale of business or property.
Added flexibility to address balance inequality between spouses: the age limit for contributions made to a spouse’s superannuation account has been lifted from 70 years to 74 years, and in a similar vein to the above measure, those aged 65 and 66 years need not meet the ‘work test’. All other spouse contribution rules such as assessable income limits and deductibility conditions remain unchanged.
Whilst providing some relaxation in contribution rules and increasing accumulation opportunities for retirees, these measures are still only possible subject to the $1.6m cap on total superannuation balances.
In the midst of a Royal Commission into Aged Care, support for older Australians has featured heavily, with accessibility, safety and quality of aged care services priorities in this area.
Some of the proposed measures include:
- A one-off increase in the basic subsidy for residential aged care recipients
- Additional 10,000 home care packages to allow those requiring care to stay in their homes longer
- Home care supplements for those with dementia or requiring cognition support
- A National Plan and establishment of an Aged Care Quality and Safety Commission to respond to Elder Abuse
In all, a safe budget for individuals and families that appeals to the household which is feeling the weight of low wages growth and increases in cost of living.
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This article is part of our 2019 Budget commentary and one such starting point in our highly considered process that will ultimately manage asset and wealth protection.
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Photo by Luke McKeown