Wealth Intelligence

Settled dust. Federal Budget: what matters

Federal Budget - May 2018 | What you need to know

First Samuel's review

Now that the dust has settled on the government’s Budget, it is useful to calmly review those changes that might affect our clients.

In stark contrast to the last year two years, there are not many changes that require immediate “strategy” attention. And of course, they all still need to go through the parliamentary process.

Below is a summary of some of the more relevant proposals. 

Possible Rule Changes

Implications & possible actions
or alternatives

From 1 July 2018

Individuals whose income exceeds $263,157 and who have multiple employers will be able to nominate that their salary from certain employers will not be subject to superannuation guarantee (SG) contributions.

For those with multiple employers, you will be able to avoid unintentionally breaching the $25,000 annual concessional contributions cap (and incurring excess contributions tax) as a result of multiple compulsory SG contributions.

Personal income tax cuts to be delivered (over seven years) culminating in the removal of the 37% tax bracket from 1 July 2024. 

From 1 July 2018, the 32.5% tax bracket will be extended to $90,000 (currently $87,000). This is the only change in the first year.

From 1 July 2019

Insurance within Superannuation to be on an opt-in basis for the following:

  • member balances less than $6,000

  • members under the age of 25 years

  • members whose accounts have not received a contribution in 13 months and are inactive

Mainly affects industry superannuation and possibly corporate funds (or master trusts).
Some people keep small balances with superannuation funds to retain insurance cover.
Make sure you look out for opt-in paperwork where you wish to retain the insurance cover.

SMSFs with a history of good record-keeping and compliance (three consecutive years of clear audit reports and annual returns lodged on time), will only be required to have their fund audited every three years.

On the surface, this sounds like a good idea and may mean a reduction in audit fees. Alternatively, auditors may find more breaches (requiring annual audits to continue).

SMSFs and small APRA funds will be allowed to increase the maximum number of allowable members from four to six.

May allow additional family members to join a SMSF, although most funds are currently one or two member funds.
Check trust deed before implementing (after 1 July 2019).

A ban on exit fees from all superannuation funds and a 3% annual cap on passive fees on accounts with balances below $6,000.

Superannuation funds will also be required to transfer all inactive superannuation accounts with balances below $6,000 to the ATO.

Mainly applies to industry funds and potentially some of the retail funds and master trusts.

An exemption to the work test for people aged 65 to 74 with superannuation balances below $300,000, to make voluntary contributions to superannuation. 

The exemption applies in the first year that people do not meet the work test requirements.

Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who work a minimum of 40 hours in a 30 day consecutive period in the financial year.

The concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets. 

Currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors.

The measure means that minors will be taxed at adult marginal tax rates only in respect of the income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).

More detail is required before we can understand the implications.

Deductions will be denied for expenses associated with holding vacant land.

You will not be able to be carry forward for use in later income years the denied deductions. However, these denied expenses can form part of the CGT cost base of the property as long as they fall within specific categories (such as interest, borrowing expenses and council rates).
The measure will not apply to expenses associated with holding land that are incurred after: 
• a property has been constructed on the land, it has received approval to be occupied and is available for rent; or 
• the land is being used by the owner to carry on a business, including a business of primary production.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As always, if any matters are of concern, or you would like further clarification on the above, please contact your Strategist: Nikki, Simon, Jack, Jenny or me.

Chris Tsatrafilis, Senior Client Strategist