What it means for financial services professionals
The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2019 Federal Budget on 2 April 2019.
As widely predicted, the announcement included a range of tax cuts for both individuals and businesses. The Treasurer also announced increased funding for regulators to encourage tax and superannuation compliance, a number of positive changes to superannuation, and an affirmation of previously announced aged care measures.
This summary provides coverage of the key issues of most interest to financial services professionals.
Personal income tax
- Increases in the low and middle income tax offset to apply in 2018/19
- Other tax benefits (tax rates/thresholds and low income tax offset changes) to commence in 2022/23 and later income years
- Extension of the provision allowing small business to instantly write-off asset purchases
- Further consultation on Division 7A reform
- Work Test changes
- Spouse contributions
- Bring-forward of the NCC cap
- Deferral of some of the Protecting Your Super Package arrangements
- Tax relief for merging superannuation funds
- ECPI administration simplification
- Superannuation release authorities in electronic form
- Superannuation Consumer Advocate
- Offering Choice in Australian Defence Force Superannuation Scheme
- Energy Assistance Payment
- Improving the quality, safety and accessibility of aged care services
- Government Response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Personal income tax
The Government will lower taxes for individuals by building on its legislated Personal Income Tax Plan, announced in the 2018 Federal Budget. The changes to the plan will provide immediate relief to low and middle income earners, support consumption growth and ease cost of living pressures.
Low and Middle Income Tax Offset from 1 July 2018
The Government will provide a further reduction in tax provided through the non-refundable low and middle income tax offset (LAMITO).
|Taxable income ($)||LAMITO for 2018/19 and 3 subsequent years|
|Existing||Announced 2 April 2019|
|0 – 37,000||$200||$255|
|37,001 – 48,000||$200 + (Taxable income – 37,000) * 3%||$255 + (Taxable income – 37,000) * 7.5%|
|48,001 – 90,000||$530||$1,080|
|90,001 – 125,333/126,000||$530 – (Taxable income – 90,000) * 1.5%||$1,080 – (Taxable income – 90,000) * 3%|
This measure increases the effective tax-free thresholds as follows:
||2018/19 announced 2 April 2019
|Under age 65||$21,595||$21,884
|Married and over age 65(spouses have equal income)||$29,609||$29,783|
|Single and over age 65||$32,914||$33,088|
Increase in tax bracket thresholds from 1 July 2022
From 1 July 2022, the Government will increase the top threshold of the 19 per cent personal income tax bracket from $41,000, as legislated under the plan, to $45,000.
|Taxable income||Tax payable1 (residents) 2022/23|
|Up to $18,200||Nil|
|$18,201 - $45,000||Nil + 19%|
|$45,001 - $120,000||$5,092 + 32.5%|
|$120,001 - $180,000||$29,467 + 37%|
|Above $180,000||$51,667 + 45%|
Low Income Tax Offset from 1 July 2022
From 1 July 2022, the Low Income Tax Offset (LITO) will be increased to a maximum $700 for those with taxable income less than $37,500. LITO will phase out at 5% in the income range from $37,500 to $45,000, and at 1.5% thereafter.
|Taxable income ($)||LITO 2022/23|
|0 – 37,500||$700|
|37,501 – 45,000||$700 - (Taxable income – 37,500) * 5%|
|45,001 – 66,667||$325 - (Taxable income – 45,000) * 1.5%|
Reduced marginal tax rate from 1 July 2024
From 1 July 2024/25, the Government will reduce the 32.5 per cent marginal tax rate to 30 per cent. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates, improving incentives for working Australians. In 2024/25 an entire tax bracket, the 37 per cent tax bracket, will be abolished under the Government’s already legislated plan. With these changes, by 2024/25 around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.
|Taxable income||Tax payable2 (residents) 2024/25
|Up to $18,200||Nil|
|$18,201 - $45,000||Nil + 19%|
|$45,001 - $200,000||$5,092 + 30%|
|Above $200,000||$51,592 + 45%|
Medicare levy thresholds for 2018/19
The threshold for singles will be increased from $21,980 to $22,398. The family threshold will be increased from $37,089 to $37,794. For single seniors and pensioners, the threshold will be increased from $34,758 to $35,418. The family threshold for seniors and pensioners will be increased from $48,385 to $49,304. For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.
On-time payment of tax and superannuation liabilities
The Government will provide $42.1 million over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.
Increasing and expanding access to the instant asset write-off
From 7:30 PM (AEDT) on 2 April 2019 (Budget night), the Government is increasing and expanding access to the instant asset write-off.
The Government is increasing the instant asset write-off threshold from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
Medium sized businesses will now also have access to the instant asset write-off.
The increased and expanded instant asset write-off will apply from Budget night until 30 June 2020.
Small businesses (with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.
Medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020. Medium sized businesses must also acquire these assets after Budget night to be eligible as they have previously not had access to the instant asset write-off.
Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool (the pool) and depreciate those assets at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.
Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions of the tax law.
Arrangements prior to Budget night
The Government has already legislated a $20,000 instant asset write-off for small businesses. Eligible small businesses can already immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.
On 29 January 2019, the Government announced that it would increase the instant asset write-off threshold for small businesses from $20,000 to $25,000 and extend the instant asset write-off for an additional 12 months to 30 June 2020.
These changes interact with the changes being announced as part of Budget. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.
Further consultation on amendments to Division 7A
The Government will defer the start date of the 2018/19 Budget measure, Tax Integrity - clarifying the operation of the Division 7A integrity rule, from 1 July 2019 to 1 July 2020. Division 7a is part of the Income Tax Assessment Act 1936, and aims to prevent profits or assets being provided to shareholders or their associates tax free. The 2018/19 Budget measure was intended to address unpaid present entitlements.
The Government issued a consultation paper in October 2018 seeking stakeholder views on the proposed implementation approach for the amendments to Division 7A of the Income Tax Assessment Act 1936. The Government received valuable feedback from stakeholders which highlighted that this is a complex area of the tax law and raised implementation issues that warrant further consideration.
Delaying the start date by 12 months will allow additional time to further consult with stakeholders on these issues and to refine the Government’s implementation approach, including to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.
Work test changes
From 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test.
Currently the Work Test (a minimum of 40 hours work over a 30 consecutive day period in the financial year of contribution) applies from a super fund member’s 65th birthday.
This change will align the superannuation Work Test with the eligibility age for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.
Spouse contribution age limit
The maximum age at which a spouse contribution can be made will be increased from age 69 to age 74. The limit applies to the age of the spouse into whose super account the spouse contribution is being made.
Currently those age 70 and over cannot receive contributions made by another person, including a spouse, on their behalf.
This measure was announced in conjunction with the Work Test changes which was proposed to commence from 1 July 2020.
NCC bring-forward arrangements
The cut-off age for the bring-forward of up to two future years of the non-concessional contribution (NCC) cap will be extended by two years. This means NCCs of up to $300,000 can be made in one year.
Currently the bring-forward arrangement applies until 30 June in the financial year the super fund member turns age 65. This will be extended to allow those age 65 and 66 to use the bring-forward arrangement.
This measure was announced in conjunction with the Work Test changes which was proposed to commence from 1 July 2020.
Changes to the ‘Protecting Your Super Package’ announced in 2018
The Government agreed to amendments to the Protecting Your Super Package announced in the 2018/19 Budget to:
- extend to 16 months the period after which an account that has not received any contribution is considered inactive
- expand the definition of when an account is considered active for the ATO-led consolidation regime
- require the ATO to consolidate to an active account, where possible, within 28 days of receipt.
The Government will delay 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 to 1 October 2019.
Permanent tax relief for merging superannuation funds
The Government will make permanent the current tax relief for merging superannuation funds that is due to expire on 1 July 2020.
Since December 2008, tax relief has been available for superannuation funds to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.
The tax relief will be made permanent from 1 July 2020, ensuring superannuation fund member balances are not affected by tax when funds merge. It will remove tax as an impediment to mergers and facilitate industry consolidation. Consolidation would help address inefficiencies by reducing costs, managing risks and increasing scale, leading to improved retirement outcomes for members.
The Government will reduce costs and simplify reporting for superannuation funds by streamlining some administrative requirements for the calculation of exempt current pension income (ECPI).
The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI.
The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.
This measure will start on 1 July 2020.
Superannuation release authorities in electronic SuperStream Rollover standard
The Government will provide funding to the ATO to send electronic requests to superannuation funds for the release of money required under a number of superannuation arrangements.
This change, which will take effect from 31 March 2021, will be implemented by expanding the electronic SuperStream Rollover Standard used for the transfer of information and money between employers, superannuation funds and the ATO. The start date of Self-Managed Superannuation Funds rollovers in SuperStream will be delayed until 31 March 2021 to coincide with the expansion of the SuperStream Rollover Standard.
Superannuation Consumer Advocate
The Government will provide $0.1 million in 2019/20 to undertake an expression of interest process to identify options to support the establishment of a Superannuation Consumer Advocate. The Advocate would provide input on behalf of consumers in policy discussions and provide information to educate and assist consumers navigate the superannuation system.
Offering Choice in Australian Defence Force Superannuation Scheme
The Government will extend Australian Defence Force Superannuation Scheme (ADF Super) membership eligibility to allow ADF Super members to choose to remain contributory members when they discharge from the Australian Defence Force.
This will align ADF Super arrangements with superannuation arrangements available in broader industry and other public superannuation schemes.
Energy Assistance Payment
The Government will provide $284.4 million over two years from 2018/19 to make 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 and who are resident in Australia.
Qualifying payments are the Age Pension, Carer Payment, Disability Support Pension, Parenting Payment Single, the 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.
This measure builds on the Energy Assistance Payment measure announced in the 2017/18 Budget.
Improving the quality, safety and accessibility of aged care services
The Government affirmed its announcement on 10 February 2019 issued by the Prime Minister, Minister for Health and Minister for Senior Australians and Aged Care to provide $724.8 million over five years from 2018/19 to support older Australians through further improvements to the quality, safety and accessibility of residential and home care services.
The measures include:
Better Access to Care
- $320.0 million in 2018/19 for a one-off increase to the basic subsidy for residential aged care recipients
- $282.4 million over five years from 2018/19 for the release of an additional 10,000 home care packages across the four package levels
- $35.7 million over five years from 2018/19 for an increase to the dementia and the veterans’ home care supplements to support home care recipients who require additional care to stay in their homes longer
- $7.4 million over three years from 2018/19 to support aged care providers to better manage their finances through the provision of business advisory services
- $4.6 million over two years from 2018/19 to trial a residential care needs assessment funding tool as an alternative to the existing Aged Care Funding Instrument
- $7.1 million over two years from 2018/19 to improve payment administration arrangements for home care packages to address stakeholder concerns regarding unspent funds and align home care arrangements with other Government programs, such as the National Disability Insurance Scheme. The Government will consult with stakeholders on the implementation of these improved payment administration arrangements.
Better Quality of Care
- $38.4 million over five years from 2018/19 to strengthen aged care regulation through the establishment of a risk-based compliance and information sharing system in the Aged Care Quality and Safety Commission
- $8.4 million over five years from 2018/19 to introduce mandatory reporting against national residential care quality indicators for pressure sores, use of physical restraint, weight loss, falls and fractures, and medication management
- $7.7 million over two years from 2018/19 to develop an end-to-end compliance framework for the Home Care program, including the increased auditing and monitoring of home care providers
- $5.6 million in 2019/20 to commence the implementation of an enhanced home care compliance framework to improve the quality and safety of home care services and enhance the integrity of the home care system
- $3.4 million over two years from 2019/20 for the Aged Care Quality and Safety Commission to address the use of chemical restraints and the inappropriate use of antibiotics in residential aged care facilities;
- $2.6 million in 2019/20 to provide additional support for the implementation of the Aged Care Workforce Strategy
- $1.5 million in 2019/20 to undertake preparatory work for the introduction of a new Serious Incident Response Scheme from July 2022, which will require residential care providers to report a broader range of incidents occurring in their facilities.
Government Response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The Government will provide $606.7 million over five years from 2018/19 to facilitate the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission). The package comprises a suite of measures that fulfil the Government’s commitment to take action on all 76 of the recommendations of the Royal Commission’s Final Report, including:
- designing and implementing an industry funded compensation scheme of last resort for consumers and small business ($2.6 million over two years from 2019/20)
- providing the Australian Financial Complaints Authority with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018/19)
- paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations ($30.7 million in 2019/20)
- resourcing the Australian Securities and Investments Commission (ASIC) to implement its new enforcement strategy and expand its capabilities and roles in accordance with the recommendations of the Royal Commission ($404.8 million over four years from 2019/20)
- resourcing the Australian Prudential Regulation Authority (APRA) to strengthen its supervisory and enforcement activities which will support its response to key areas of concern raised by the Royal Commission, including with respect to governance, culture and remuneration ($145.0 million over four years from 2019/20)
- establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives ($7.7 million over three years from 2020/21)
- undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission ($1.0 million in 2018/19)
- establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and co-ordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee ($11.2 million in 2019/20)
- providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government’s response to the Royal Commission ($0.9 million in 2019/20).
The cost of this measure will be partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies and from funding already provisioned in the Budget.