As expected, the Treasurer signalled sweeping tax cuts and major infrastructure spending if the Coalition wins the upcoming federal election widely expected to be held in May.
There is plenty of information in the media regarding the nuts and bolts of this Budget, and depending on your area of interest there is something for everyone from National Security to $1.4 billion for Snowy Hydro 2.0.
What we have focused on in this article are the announcements we think will have an impact on our clients and associates (if they become legislated).
In a bid to help older Australians boost their retirement savings, the Government intends allowing 65 and 66-year-olds to make voluntary contributions to their super from 2020-21 without meeting the work test.
The same group will also be allowed to make three years’ voluntary non-concessional (after tax) contributions, currently capped at $100,000 a year, in one year. This is fantastic news, especially for; those still making their way to their $1.6m pension or Total Superannuation Balance limit, couples evening out the super balances, or those who have left their super run a little late.
The magnitude of this starts to multiply when you start strategising this proposal with the Home Downsizer provisions from the 2017/2018 Federal Election Budget (this proposal became law on 13 December 2017).
Since 1 July 2018, Australians aged 65 years or older can make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years.
Individuals who have maxed out their opportunity to make non-concessional contributions to a super account, can still make a downsizing contribution, as these contributions are exempt from the new $1.6 million Total Superannuation Balance limit that restricts you from further non-concessional contributions.
The removal of the work test for an extra few years could provide just the right timing so that if contributions are managed to the dollar, using the planning tools available (and proposed) depending on your personal circumstances you may be able to push this $300,000 out to $400,000 (each for a couple) above the $1.6 million Total Superannuation Balance limit.
Bigger tax cuts
The centrepiece of the Federal Election Budget is an extension of the already announced multi-year tax package.
By 2024-25, 94 per cent of taxpayers on incomes below $200,000 will pay no more than 30c tax in the dollar. Incomes above $200,000 will pay 45c in the dollar.
To provide some context, the Government has already legislated to remove the 37% tax bracket with effect from 1 July 2024. This Budget took the cut further reducing the 32.5% marginal tax rate to 30%, which will take effect at the same time.
This means that for the 2025 income year, taxpayers will be able to earn fully franked dividends of approximately $158,000 without paying any top-up tax (assuming a franking rate of 30%) and approximately $90,000 (assuming a franking rate of 25%).
Something that happens from time to time is capital being ‘trapped’ in personal companies, unable to be release for fear of triggering further taxation. This will provide some relief for people with that fact pattern.
Beefed up regulation and compliance
In the wake of the Banking Royal Commission, financial regulators Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) will be given a boost of more than $550 million to clamp down on misconduct.
The Australian Taxation Office will be given extra funds to crack down on those prompting tax ‘dodging’. Nothing new here, it just means that open communication between your adviser and tax accountant remains important.
Deferral of Division 7A measures
Although not a Budget headliner, this is something a lot of our clients will be interested in (you will know if this applies to you). The Government will defer the start date of measures announced in the 2018-19 Budget regarding the operation of the private company Division 7A rules from 1 July 2019 to 1 July 2020 to allow time for further consultation.
This does not provide the certainty we were hoping for in this area, but it does show the complexity of this issue for regulators.
Environment and energy
Sustainable investing is something that Capital Partners has invested a significant amount of resources in, ensuring our offering in this area meets the high standards we demand.
The Government hopes to shore up its climate and energy credentials with $3.5 billion for a new Climate Solutions Package, including $2 billion for the Climate Solutions Fund (previously called the Emissions Reduction Fund), the sustainability conversation becomes more important than ever.
This is an unusual Budget as there will be little chance of legislating most of the spending measures before a federal election in May.
For its part, the Government’s proposed tax cuts and superannuation measures are welcome, with other stimulus measures providing an important kick every economist loves to see getting people spending, companies hiring and flat wages rising.
Labor has flagged it will deliver its own economic statement later this year if elected. We will have to wait until after the election to see whose policies will take Australia forward.
It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.
In a world filled with political, economic and social uncertainty, sound financial advice – advice based on evidence and your values and life goals – holds the key to a happier, healthier life. This is what we believe at Capital Partners.
If you have any questions relating to the effects of legislation changes to your portfolio, you can contact Capital Partners on 6163 6100.