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Some of the biggest proposed changes in the 2018 Federal Budget will impact on tax payers and older Australians, with projected savings set to put funds into their back pocket.

 

Tax payers

Low and middle income earners will benefit from tax savings of up to $530 per person (or $1,060 per couple), via a series of changes to be implemented over seven years.

The income threshold at which the 32.5% marginal tax rate applies will progressively increase to $200,000 by 1 July 2024.

 

Table 1: Personal tax rates and thresholds
Tax rate
(excluding Medicare)
2017/18
income
thresholds
Proposed income thresholds
From 1/7/2018 From 1/7/2022 From 1/7/2024
0% $0 – $18,200 $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 – $37,000 $18,201 – $41,000 $18,201 – $41,000
32.5% $37,001 – $87,000 $37,001 – $90,000 $41,001 – $120,000 $41,001 – $200,000
37% $87,001 – $180,000 $90,001 – $180,000 $120,001 – $180,000 Not applicable
45% > $180,000 > $180,000 > $180,000 > $200,000

 

With personal tax offsets, a Low and Middle Income Earners Tax Offset (LMITO) of up to $530 will apply from 1 July 2018 to 30 June 2022 and from 1 July 2022, the Low Income Tax Offset will increase from $445 to $645.

To get your head around your tax payable in future financial years (and the potential tax savings compared to 2017/18) view the below table. These figures take into account the proposed personal income threshold and tax offset changes.

 

Table 2: Tax payable and potential savings
Taxable income Tax payable in 2017/18 From 1/7/2018 From 1/7/2022 From 1/7/2024
Tax payable Tax saved Tax payable Tax saved Tax payable Tax saved
$40,000 $4,947 $4,657 $290 $4,492 $455 $4,492 $455
$80,000 $19,147 $18,617 $530 $18,607 $540 $18,607 $540
$120,000 $34,432 $34,217 $215 $32,407 $2,025 $32,407 $2,025
$160,000 $50,032 $49,897 $135 $48,007 $2,025 $46,207 $3,825
$200,000 $67,232 $67,097 $135 $65,207 $2,025 $60,007 $7,225

 

Medicare levy to stay at 2%

The previously proposed increase in the Medicare levy to 2.5% from 1 July 2019 has been abandoned.

 

Pension Loans Scheme

The Pension Loans Scheme allows eligible individuals to access some of the equity in the home or other property via a Government loan, which is advanced in fortnightly instalments.

This scheme will be available to all Australians over the Age Pension age and the maximum loan payments will increase to 150% of the full Age Pension. Eligibility will continue to limited by the value of the property used as loan security.

 

Pension Work Bonus

Under the Pension Work Bonus, the first $300 per fortnight (currently $250) of employment income will not count when calculating Age Pension entitlements under the income test.

Self-employed retirees will be able to access the scheme for the first time.

A ‘personal exertion test’ will ensure the bonus only applies to income earned from paid work.

Any unused Work Bonus (up to a total of $7,800 pa) can continue to be accrued to reduce assessable employment income in a future period.

 

Means-testing of certain lifetime income streams

Favourable social security rules will be introduced to encourage the development and use of income products that will help retirees reduce the risk of outliving their savings.

Under the proposed rules, only 60% of the amount initially invested in these ‘lifetime income streams’ will be assessed under the assets test. This concession will apply until the account holder is 84 (or for a minimum of five years). After this time, only 30% will be assessed for the rest of the person’s life. Also, only 60% of the income payments will be assessed under the income test.

 

 

Status of changes

The information set out above is based on the data and budget information announced by the Commonwealth of Australia concerning the proposed 2018-19 Commonwealth Budget. Please note that although the changes outlined above have been proposed by the Government, the proposed legislative changes that are necessary to implement the proposed Budget are not yet finalised and may be subject to change as the relevant legislation implementing the changes proposed by the Budget passes through parliament. The above summary is intended as general information only and is not intended to constitute taxation or financial/superannuation planning advice. The application of many laws, including taxation laws, are dependent upon an individual’s personal circumstances. You should, therefore, not make any investment or other financial decisions in reliance upon the information set out in this correspondence and should seek professional advice on the financial, legal and taxation implications before making any such decisions.