2018 Federal Budget Update
Following the release of the 2018 Federal Budget, there’s a lot of information to digest to understand how these changes could impact you.
To help with this, we’ve unpacked the budget’s key items that could affect your super.
Changes to automatic life insurance for under 25’s, low balance and inactive accounts
Insurance will be made opt-in, rather than opt-out, for members:
- who have low balances of less than $6,000,
- are under the age of 25 years, or
- whose accounts have not received a contribution in 13 months and are inactive.
Impacted members will have a period of 14 months to decide, and let their super fund know, whether they will opt-in to their existing insurance cover or allow it to be switched off.
The objective of this change is to stop the retirement savings of younger members, and those with lower balances, being eroded by insurance premiums. It also aims to stop members with multiple super accounts paying for insurance they don’t need or are unaware of.
If passed, the change will take effect on 1 July 2019.
No exit fees and a new maximum fee for low balance accounts
The government is proposing to introduce a range of measures from 1 July 2019, designed to further protect super balances from being excessively reduced by fees, including:
- A 3% annual cap on fees charged by super funds on accounts with balances below $6,000.
- Removing exit fees charged on super accounts.
ATO to automatically combine lost or inactive super accounts
Funds will need to transfer all inactive super accounts with a balance of under $6,000 to the Australian Taxation Office (ATO).
The ATO will proactively re-unite lost and low balance accounts through expanded ‘data-matching’. Where possible, these accounts will be re-united (with the member’s active account) within the year they were transferred to the ATO.
If passed, these changes will take effect from 1 July 2019.
Income tax cuts for low and middle income earners
The government is proposing a seven year ‘Personal Income Tax Plan’ to reduce income tax rates for individuals, including:
- A new Low and Middle Income Tax Offset of up to $530 per annum, for those earning up to $125,333, paid as a lump sum on assessment of Income Tax Returns for 2018/19 to 2021/22. The amount of offset payable varies based on taxable income, ranging from $200 for those earning $37,000 or less to the maximum $530 for those earning between $48,000 to $90,000.
- From 1 July 2018, the 32.5% tax bracket will increase from $87,000 to $90,000.
- From 1 July 2022, the 19% tax bracket will increase from $37,000 to $41,000 and the 32.5% tax bracket will again increase from $90,000 to $120,000.
- From 1 July 2024, the 32.5% tax bracket will again increase from $120,000 to $200,000. Only those earning more than $200,000 per annum will pay the top marginal tax rate of 45%.
- The Medicare levy low-income threshold will increase from 2017/18 financial year.
Although it was announced last year that the Medical Levy would increase from 1 July 2019 from 2% to 2.5% to fully fund the National Disability Insurance Scheme; the government has confirmed that this increase no longer needs to occur.
Work test exemption for individuals ages 65-74
A one-year exemption from the current work test* for voluntary super contributions for people aged 65-74 who have balances below $300,000. This means members will be able to make voluntary contributions to super for the first year they don’t meet the work test requirements. This aims to give recent retirees more flexibility to get their financial affairs in order as they transition into retirement.
Note: Existing contribution cap rules will continue to apply to contributions made under the work test exemption.
*The work test only allows people to make voluntary super contributions if they confirm they’re working at least 40 hours in any 30-day period during the financial year.
Expansion of the Pension Work Bonus and Pension Loan Scheme
Increasing the Pension Work Bonus from $250 to $300 per fortnight to allow pensioners to earn up to an extra $1,300 a year without impacting their pension payments and extend the Pension Work Bonus to self-employed retirees who will be able to earn up to $300 per fortnight without impacting their pension.
Extending the Pension Loans Scheme to everyone over Age Pension age and increasing the maximum fortnightly income stream.