budget2018

Budget 2018: What’s in it for you

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It’s May, which means it’s Budget time. In the last full Budget before the next Federal election, the Treasurer delivered an election Budget with enough sweeteners for everyone including businesses, income tax relief for individuals, measures to boost superannuation, and help for older Australians.

The 2018-19 Budget was handed down on 8 May by Treasurer Scott Morrison. In the last full Budget before the next Federal election, ScoMo delivered what was widely perceived to be an election Budget with lots of sweeteners for everyone. So what’s in it for you?

“You could also be in danger of reaching the cap if you, as an employee, have salary sacrifice arrangements already in place from last year when the annual concessional cap was higher ($35,000 or $30,000 depending on your age).”

Businesses

The Government styled themselves as the champions of business with already legislated tax cuts for small and medium Australia businesses as well as unincorporated small businesses. While there were no specific tax cuts for businesses in the Budget, “the Government remains committed to ensuring that Australian businesses remain internationally competitive and will progressively reduce the corporate tax rate for all companies through the 10-year enterprise tax plan.”

Small businesses will benefit from the Government extending the $20,000 instant asset write-off for a further 12 months to 30 June 2019. According to the Government, these small businesses will now have additional opportunities to reinvest in their business and replace or upgrade their assets.

Income tax relief

“The Government has promised to deliver targeted tax relief of up to $530 to middle and lower income earners through a new tax offset for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. This offset will be in addition to the current low-income tax offset and is expected to provide over 10 million Australians with tax relief.”

In addition to this relief, the Government will increase the top threshold of the 32.5% tax bracket to $90,000 from 1 July 2018. In a feat of forward planning, from 2022-23 the top threshold of the 19% tax bracket will be increased to $41,000 with the low-income tax offset to be increased to $645. According to the Government, these changes together will mean that taxpayers permanently receive tax relief.

Superannuation

In the Budget, the Government announced measures to ensure that Australians keep more of their super, including:

  • giving the ATO capacity to actively reunite Australians with their lost and inactive superannuation;
  • capping certain superannuation fees at 3% for accounts with balances of less than $6,000;
  • banning superannuation exit fees to make it easier for Australians to consolidate their superannuation; and
  • tailoring insurance arrangements to ensure that they are opt-in rather than opt-out.

Older Australians

The Government has tried to please both pensioners and self-funded retirees with the following measures announced in the Budget:

  • expansion of the pension loans scheme to those on the full pension and self-funded retirees to give them the option to boost their retirement income. Full pensioners will be able to increase their income by up to 50% of the Age Pension.
  • expansion of the pension work bonus which will allow age pensioners to earn up to $300 per fortnight (up from $250) without reducing their pension payments. The bonus will also be extended to self-employed individuals who will be able to earn up to $7,800 per year.
  • exemption from the superannuation work test for those aged 65-74 with superannuation balances below $300,000.
  • standards of living in retirement will be boosted and retirees will have greater choice in how they receive their superannuation through the Government’s retirement income framework.

Want to find out more?

Do you want to find out more about how this Budget affects you and your future? We will help you find the answers and plan for your future.

home-super-saver

First Home Super Saver Scheme update: building on the foundations

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We start the new year with headlines of “falling house prices”, but even if prices are set to come down and you keep a close eye on your finances, saving a deposit to buy your first home can be difficult. The First Home Super Saver Scheme (FHSSS) – now passed by Parliament – means that you can use superannuation to build your home deposit, and not only if you are buying a first home. Here is an update on FHSSS and other exemptions from which you could benefit.

The FHSSS allows you to make voluntary superannuation contributions, from 1 July 2017, and later withdraw them, starting from 1 July 2018, to use for a first home deposit

For many people, the FHSSS effectively operates to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the potential assistance on offer should not be ignored.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. However, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners. So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000).

Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.

Extension to those who are suffering “financial hardship”

When the scheme was first proposed it was limited to apply only to first home buyers.

“There is now a proposal to extend the scheme to home buyers who the ATO determines are suffering “financial hardship”

The Government is yet to release regulations that define what constitutes “financial hardship” and we will keep you updated on this.

What’s included?

Individuals are able to contribute up to $15,000 per year (and $30,000 in total) to their super for the purpose of a first home deposit. Employees can use salary sacrifice arrangements to make pre-tax contributions, but you should keep in mind that any FHSSS amounts you contribute will still count towards your yearly concessional contributions cap. The cap from 1 July 2017 is $25,000 – that is, your pre-tax contributions of up to $25,000 (including the mandatory super guarantee and any you make under the FHSSS) will be taxed at a “concessional” rate of 15%. Higher tax rates will apply if you exceed the cap.

Importantly, the scheme doesn’t allow you to withdraw money that you already had in super before 1 July 2017, and any FHSSS amounts you contribute will only be available for release from 1 July 2018.

Who’s eligible?

To be eligible to use the FHSSS you will need to:

  • be at least 18 years old;
  • have not used the scheme before and have never owned real property in Australia; or
  • qualify as someone who has suffered a “financial hardship” (determined by the ATO), as specified by regulations.

If you’re eligible to use the FHSSS, you won’t be disqualified if you are buying a home with someone else (such as your spouse) who isn’t a first home buyer.

How does it work?

When ready to withdraw an FHSSS amount from your super, you will need to apply to the ATO, giving a declaration of your eligibility to buy or build a residence. The ATO will issue a determination and release authority specifying the maximum amount to be withdrawn, then estimate and withhold an amount of tax and release your deposit to you. The maximum withdrawal amount will be 85% of your pre-tax (concessional) contributions. Concessional contribution amounts and associated earnings withdrawn from your super under the FHSSS will count as part of your taxable income, although a 30% tax offset will apply. Amounts released from super under the FHSSS will be excluded from the social security means tests and co-contribution income test.

After the release of your FHSSS amount, you will have 12 months to sign a contract to buy or build residential premises, and 28 days after the contract signing to notify the ATO. Your purchase can include buying vacant land to build on and occupy as your residence. You will need to occupy the residence as soon as is practicable, and for at least six months of the first year after it becomes practicable to do so. For example, if you buy a house-and-land package, you will need to occupy the house for at least six months in the first 12 months after it is built.

Important considerations

If you’re saving for your first home and think the FHSSS might be for you, there are a range of factors to consider.

A super account isn’t a capital-guaranteed bank account, so it’s important to look closely at your fund’s investment strategy and be aware of the risks involved with adding the money for your home purchase to your superannuation.

It is crucial to plan ahead, as any salary sacrificing to your super will need to be prospective. The various potential taxing points in the scheme also mean that your personal finances and circumstances may affect whether using it to save your deposit would give you a useful tax saving.

Want to know more? Contact us to discuss the latest super changes and your home deposit savings plan.

foundation

First Home Super Saver Scheme: lay foundations and plan to benefit

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Even if you avoid café brunches and keep a close eye on your everyday spending, saving a deposit to buy your first home can be a challenge. The First Home Super Saver Scheme, announced in the 2017–2018 Federal Budget, proposes using the superannuation system to help Australians build their home deposits. The government has now released draft legislation to lay the scheme’s foundations – let’s take a look at the assistance on offer and how it would work if this draft becomes law.

The proposed First Home Super Saver Scheme (FHSSS) will allow people to make voluntary superannuation contributions from 1 July 2017 and later withdraw them, starting from 1 July 2018, to use for a first home deposit.

For many people, the FHSSS will effectively operate to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the assistance on offer should not be ignored by those who can benefit.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. On the other hand, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners.

So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000). Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.

What’s included?

Individuals would be able to contribute up to $15,000 per year (and $30,000 in total) to their super for the purpose of a first home deposit. Employees may use salary sacrifice arrangements to make pre-tax contributions, but you should keep in mind that any FHSSS amounts you contribute would still count towards your yearly concessional contributions cap. The cap from 1 July 2017 is $25,000 – that is, your pre-tax contributions of up to $25,000 (including the mandatory super guarantee and any you make under the FHSSS) are taxed at a “concessional” rate of 15%. Higher tax rates apply if you exceed the cap.

Importantly, the scheme won’t allow you to withdraw money that you already had in super before 1 July 2017, and any FHSSS amounts you contribute would only be available for release from 1 July 2018.

Who’s eligible?

To be eligible to use the FHSSS you would need to be at least 18 years old, have not used the scheme before and have never owned real property in Australia.

If you’re eligible to use the FHSSS, you wouldn’t be disqualified just because you were buying a home with someone else (such as your spouse) who wasn’t a first home buyer.

How would it work?

When ready to withdraw an FHSSS amount from your super, you would need to apply to the ATO, giving a declaration of your eligibility to buy or build a residence. The ATO would issue a determination and release authority specifying the maximum amount to be withdrawn, then estimate and withhold an amount of tax and release your deposit to you.

The maximum withdrawal amount would be 85% of your pre-tax (concessional) contributions.

Concessional contribution amounts and associated earnings withdrawn from your super under the FHSSS would count as part of your taxable income, although a 30% tax offset would apply.

Amounts released from super under the FHSSS would be excluded from the social security means tests and co-contribution income test.

After the release of your FHSSS amount, you would have 12 months to sign a contract to buy or build residential premises, and 28 days after the contract signing to notify the ATO. Your purchase could include buying vacant land to build on and occupy as your residence.

You would then need to occupy the residence as soon as practicable, and for at least six months of the first year after it becomes practicable to do so. For example, if you bought a house-and-land package, you would need to occupy the house for at least six months in the first 12 months after it is built.

Important considerations

“If you’re saving for your first home and think the FHSSS might be for you, there are a range of factors to consider.”

A super account isn’t a capital-guaranteed bank account, so it’s important to look closely at your fund’s investment strategy and be aware of the risks involved with adding the money for your home purchase to your superannuation.

While the legislation is yet to be finalised, it is important to start planning now, as any salary sacrificing to your super will need to be prospective. The various potential taxing points in the scheme also mean that your personal finances and circumstances may affect whether using it to save your deposit would give you a useful tax saving.

Want to know more? Contact us to discuss the latest super changes and your home deposit savings plan.