2018 Federal Budget
2018 Federal Budget

On 8 May 2018 The Treasurer announced the following proposals in relation to superannuation and tax. These proposals will need to successfully pass through Parliament and become law before they are effective and, as has occurred in the past, changes may be made during this process. Nonetheless we consider the effect of these proposals below.

Franking credits – No change to policy

The Government will make no changes to the refundability of excess franking credits. Quite a number of retirees rely on franking credit refunds for income and so this announcement was welcomed by them.

Superannuation Contributions

From 1 July 2019, the work test is proposed to be removed as a requirement for individuals aged 65 to 74 to contribute to superannuation – in the first year that they fail the test and provided that their superannuation balance is less than $300,000. This proposal would enable more scope for those over 65 to manage their financial affairs and reduce their tax.

Tax and Medicare

The Government has also proposed a 3 stage Personal Income Tax Plan to be introduced over 7 years comprising;

  • Targeted tax relief through a Low and Middle Income Tax Offset from 1 July 2018;

  • Increasing the top threshold for the 32.5% Marginal Tax Rate (MTR) to $90,000 from 1 July 2018; and

  • Removing the current 37% MTR completely by 2024 through staged increases in the top threshold for the 32.5% MTR to $200,000.

Additionally, the Medicare levy rate will remain unchanged at 2% and not be increased by 0.5% from 1 July 2019 as was previously intended.

SMSF Audits

From 1 July 2019 there will be a reduced annual compliance burden. For an SMSF with a good record keeping and compliance history (presumably including lodging tax returns on time each year), the audit obligation will only need to be completed once every three years.

In relation to this proposal, it is our view that annual SMSF audits are an important part of managing your affairs and we suggest that if this proposal becomes effective, you should strongly consider continuing with an annual audit of your SMSF (rather than electing for a 3 year audit cycle) for at least the following key reasons;

a) Spreading the compliance obligation and cost of audit over time; and

b) Managing ongoing compliance issues - such as drawing the minimum pension each year and updating your SMSF Investment strategy regularly.

We expect that SMSF Trustees would have the option, rather than the obligation, of selecting a less frequent audit cycle under this proposal.

SMSF Membership

The maximum number of persons that may be members will be increased from 4 to 6 effective from 1 July 2019.

This would benefit larger families, enabling additional children to be added as members.

These proposed changes are relatively minor but also generally positive. If you would like to discuss any of these matters with us, please contact your Wealth Adviser.