Nexus Federal Budget Summary 2019

Australian dollar coins scattered on table

With the next Federal election only a month away, last night Treasurer Josh Frydenberg delivered his first Budget.

Announcing a return to surplus, the Government has promised increased spending on healthcare, aged care services and infrastructure to boost a sluggish economy.

Further tax cuts for low and middle-income earners have been added to the tax cuts from the last Budget as a pre-election sweetener:

Source: Colonial First State

Dual income families will be up to $2,160 better off under the proposed changes.

It was good to see that the only changes announced to superannuation were positive.

From 1 July 2020, people aged 65 and 66 will be able to make further contributions to super without having to meet the ‘work test’ (a requirement under current laws). They will also be able to use the ‘bring forward’ provisions to make up to $300,000 in non-concessional contributions to top up their super balances prior to retirement.

These superannuation changes, allowing more flexibility for contributions for those up to age 67, will align the superannuation laws with the Centrelink Age Pension eligibility age.

It will also be possible to make spouse contributions for a spouse under age 75, if the receiving spouse satisfies the work test (previously limited to under age 70). For a spouse unable to satisfy the work test, contributions can still be made while the spouse is under age 67 (previously age 65).

We see these proposals as being broadly positive – as they will give Australians the opportunity to get more assets into the concessionally-taxed environment of super – to fund their retirement.

Following a recent review on the practice of borrowing to buy property in super, the Government announced no change in the current laws and that they would conduct another review in three years’ time.

In order to become law these Budget changes will need to get through parliament, following a return to power by the Coalition.

If the Government loses the election, Labor have announced they intend to make the following changes:

  • Negative gearing – from 1 January 2020 the ALP has proposed limiting negative gearing to new property investments only
  • Capital Gains Tax – from 1 January 2020 the ALP will halve the CGT discount, effectively increasing the assessable gains to be reported in an investor’s tax return by 50%
  • Non-concessional contributions – the ALP have announced they will reduce the annual cap from $100,000 to $75,000. For those using the ‘bring forward’ provisions this will reduce the limit from $300,000 to $225,000
  • Division 293 Tax Threshold – the ALP will impose an additional 15% tax on the super contributions of taxpayers earning over $200,000. (The current threshold is $250,000.)
  • Borrowing in Super – the ALP will ban SMSF’s from borrowing to purchase investment property
  • Franking credits – the ALP will end the practice of allowing excess franking credits to be refunded to investors with a nil tax liability
  • Trusts – the ALP will impose a 30% minimum tax rate on discretionary trust distributions to prevent the use of these structures as a tax planning mechanism

With such significantly different policy agendas, the Election is shaping up as a battleground over the fundamental economic beliefs of all Australians. Only one thing is guaranteed – that we can expect a continuation of the turmoil we have recently seen in Australian politics!

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