New super, tax rules will benefit clients, as business tax changes could assist advisers, writes Byron Smith.
In a budget aiming to please the electorate several weeks before a national election, it was business owners and low-to-middle-income earners that were the obvious ‘winners’.
Outlining his proposals in Parliament last night, federal Treasurer Josh Frydenberg declared “lower taxes for 10 million Australians and three million small businesses”.
For financial advisers there were several proposals of likely benefit to their own businesses and some portion of their client base should experience tax relief, while some superannuation rules have been relaxed.
Tax cuts for lower income earners
The government is proposing to double the value of the package of tax cuts it announced last year. By 2024 it plans for 94 per cent of taxpayers (everyone earning up to $200,000) to pay no more than 30 cents in the dollar in income tax.
In the short term, starting at the end of this financial year:
- approximately 4.5 million taxpayers earning between $48,001 and $90,000 will receive a tax rebate of $1,080
- for those earning less than $48,001, or more than $90,000, the tax rebate will be reduced proportionately to their income.
In the long term, from 2022-23 the government proposes to:
- expand the 19 per cent tax bracket to those earning up to $45,000
- increase a rebate for low-income earners from $645 to $700
- beginning 2024, it proposes to lower the 32.5 per cent tax rate (now applying to those earning $37,001 to $87,000) down to 30 per cent for a much wider income bracket (those earning between $45,001 to $200,000).
Proposed tax threshold changes
|Tax rate (%)||Current ($)||July 1,2022 ($)||Tax rate (%)||July 1, 2024 ($)|
|37||87,001-180,000||120,001-180,000||(no longer exists)|
ANZ chief investment officer Mark Rider said the government surprised no one by using its war chest in the lead up to the election.
“Of course the broader economy will benefit from the increased tax rebates that come at a time when wages growth is slow and household debt is high. The later tax cuts will provide longer-term benefits for the household sector,” he concluded.
Superannuation rules relaxed for seniors
In a budget proposal entitled ‘Superannuation – improving flexibility for older Australians’, that received approval from superannuation associations, the government announced its plan to relax some rules around contributions.
From July 2020, those aged up to 66 wouldn’t have to meet the work test to make voluntary superannuation contributions. (To ‘pass’ the work test someone must work 40 hours in a 30-day period in the financial year the contribution is to be made.)
The age limit for receiving spouse contributions will increase to age 74, up from age 69, the work test must be met for those 67 and over.
And the age for those who can contribute up to three years’ worth of after-tax super contributions (up to $300,000) in a single year, is proposed to rise from 64 to 66.
This proposal would likely be of benefit to wealthier taxpayers, retired couples could share their super more easily, which could be a notable benefit for those concerned about the $1.6 million super pension limit.
For example, one spouse exceeding the $1.6 million limit and drawing a pension, could move up to $300,000 into their spouse’s lower balance super account, assuming they’re under the age of 67.
Some breaks for SMEs
Effective immediately, businesses turning over up to $50 million a year could claim immediate deductions, rather than a staged depreciation, for assets worth up to $30,000.
(This is a sizeable jump from existing limits of assets worth $25,000 and businesses turning over up to $10 million – which means 22,000 more businesses can use the ‘instant asset write off’).
“Already more than 350,000 businesses have taken advantage of the instant asset write-off rules. And now, even more will have the chance to do so,” said Frydenberg.
Also for businesses with a turnover of less than $50 million a year, the tax rate will be lowered to 25 per cent by 2021-22.
Some economic boost expected
ANZ chief economist Richard Yetsenga gives his take on the structural change issues the federal budget highlights.
Alongside its tax cuts, valued at $302 billion over the next 10 years, the government has forecast the return of the budget to surplus for the first time in 12 years.
In 2019-20 it proposes a budget surplus of $7.1 billion, then ranging from $9.2 billion to $17.8 billion in the next three years.
“Surpluses will continue to build toward 1 per cent of GDP [gross domestic product] within a decade. As we climb the mountain and reach our goal of eliminating Commonwealth net debt by 2030 or sooner,” declared Frydenberg in his budget speech.
But the government expects Australians’ wage growth to remain under 3 per cent, though GDP growth should kick up to 2.75 per cent this financial year.
ANZ economists Cherelle Murphy and David Plank note that these expectations (for employment growth, wage growth and GDP growth) are stronger than their own estimates. But they see some positive impact from the proposals.
“The economy will receive a boost within four months with the government offering cash payments, personal income tax cuts, a bigger business instant asset write-off and small additions to infrastructure in the 2019-20 budget.
“The most substantial tax cuts don’t come into effect until 2022-23, as was the plan in last year’s budget but the extension of last year’s tax changes provides a meaningful contribution to household income growth. This will offset some of the impact of high household debt, falling house prices and low wage growth.”
A full technical analysis of federal budget proposals is available here.