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Budget 2018: building resilience

The 2018 Federal Budget is built on the back of a historically strong post-mining boom Australian economy, triggering fairly conservative changes to tax policy. The Budget’s strategy is to provide sustainable tax relief to those in the workforce, stimulating spending and encouraging businesses to invest in creating jobs.

Individuals
The Government is introducing a seven-year Personal Income Tax Plan to make tax lower, fairer and simpler. The plan is affordable and consistent.

The first step is to lower taxes for low and middle-income earners, thereby increasing disposable incomes to help take the pressure off household budgets. From 1 July 2018, the Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle-income taxpayers.

The second measure in the plan will tackle bracket creep. From 1 July 2018, the Government will increase the top threshold of the 32.5 per cent personal income tax bracket from $87,000 to $90,000.

The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000 from 1 July 2022.

The third phase of the Government’s Personal Income Tax Plan will simplify and flatten the personal tax system by eliminating the 37 per cent tax bracket entirely. From 2024-25, the 37 per cent tax bracket will be abolished to protect middle-income Australians from bracket creep over their working life. This will also allow working Australians to take on additional work and seek advancement without increased tax consequences. This strategy suggests the Government’s confidence in a buoyant economy and increased future wages growth.

The increase in Medicare levy from 2 to 2.5 per cent indicated in last year’s Budget will no longer proceed. In addition, the Medicare levy low-income thresholds will be increased for singles, families, seniors and pensioners from the 2017/18 income year.

Businesses
The $20,000 instant asset write-off has been extended for small businesses to 30 June 2019, providing more opportunity for them to reinvest in their business and replace or upgrade their assets. While the extension is a welcomed measure for small businesses; it may prove to be a standard feature with the Government facing difficulty trying to eliminate it in the future.

Posted on 9 May '18 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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