14
September
2018

Budget Recap

Budget Recap

Last week the Government presented their budget and it was a very vanilla affair in the end. Basically, there was some minor tax relief and tinkering of the superannuation system.

The taxation changes have been discussed extensively in the media, but in short there will be a tax rebate of up to $530 for low to middle income earners, this will remain in place till 30 June 2022. There will also be a slight moving of the marginal tax brackets with the 32.5% extending to $90,000 (formerly $87,000). These tax benefits, although nice, are minimal.

There are also further tax cuts promised to commence over the period 2022-24. These are more substantial and will offer further benefits, particularly to middle to higher income earners.

The Government also released what they are dubbing, “Protecting your Superannuation package”.  I really like the measures they have introduced in this legislation.

The policy with the greatest potential impact is the removal of the work test for those between 65-74 with less than $300,000 in super. This will enable those with lower balances the opportunity to contribute to superannuation (and then move to the tax-free pension environment) after they have retired until age 74.

This will provide some financial planning opportunities; most notably it will give us much greater flexibility on when we sell investment assets we intend to contribute to super. This will present an opportunity in some cases to reduce capital gains tax and still enable funds to be contributed to super for the long-term tax benefits. We will be able to sell investments after retirement, where it is likely there is less assessable income than previous years, resulting in a lower capital gains tax liability than if sold whilst still working.

It is not uncommon for retirees to receive a lump sum, usually via inheritance, in some cases this will now be able to be contributed to superannuation.

There was also some sensible legislation in relation to automatic insurance options. Many super providers, particularly industry and employer linked funds, have previously provided insurance on an opt-out basis (essentially the default is you are given insurance).  For those under 25 or with balances of less than $6,000 this insurance will now be provided on an opt-in basis. You will now have to actively select if you would like insurance cover. I think this is a beneficial move.

The Government has removed all exit fees on super funds, regardless of balances. They have also placed maximum total fees for funds with low balances and improved the lost super provisions for inactive super accounts. All of these changes are advantageous.

Although most of the changes in this year’s budget are minor, I believe they are mostly positive. 

  

Categories: Author, Future Financial Services Blog

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