Scott Morrison’s third budget is headlined by $140 billion in tax cuts over the next decade, immediate tax relief of up to $1,060 a year for middle-income households and a fundamental reform of the tax system.
Below are the changes that will affect your retirement, or someone close to you.
Superannuation Work test exemption for retirees Date of effect: 1 July 2019 A person aged 65 to 74 is currently able to make contributions to superannuation if the ‘work test’ has been satisfied (ie they have worked at least 40 hours in 30 consecutive days) in the financial year the contribution is made. A one year exemption from the work test will apply to older Australians who have less than $300,000 in total super savings. This exemption will apply to the financial year following the last year the work test was satisfied. This will allow an additional period of time for those eligible to contribute to superannuation.
Legislated super changes post 1 July 2018 Individuals aged 65 or older may be able to make super contributions of up to $300,000 (or $600,000 per couple) from 1 July 2018 when selling their home.
These contributions, known as ‘downsizer contributions’ can be made without having to meet a ‘work test’ or ‘total super balance test’ and they don’t count towards the contribution caps.
However, they must be made with 90 days of settlement and a tax deduction can’t be claimed. The property must have been owned for at least 10 years and have been the main residence at some time during this period.
Catch-up concessional contributions
Legislated super changes post 1 July 2018 Where the annual concessional contribution (CC) cap is not fully utilised from 1 July 2018, it may be possible to accrue unused amounts for use in subsequent financial years.
The CC cap is currently $25,000 pa1. Counted towards this limit are all employer contributions (including super guarantee and salary sacrifice), personal tax deductible contributions and certain other amounts.
Unused cap amounts can be accrued for up to five financial years. 2019/20 is the first financial year it will be possible to use carried forward amounts.
To be eligible, individuals cannot have a total super balance exceeding $500,000 on the previous 30 June. 1. This cap applies in FY 2017/18 and 2018/19. It may be indexed in future financial years.
Aged Pension Pension Loans Scheme Date of effect: 1 July 2019 The Pension Loans Scheme allows eligible individuals to access some of the equity in the home or other property via a Government loan, which is advanced in fortnightly instalments. This scheme will be available to all Australians over Age Pension age and the maximum loan payments will increase to 150% of the full Age Pension. Eligibility will continue to limited by the value of the property used as loan security.
Work Bonus Date of effect: 1 July 2019 Under the Work Bonus, the first $300 per fortnight (currently $250) of employment income will not count when calculating
Age Pension entitlements under the income test. Self-employed retirees will be able to access the scheme for the first time. A ‘personal exertion test’ will ensure the bonus only applies to income earned from paid work. Any unused Work Bonus (up to a total of $7,800 pa) can continue to be accrued to reduce assessable employment income in a future period.
Means-testing of certain lifetime income streams Date of effect: 1 July 2019 Favourable social security rules will be introduced to encourage the development and use of income products that will help retirees reduce the risk of outliving their savings.
Under the proposed rules, only 60% of the amount initially invested in these ‘lifetime income streams’ will be assessed under the assets test. This concession will apply until the account holder is 84 (or for a minimum of five years).
After this time, only 30% will be assessed for the rest of the person’s life. Also, only 60% of the income payments will be assessed under the income test.
Means testing of Carers Allowance Date of effect: To be confirmed by Government As previously announced, the Carer Allowance and Carer Allowance (child) Health Care Card will be income tested. Households earning over $250,000 won’t be eligible. Both existing and new recipients of Carer Allowance will need to meet this income test.
Aged care Additional funding for aged care Date of effect: From 1 July 2018 Funding for home care services and residential aged care will increase, including:
14,000 new home care packages over four years
13,500 new residential aged care places, and
grants for aged care facilities in rural, regional and remote areas.
Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.