2018 Federal Budget Summary

Andy Carmichael, Wealth Adviser, Macquarie Wealth Management
Wednesday 09 May 2018

The Federal Treasurer, the Hon. Scott Morrison MP, delivered his third Federal Budget on 8 May 2018.

Income tax cuts will be delivered over a six-year period, through a combination of tax rate threshold changes and tax offsets.

With regard to superannuation, the maximum number of members in a self-managed superannuation fund will increase, and those with good record-keeping and compliance history may move to a three-yearly audit cycle.

The work test for certain individuals aged 65-74 will be removed, and certain longevity retirement income products may be more concessionally treated under the age pension means testing than originally proposed.

This summary provides coverage of the key issues in relation to you.

Highlights

Personal income tax

  • Income tax cuts through a combination of tax rate threshold changes and tax offsets.
  • Tax deductions denied for expenses associated with holding vacant land.
  • Minor beneficiaries of a testamentary trust will be taxed under general minor tax rates.

Business owners

  • Cash payments to businesses will be restricted to $10,000 or less.

Superannuation

  • Self-managed superannuation fund (SMSF) member limit increase
  • SMSF three-yearly audit cycle.
  • Work test exemption for those with balances of less than $300,000.
  • Individuals with multiple employers able to opt out of Superannuation Guarantee.
  • Opt-in basis for default insurance inside superannuation.
  • Passive fees, exit fees and inactive super.
  • Requiring superannuation fund trustees to offer Comprehensive Income Products for Retirement (CIPRs).

Social Security

  • Expansion of the Pension Loan Scheme.
  • Extension of the Pension Work Bonus.
  • New means testing rules for lifetime retirement income products.

Aged care

  • Improving access to residential and home care.

Personal income tax

A number of changes have been proposed to reduce personal income tax on a staggered basis over a six-year period from 1 July 2018.

Increase in tax bracket thresholds

The 32.5 per cent upper threshold will be increased from $87,000 to $90,000 from 1 July 2018. This reduces the tax liability of those earning $90,000 or more by $135.

A further increase in this threshold to $120,000 is proposed from 1 July 2022. In addition, the 19 per cent upper threshold will increase from $37,000 to $41,000 from 1 July 2022.

From 1 July 2024, the Government will extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognise inflation and wage growth impacts. Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.

Denying deductions for vacant land

Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward.

Such expenses for land that was previously vacant will only become deductible when:

  • construction is complete, approval for occupancy has been granted and the property is available for rent, or
  • the land is used in carrying on a business.

Ensuring tax compliance for individuals

Additional funding will be provided to the ATO to assist its compliance activities around taxpayers that over-claim deductions or entitlements.

The funding will complement and strengthen the ATO’s data matching and pre-filling activities.

Improving the taxation of testamentary trusts

Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust.

This new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate.

Business owners

Economy wide cash payment limit of $10,000

From 1 July 2019, any payments for goods or services to businesses that exceed $10,000 will no longer be allowed to be paid with cash.  They can only be paid electronically or via cheque.

Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.

Superannuation

SMSF member limit increase

The maximum number of members allowable in self-managed superannuation funds (SMSFs) and small APRA funds will increase from four to six from 1 July 2019.

SMSF three-yearly audit cycle

SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.

Work test exemption for those with balances of less than $300,000

From 1 July 2019 those aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year following the year they last met the work test.

Eligibility will be assessed based on the individual’s total superannuation balances at the beginning of the financial year following the year that they last met the work test. An example can be found in Budget Fact Sheet 3.2.

Individuals with multiple employers able to opt out of Superannuation Guarantee

Individuals who earn over $263,157 from multiple employers will be able to nominate that their wages from certain employers are not subject to the Superannuation Guarantee (SG) from 1 July 2018. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could negotiate to receive additional income, taxed at marginal tax rates.

Opt-in basis for default insurance inside superannuation

The Government proposes to amend the default insurance arrangement in superannuation funds, which currently requires members to opt-out of cover, to be on an opt-in basis. This change will apply to members:

  • with a balance of less than $6,000
  • under the age of 25 years, or
  • whose account has been inactive (ie hasn’t received a contribution) for 13 months or more.

The changes are proposed to take affect from 1 July 2019. A transition period of 14 months will allow affected members to decide whether or not to opt-in.

The Government will also consult publicly on how to balance retirement savings objectives and insurance cover inside super.

Passive fees, exit fees and inactive super

From 1 July 2019, a three per cent annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts.

Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.

Requiring superannuation fund trustees to offer CIPRs

The Government will introduce a retirement income covenant into the Superannuation Industry (Supervision) Act 1993 that requires trustees to develop a strategy that would help members achieve their retirement income objectives. The covenant will require trustees to offer CIPRs which provide individuals with income for life.

The Government will be releasing a position paper for consultation on this measure shortly.

Social security

Expansion of the Pension Loan Scheme

From 1 July 2019:

  • all Australians of age pension age will be eligible, including full rate age pensioners (currently excluded from the scheme)
  • the maximum loan amount will increase from 100 per cent to 150 per cent of age pension.

The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent on the outstanding balance.

For more information, see Budget Fact Sheet 3.3.

Extension of the Pension Work Bonus

From 1 July 2019:

  • the bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test.
  • eligibility will be extended to the self-employed, subject to a ‘personal exertion’ test, reflecting the intention that the bonus not apply to investment income.

For more information, see Budget Fact Sheet 3.1.

New means testing rules for lifetime retirement income products

From 1 July 2019:

  • a fixed 60 per cent of all pooled lifetime product payments will be assessed as income.
  • 60 per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.

For more information, see Budget Fact Sheet 3.4.

Aged care

Improving access to residential and home care

The Government will provide additional funding to deliver a package of measures to improve access to aged care for older Australians. The More Choices for a Longer Life package includes 14,000 new high level home care packages over four years from 2018/19 and 13,500 residential aged care places in 2018/19.

Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 (MBL). This information does not take into account your objectives, financial situation or needs. Before making any financial investment decision or a decision about whether to acquire any product mentioned on this page, a person should obtain and review the terms and conditions relating to that product and also seek independent financial, legal and taxation advice.

We take pride in our service!

As I’m sure you would agree, we take great pride in the service we provide to you and all of our customers.

We understand that taking out a home loan is almost certainly the most important financial decision you will ever make. Knowing this, we take time to understand your personal and financial situation, help you find a suitable loan and then navigate with you through the whole application process.

Over the past month, there has been a lot of media coverage on the Banking Royal Commission. We understand this may have caused you some concern.

The first few weeks of the Commission looked at the mortgage broking industry. It’s clear from their findings that there have been some individual instances of poor behavior. This is both alarming and disappointing, and highlights that there are some changes that should be made.

One of the things that hasn’t been reported is that there is already a concerted effort between brokers, banks and regulatory industry bodies to make these required changes.

Our industry has come together, under a body called the Combined Industry Forum (CIF), which is proposing reforms that will continue to improve standards and make a great industry even better.

ASIC and the Federal Government are being regularly updated by the CIF as we work together to determine what reforms are needed. The industry is confident that the reforms proposed to date have already addressed the concerns identified by the Royal Commission.

Thank you for your continued support and please do not hesitate to contact me if there is anything I can do to assist you.

New Cash Rate Record Reached

The Reserve Bank of Australia has announced the official cash rate for May, setting a new record.

The board has decided to hold the cash rate at its record low of 1.50 per cent, for a record-breaking 19th consecutive month.

The decision had been widely predicted and came as no surprise to the assistant governor for financial markets at the RBA.

How Can Borrowers Benefit, Even When Rates Go Up?

Two of the major banks are forecasting two rate rises in 2018. How will borrowers cope when more of their household budget is needed to pay-off their home loan?

Economists at the NAB and ANZ are now predicting there will be two rate rises next year, the CBA is predicting one rate rise.

It has been 82 months since the Reserve Bank increased its cash rate. When interest rates do rise, borrowers are going to have to consider how they are going to manager when their home loan payment eats into their disposable income.

Borrowers who have investment properties now have extra challenges as regulatory pressure is forcing up investment rates. Yes, they are paying more interest. This can be offset against the income derived from the property, thereby potentially giving them a larger tax rebate due to the increased interest expense they can claim.

Pressure from the Reserve Bank plus the Australian Prudential Regulation Authority (APRA) may well impact adversely on some household budgets.

However, there are some innovative lending policies out there that can significantly reduce loan repayments.

Some lenders will finance investment loans at the lower owner-occupied rates – so long as the borrower cross-collateralises their home with their investment property.

Fixed Rates should be considered as your repayment will stay the same, for the fixed rate period, should variable interest rates rise.

Fixed Rate loans are becoming more flexible with some allowing additional repayments, conditions may apply.

Some also allow the borrower to redraw any additional repayments they has made. 

Be aware, you may incur a penalty should you repay the loan in full during the fixed rate period.

Whilst rates are now low, borrowers should pay extra on their home loan each month. When interest rates do rise, the impact on their disposable income will be lessened.

For an obligation Free review of your home and investment property loans, click here to have a licenced professional give you a call.

RBA leaves Cash Rate on Hold

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy has picked up a little and is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices have generally risen recently, although Australia’s terms of trade are still expected to decline over the period ahead.

Wage growth remains subdued in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility remains low.

The Bank’s forecasts for the Australian economy are largely unchanged. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent. The transition to lower levels of mining investment following the mining investment boom is almost complete, with some large LNG projects now close to completion. Business conditions have improved and capacity utilisation has increased. Some pick-up in non-mining business investment is expected. The current high level of residential construction is forecast to be maintained for some time, before gradually easing. One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.

Employment growth has been stronger over recent months, and has increased in all states. The various forward-looking indicators point to continued growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet.

The recent inflation data were broadly as the Bank expected. Both CPI inflation and measures of underlying inflation are running at a little under 2 per cent. Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity and tobacco are expected to boost CPI inflation. A factor working in the other direction is increased competition from new entrants in the retail industry.

The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.

The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

RBA leaves Cash Rate on HOLD at 1.5%

Statement by Philip Lowe, Governor:
Monetary Policy Decision

4th July 2017:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The rise in commodity prices over the past year has boosted Australia’s national income.

Headline inflation rates, having moved higher over the past year, have declined recently in response to lower oil prices. Wage growth remains subdued in most countries, as does core inflation. Further increases in US interest rates are expected and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility has been low.

As expected, GDP growth slowed in the March quarter, partly reflecting temporary factors. The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Do It Yourself Home Loans

Do it yourself Home Loans

Online Lenders, Are they what they’re cracked up to be?

Can your bank answer these questions?

Does the loan have an Offset Account?

Does the loan have a Redraw facility?

I had a client in need of a home loan. He’d heard about a lender who operates exclusively on line. They have no branches, do not deal with brokers and their rate was lower than mainstream lenders. The only way to get a loan is to do everything yourself online. When he telephoned this online lender he got a call centre in ….  who knows where? The call centre lady spoke with a heavy accent which he found very difficult to understand.

When he asked if the loan had an Offset Account,

“What’s an offset account?” she replied.

When he asked if the rate was a honeymoon rate,

“What’s a honeymoon rate?” came her reply.

As these heavily accented answers did not instil a great deal of confidence in him, he decided it best to engage a Broker, yours truly, who could answer his questions, provide appropriate recommendations and provide advice based on his particular circumstances.

Yes, their rate was a little lower, however the uncertainty created by dealing with people who had no idea about their product and who were difficult to understand was not attractive. What other catches might be hidden in the detail that he needs to be aware of?

A home loan shouldn’t be about price. It should be about value for money. It’s about getting the loan that is right for you. One loan cannot possibly satisfy all borrowers.

By availing himself of my SERVICE, he got the loan that met HIS expectations and satisfied HIS needs, not the lender’s, and at a very competitive rate.

So for YOUR PERSONALISED PROPERTY FINANCE SOLUTION, give Bill at Home Loan Advisers a call.

I saw Suzie Quatro again recently, great live as always. Thought I’d repost my business promo I wrote a couple of years back using her song titles.
IF YOU CAN’T GIVE ME LOVE and you no longer want to be a ROLLING STONE, and you aren’t a MAMMA’s BOY, well THE RACE IS ON to CAN THE CAN and buy that home in DEVIL GATE DRIVE.
If dealing with the bank leaves you ALL SHOOK UP, avoid the 48 CRASH and WAKE UP LITTLE SUZIE cause SHE’S IN LOVE WITH YOU and I’VE NEVER BEEN IN LOVE BEFORE. The GLYCERINE QUEEN wants a home that’s not TOO BIG and the yard is not ROCK HARD.
The DATONA DEMON and THE WILD ONE, well, they MAYBE TOO YOUNG but the ROXY ROLLER will KEEP ON KNOCKIN’ til we get the right home loan. I’ll guide you so you can’t say I BIT OFF MORE THEN I CAN CHEW.
If I stuff up, YOUR MAMMA WON’T LIKE ME and she will TEAR ME APART leaving me SINGING WITH ANGLES.

Bill Pitt - Finance Broker  So for a home loan that really rocks, call,
Bill Pitt
Home Loan Advisers

Conundrum – To Fix or Not To Fix

Conundrum – To Fix or Not to Fix – That is the question.

Depending on who you believe, now may be a good time to fix the rate on your home or investment loan.

Are Rates on the Rise?
According to Yahoo Finance, new data released by financial comparison firm Canstar has revealed 14 lenders have increased fixed-rate loan offers across dozens of products by an average 0.18 percent.
On a typical $300,000 30-year home loan, the average three-year fixed rate is 4.08 percent pa with monthly repayments are $1,446. Compare this to the average variable rate of 4.45 percent pa and monthly repayments are $1511.
Lenders to introduce small hikes include Westpac, ING Direct, Suncorp, ME, Bank of Queensland, Bank of Sydney and RAMS.
Canstar’s group executive of financial services Steve Mickenbecker said he expected more movement in the short term.
The rises to fixed rates have been blamed on the policies of the President-elect Donald Trump which could lead to bigger deficits and result in the US cash rate going up, experts say.

Market Prediction slammed as “fundamentally wrong”.
(Courtesy nestegg.com.au)

After pollsters and media commentators were proved wrong in Brexit and the US election, the consensus on the direction of Australian interest rates has been labelled “absolutely false”.
ABC Bullion chief economist Jordan Eliseo says predictions that the RBA will not make any more cuts to interest rates are incorrect.
“One of the things I think the market has got fundamentally wrong and what a lot of commentators have said is that the Reserve Bank is done and that there won’t be any more interest rate cuts. I think that’s absolutely false,” Mr Eliseo said.
“I think there will at least be a couple more next year, so that again is going to put more pressure on retirees and SMSF trustees.”

Borrowers “extremely concerned” about rate hikes.
(Courtesy: The Adviser)

Following calls from the OECD for the RBA to start increasing interest rates as early as next year, new research from credit bureau Experian found that a quarter of Australian Mortgage holders are “extremely concerned” about the impact of a potential 1.5% rise in interest rates would have on their ability make their repayments.

So, what does it all mean?

As you can see, even the experts can’t agree on whether rates are going to drop further or start to increase in the short term. They are certainly at historic lows. One thing is for sure, they will go up, but when is the question.

If you stay with a variable rate you have much more flexibility. You may choose to have an offset account to save you interest, you can make additional loan repayments and redraw these funds should you them.
A fixed rate is not as flexible. You will be limited as to how much extra you can repay during the fixed rate period and you may or may not be able to redraw these funds. The main benefit is you know what your repayment will be during the fixed rate period. This will not change should rates move up or down. Knowing this, from a budgeting perspective, can help borrowers better manage their finances.

You might even consider splitting your loan, part fixed part variable. You retain the flexibility of a variable rate loan whilst protecting portion of you borrowings from rate rises should rates rise.

To Fix or not to fix?

Why not give us a call. We’d be only to happy to explore your options with you.