The 2018 Budget
The Federal Budget 2018. What it means for you…The Federal Budget was handed down last Tuesday, May 8, 2018. While the measures announced in the budget are yet to be passed by Parliament, we can generally assume that most of the announcements will become reality. From an individual perspective – especially if you do not grow illegal tobacco or participate in the black economy – this year’s budget was actually a bit of a nonevent. For those clients reeling under the complication of the various taxation and superannuation rules that currently exist, this is probably good news. One thing this Budget cannot be accused of is further complicating tax and super. Last week we gave you the headlines. This week’s article provides a deeper analysis of this year’s Budget and what it might mean for you. Happy reading!
TaxationThe Budget contains some modest tax cuts. These tax cuts will be rolled out over the next seven years. In summary, the immediate and future changes to taxation present a modest benefit to almost all taxpaying Australians.
Immediate ChangesStarting from the coming financial year, people earning $90,000 or more per year will pay $135 less in income tax. This reduction is due to a change in tax brackets, such that income between $87,000 and $90,000 will now be taxed at 32.5% rather than 37%. To put this in perspective, a person earning $90,000 is currently paying $20,932 in tax. From next year, that same income will give rise to $20,797 in tax. In addition, there will be a temporary additional tax offset available to people on low to middle incomes. The maximum offset will be $530 per year. This amount of offset ‘kicks in’ for incomes between $48,000 and $90,000. Incomes below $48,000 receive a lower offset. Incomes between $90,000 and $125,333 also receive a reduced offset. No offset is available for people with incomes above $125,333. While it is not a change, the Medicare levy will stay at the current rate of 2%. We include this here because the levy was scheduled to increase to 2.5% from 1 July 2018. Businesses will continue to be able to write off asset purchases for assets up to a value of $20,000 in the year of purchase. This capacity was scheduled to end on 30 June 2018. This measure is only available to businesses with a turnover of less than $10 million. In order to access the immediate deduction, the asset needs to be in place and ready for use by 30 June 2019. Assets that cost more than $20,000 can continue to be depreciated at a faster rate than has historically been the case – something else that was initially expected to end on June 30 2018.
Future ChangesThe temporary offset outlined above is proposed to last for four years. From 2022/23 onwards, it will be largely replaced by changes to the various tax brackets at which higher rates of tax become payable. For example, under the current system, income below $37,000 is taxed at 19%. Income above $37,000 starts to be taxed at 32.5%. From 2022/23, this threshold will increase to $41,000. Other brackets will be adjusted as well, with the net effect being less tax payable for all income above $37,000. Eventually, the number of income tax brackets will fall from the current 5 to 4. Eventually, the new brackets will look like this:
|Tax Rate||Current Brackets (May 2018)||Eventual Brackets|
|0%||$18,200 and below||$18,200 and below|
|19%||$18,201 – $37,000||$18,201 – $41,000|
|32.5%||$37,001 – $87,000||$41,000 – $200,000|
|37%||$87,001 – $180,000||This bracket will no longer exist|
|45%||$180,001 and above||$200,001 and above|