The Federal budget has been announced with positive changes for income tax rates and superannuation that will see low and middle income tax offsets introduced and tax brackets rise.
Income Tax Changes
Income tax changes will be phased in over seven years as follows:
Stage 1: 1 July 2018 to 30 June 2022
- A new non-refundable Low and Middle Income Tax Offset (LMITO) will provide tax relief of up to $530 for taxpayers earning up to $90,000, in addition to the existing Low Income Tax Offset (LITO).
- The upper threshold of the 32.5% tax bracket will increase from $87,000 to $90,000.
Stage 2: 1 July 2022 to 30 June 2024
- The LITO will increase from $445 to $645, raising the upper threshold of the 19% tax bracket from $37,000 to $41,000
- The upper threshold of the 32.5 % tax bracket will increase from $90,000 to $120,000.
Stage 3: From 1 July 2024
- The 32.5% tax bracket will rise to $200,000
- The 37% tax bracket removed completely. Taxpayers on taxable incomes exceeding $200,000 will pay top marginal tax rate of 45% (excluding the 2% Medicare Levy).
Several changes have been made to superannuation legislation. If you have a self managed superannuation fund (SMSF) you may be pleased to know the maximum number of fund members you can have will increase from four to six. This means families can now pool their wealth and invest in opportunities otherwise inaccessible.
Additionally, audits for SMSF’s with a good compliance record, as defined by the ATO, will only be required every three years instead of annually, reducing regulatory requirements and compliance costs.
Other important changes include the ability for individuals who work for multiple employers to exclude earnings from the superannuation guarantee regime once their contributions have exceeded the $25,000 concessional contribution cap; the government will introduce measures aimed at improving the integrity of the personal contribution deduction process; and measures to limit the unnecessary inadvertent erosion of member superannuation balances, including a 3% annual cap on passive fees on low balance accounts; a ban on exit fees; changes to insurance arrangements for low balance accounts and members under 25 as well as accounts that have been inactive for 13 months; and the requirement for low balances of inactive superannuation accounts to be transferred to the ATO.
For more information about how these income tax and superannuation changes will impact your wealth management, contact Ayers.