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RUSSELL DEW FINANCIAL SERVICES

Get the latest updates on the Australian Federal Budget 2019, including tax cuts, changes in Medicare levy thresholds, and superannuation reforms. Join Russell Dew Financial Services for an informative seminar on 10th April 2019.

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RUSSELL DEW FINANCIAL SERVICES

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  1. RUSSELL DEW FINANCIAL SERVICES Seminar10th April 2019

  2. Russell’s seminar will start soon… • Please help yourself to a drink before we start

  3. Topic 1 Australian Federal Budget 2019

  4. Australian Federal Budget 2019 • On Tuesday April 2nd 2019 treasurer Josh Frydenberg handed down the Australian Federal Budget for 2019/20 • The promised Budget surplus was a highlight; “The budget is back in the black and Australia is back on track.”

  5. Return to Surplus • This means Australia will return to surplus for the first time in 12 years • The forecast is a $7.1 billion cash surplus in 2019-20, or 0.4% of GDP

  6. Return to Surplus • Source: Gilbert+Tobin

  7. Return to Surplus (Predicted)

  8. Return to Surplus • The Budget projected: • Economic Growth as per Gross Domestic Product (GDP) 2.75% • Employment Growth steady at 1.75% • Unemployment Steady at 5.0% • Inflation as per Consumer Price Index (CPI) 2.25% • Wage Growth expectations 2.75% for 2019-20 • A goal of Eliminating Commonwealth Debt by 2030

  9. Tax Cuts • From 1 July 2024, there will be a large tax bracket, with people earning $45,001-$200,000 taxed at 30% • This new tax bracket will account for 70% of Australians • This means that the tax bracket of $87,001-$180,000 (currently paying 37% tax) will be omitted • Also, people earning $37,001-$87,000 will have their tax lowered from 32.5% tax to 30% tax Source: www.budget.gov.au

  10. Tax Cuts Source: www.budget.gov.au

  11. Tax Cuts Source: www.budget.gov.au

  12. Tax Cuts Source: Budget Papers & AFR

  13. Tax cuts • By July 1, 2024 Australia will only have three tax brackets: 19%, 30% and 45% • The 19% tax bracket range will be increased from $41,000pa to $45,000pa from 1 July 2022 • Reducing the middle tax bracket from 32.5% to 30% encourages “Australians to take on additional work and improve their skills because extra earnings will not be taxed at a higher marginal rate,” Frydenberg said.

  14. Tax offsets • Changes to Low Income Tax Offset (LITO) • Currently the maximum tax offset for those earning $37,000-$66,667 is $445 • From 1 July 2022, the proposed increase for these earners is to reach a maximum of $700

  15. Tax offsets • Changes to Low and Middle Income Tax Offset (LMITO) • There will be benefits for those earning below $48,000 and $90,000-$126,000p.a. • However, the maximum benefits will be enjoyed by those earning between $48,000-90,000p.a.

  16. Tax offsets • Changes to Low and Middle Income Tax Offset (LMITO) • Currently the maximum tax offset is valued at $530 pa • This will increase for those earning $48,000-$90,000 to a new maximum LMITO offset of $1,080 • This change is subject to the passage of legislation, but if passed the benefit would come into effect for the current financial year

  17. Tax offsets

  18. Tax offsets

  19. Tax offsets

  20. Medicare Levy thresholds • The Medicare levy will remain at 2% of taxable income • Proposed increases to Medicare levy thresholds in 2019-20: • Singles: $22,398 • Family $37,794 plus $3,471 for every dependent child or student • Single seniors and Pensioners: $35,418 • Family seniors and Pensioners: $49,304 plus $3,471 for every dependent child or student

  21. Medicare Levy thresholds • Seniors and Pensioners Tax Offset (SAPTO) will see thresholds increase Source: 2019 Budget

  22. Superannuation • ‘Work test’ rules will change to allow people aged 65 and 66 to put voluntary contributions into their superannuation • Currently, people aged 65-74 must be in paid work for a minimum of 40 hours in any consecutive 30 day period to make voluntary superannuation contributions

  23. Superannuation • From 1 July, 2020 the work test will only be necessary for people aged between 67 to 74 • This change will help people aged 65 and 66 who currently don’t meet the work test as they may work one day per week or do volunteer work. • This change will allow the work test requirements to align with the eligibility age for the Age Pension, which is expected to reach age 67 from 1 July 2023

  24. Superannuation • Non-concessional contribution cap rules to be extended to ages 65 & 66 • Currently the bring-forward rules allow people aged less than 65 to contribute 3 years of non-concessional (after tax) contributions to their super in a single financial year • This means that you could contribute $300,000 in your super in one year (if you haven’t put extra money into super for the three years prior) up to age 66

  25. Superannuation • From 1 July 2020, it is proposed to also include people aged 65 and 66 into the non-concessional contribution scheme • This will allow retirees more time to add to their Superannuation before or during retirement from inheritances or asset sales that are outside Super

  26. Superannuation • Spouse Super Contributions increased to age 74 • Currently people can only receive super contributions from their spouse up to age 69 • It is proposed that people aged up to 74 years will be able to receive these super contributions from their spouse • Note: spouse needs to meet relevant work and age eligibility criteria

  27. Aged Care • A record $21.6 billion has been allocated towards higher quality aged care • The Government has allocated $320 million for a one-off increase to the basic care subsidy for aged care residents • The Government will contribute funding for 13,500 residential care places

  28. Aged Care • Additionally, a further 10,000 home care packages over four package levels will be released over the next 5 years. • This will bring the additional home care packages introduced since 2017-18 to 40,000 • The Government will also extend funding to the Commonwealth Home Support Program (CHSP), which allows services to be provided to older people to help them remain living independently in their own home

  29. Social Security • Those on social security services will be eligible to receive a one-off payment to assist with energy bills • Singles: $75 one-off payment • Couples (combined): $125 one-off payment • Those eligible for this payment include: Age Pension, Disability Support Pension, Veterans’ Pension, War Widow Pension

  30. Social Security

  31. Health • $5 billion towards medical research fund for clinical trials and research including: • $496 million for Cancer research and facilities • $220 million for heart disease research • $17.2 million over five years will be given in Chronic disease grants from 2018/19.

  32. Health • $308.9 million will be spent on subsidising x-rays and ultrasounds • $229.9 million over seven years will be spent on mental health • A further $263 will be spent on youth mental health services • New drugs will be added to the PBS

  33. Infrastructure • The Government had previously promised $75 billion toward infrastructure investment over 10 years • This Budget promised an additional $25 billion • This includes: $1.6b for an M1 extension in NSW and to invest $3.5 billion for the Western Sydney North-South Rail link. • For Victoria, $2b is allocated for a fast rail connection between Melbourne and Geelong

  34. Energy and Climate Change • The Budget promised: • $3.5 billion: Climate Solutions Package • $1.4 billion: Snowy Hydro 2.0 • $6.3 billion: drought support • $3.3 billion: those affected by flood • $3.9 billion: emergency response fund for natural disaster recovery efforts

  35. Education • $453 million to extend Pre-School Education for 15 hours of early learning per week • 80,000 new apprenticeships • 1,000 scholarships for students to study in regional Australia • Funding for female participation in science, engineering, technology and maths

  36. Labor Party Proposals • Upcoming Federal Election in May • Several Labor Party proposals relate to super and tax • If Labor’s changes would be relevant and significant for many people including: • Self-funded retirees • Investors • Higher income earners • These strategies will likely need review / adjusting

  37. Labor Party Proposals

  38. Labor Party Proposals

  39. Conclusion • The 2019/20 Budget predicts Australia to return to a strong fiscal position this financial year • The return to surplus will help pay off debts that currently cost $18 billion p.a. in interest payments • Tax cuts will help stimulate the economy to counter the negative impact that falling house prices have had on consumer confidence • Also the reduced taxes will minimise low wage growth in the economy

  40. Conclusion

  41. Topic 2 Franking Credits

  42. What Are Franking Credits? • The Franking Credit system was created under the Hawke-Keating Labour Government in 1987 to stop the double taxation of company dividends by both the company and the client. • Before this reform, companies would pay tax on profits at a flat rate of 49%, then the share dividends were taxed again as an income to shareholders

  43. What Are Franking Credits? • In 1997, the Howard-Costello Liberal Government introduced a $2,000 small shareholder exemption • This meant that the first $2,000 of share dividends were not taxable • By 1999, this small shareholder exemption had risen to $5,000 • Finally in 2000 Franking Credits were introduced.

  44. What Are Franking Credits? • A Franking Credit on dividends received after 1 July 2000 became a refundable tax credit. • It is a form of tax paid, which can reduce taxpayers total tax liability and any excess is refunded.

  45. What Are Franking Credits? • Franking Credits are also known as ‘Imputation Credits’ • Companies pay 30% tax on all profits, including dividends • The tax paid by the company is allocated to shareholders as franking credits attached to the dividends they receive

  46. What are Franking Credits? Source: www.frankingcredits.com.au

  47. What are Franking Credits? • The shareholder is also entitled to $30 tax paid (Franking Credits) at the ATO. • The grossed up dividend including franking credits is $100 • The shareholders marginal tax rate will determine if they receive franking credits as a refund from the ATO or have to pay additional tax on the dividend Source: www.frankingcredits.com.au

  48. What Are Franking Credits? • You may receive a tax refund if your marginal tax rate is below30% • However, you may need to pay additional tax if your marginal tax rate is above 30%

  49. What Are Franking Credits? • On the S&P/ASX 200 index, which represents the 200 biggest companies on the Australian market, 184 companies paid dividends in the past year. Out of these approximately: • 50% paid fully franked dividends • 25% paid partially franked dividends • 25% paid unfranked dividends. Source: IRESS, April 2018

  50. What Are Franking Credits? • What does this mean? • Fully franked: the dividend comes with the tax paid, up to the company tax rate of 30%. • Partially franked: the dividend comes with part of the tax paid on the dividend at the company tax rate. • Unfranked dividends: no tax has been paid by the company, all tax must be paid by the shareholder

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