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Budget 2017/2018: impacts on employees

10 May 2018

Treasurer Scott Morrison has delivered his third Federal Budget for the Turnbull Coalition Government . While there were no direct changes to salary packaging proposed, a three-step personal income tax plan was introduced that, according to projections, will reduce the personal income tax burden for 94% of Australian tax payers over seven years.

We’ve broken the key announcements down to give you an easy-to-digest overview of the impacts to employees.

Step 1. Tax offset for low and middle income earners to be introduced
A Low and Middle Income Tax Offset (LMITO) of up to $530 per year for low and middle income earners will be implemented as a non-refundable tax offset from 2018/19 to 2021/22.

For taxpayers with an income of less than $37,000, LMITO will provide a lump sum benefit of $200 delivered via their tax returns. The offset increases at a rate of three cents in the dollar for earners up to $48,000, while those earning up to $90,000 will be eligible for the full $530 benefit. The offset will then phase out at rate 1.5 cents in the dollar for workers with taxable incomes of up to $125,333.

Step 2. Relief from bracket creep for middle income earners
Building on a similar measure announced in last year’s budget, the top threshold of the 32.5% income tax bracket will increase from $87,000 to $90,000 effective 1 July 2018.

From 1 July 2022, the top threshold in this bracket will be increased again to $120,000.  

Step 3. Remove the 37% tax bracket from July 2024
Mr Morrison announced a third measure to “simplify” the income tax system even further, removing the 37% income tax bracket altogether. This would follow a further increase to the 32.5% threshold to include workers with taxable incomes from $41,001 to $200,000. Taxable incomes exceeding $200,000 will be subject to the top marginal tax rate of 45%.

Changes to Medicare thresholds for low income earners
The Medicare levy low-income thresholds for singles, families, seniors and pensioners has increased from 1 July 2017.  

Changes to Medicare thresholds for low income earners
The Medicare levy low-income thresholds for singles, families, seniors and pensioners has increased from 1 July 2017.  
  
                                                    2016/17           2017/18
Singles                                        $21,655           $21,980
Families                                       $36,541          $37,089
Single seniors                              $34,244          $34,758
Family - seniors/pensioners         $47,670          $48,385
Dependent child/student                $3,356            $3,406

The 0.5% increase to the Medicare levy proposed in the 2017/18 Federal Budget will not proceed.
 
Changes to the Child Care Benefit and Child Care Rebate

From 2 July 2018, these two benefits will be replaced with one payment: the Child Care Subsidy.

The new Child Care Subsidy is subject to means and activity testing; however families earning $66,958 or less per year will have access to up to 24 hours of care per fortnight without having to meet the activity test.

For families earning less than $186,958 per year, there is no annual rebate cap under the new subsidy. For families earning between $186,958 and $351,248 per year, there will be an annual cap of $10,190 per child. 

Announcements impacting superannuation

From 1 July 2019, new and existing self-managed superannuation funds (SMSFs) and small APRA funds will be allowed to have a maximum of six members, up from the current four member cap. This is a positive change for those wanting to pool their funds together; for example, families with more than two adult children.

Compliance costs for SMSFs are expected to reduce with the current annual audit requirement changing to every three years for SMSFs with a history of good record keeping and compliance, meaning more money for investments.

Further reducing compliance costs, a 3% service fee cap will be applied to superannuation accounts with less than $6,000. Exit fees on superannuation will be abolished.