As accountants in Sydney, the team at S & W typically get excited at federal budget time. Usually, we speculate on changes in the weeks leading up to the budget, and we love to dissect them in the days after. This year was different – even we found it boring.
You’ve all read about the tax cuts. About $10 per week for low to middle-income earners applies from 1 July 2018, and the far-in-the-future proposed flattening of the tax brackets would result in about 94% of taxpayers paying 32.5% or less. Given that this change is seven years away, there will likely be 3 federal elections before it materialises, making it seem a little unlikely to become a reality.
Pension Loans Scheme
Something that did catch our attention, though, was the proposed expansion of the Pension Loan Scheme. From 1 July 2019, eligibility for the Pension Loan Scheme will be expanded to include all Australians of Age Pension age rather than just those eligible for a part pension. Individuals can borrow against their home to receive a regular fortnightly pension payment of up to 150% of the maximum pension rate. The loan can be repaid at any time or on the sale of the property. If an amount is outstanding after your death, your estate can make the repayment. A compounding interest rate of 5.25% currently applies to the Pension Loan Scheme.
The extended scheme will allow a couple on a full pension to borrow up to $17,787 per year on top of their pension, while singles can borrow up to $11,799. A single self-funded retiree couple could borrow up to $35,396 per year, while a couple could borrow up to $26,680 each.
This article in the Financial Review explains further.
It’s great to have another option to help fund your retirement. Still, as with any investment or borrowing decision, you should think carefully about a decision to enter into the Pension Loan Scheme. Taking advice from a licenced financial planner may be appropriate.
Some of the other budget changes that you might be interested in:
- From 1 July 2019, your SMSF will be allowed to have up to 6 members, up from the current limit of 4 members. This will mean that mum and dad can include their 4 kids in their SMSF.
- From 1 July 2019, the work test for people aged 65 to 74 with superannuation balances below $300,000 will be removed.
- From 1 July 2019, SMSFs with a good compliance history must only be audited once every three years instead of annually. To qualify, the SMSF must have three consecutive years of clear audit reports and have lodged the fund’s annual returns on time.
- From 1 July 2019, wages and payments to contractors where the contractor hasn’t provided an ABN will not be tax deductible if PAYG has not been withheld.
- From 1 July 2019, deductions for expenses associated with holding vacant land will be denied. Instead, these costs will be added to the asset’s cost base for CGT purposes.
If you’ve heard or read about anything in the Federal Budget that concerns you, don’t hesitate to contact us to discuss.
Kreston Stanley Williamson Team
*Correct as of May 2018
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.