2018 Budget - Impact Summary for Expatriates
There were very few announcements of interest to Australian expatriates in the May, 2018 Federal budget. The most outstanding matter of interest to Australian expatriates, the intended withdrawal of the main residence capital gains tax exemption, announced in last year's Budget, is still in the Federal Parliament, although we think that is more consequence of other business intervening, rather than any second thoughts on the Government's behalf in terms of whether it should proceed.
Items which might be of some general interest to expatriates, include the following.
Progressive Income Tax Changes
The Government introduced a proposed 7-year, 3-step reform of personal income tax rates, whilst indicating that the planned .5% increase in the Medicare levy from July 1, 2019, would not proceed. The changes are summarised below.Step 1
The introduction of a new, non-refundable Low and Middle Income Tax Offset (LMITO) from 2018-19 to 2021-22. The offset is only available to resident taxpayers and will be payable after an individual submits their tax return and will payable in addition to the existing Low Income Tax Offset (LITO). LMITO will provide a benefit of up to $200 for taxpayers for taxable incomes of $37,000 or less. Between $37,000 and $48,000 the value of the offset will increase at a rate of 3 cents per dollar to a maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for a maximum benefit of $530. From $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.Step 2
The top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000 on 1 July 2018. In 2022-23, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645. The increased LITO will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000 from 1 July 2022.Step 3
From 1 July 2024, the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will then pay the top marginal tax rate of 45% on taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.
- The Government announced in the budget an intention to allow a self managed superannuation fund (SMSF) up to 6 members, from the current maximum 4 member, with effect from July 1, 2019. Just confirming for the moment that any Australian expatriates who is non-resident for Australian tax purposes needs to seek tax advice before proceeding overseas if they have a SMSF.
- The Government will provide a one-year exemption from the work test for superannuation contributions to allow recent retirees to boost their superannuation balances. Currently, individuals aged between 65 and 74 must meet a work test (work a minimum of 40 hours in any 30 day period in the financial year) in order to qualify to make contributions to superannuation. This one-year exemption provides some additional flexibility, but it is limited to those with relatively modest superannuation balances of $300,000 and below.