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Newsletter - May 2024




From Hock & Susan:


The 2024 federal budget has been touted as a cost-of-living focused budget, with a range of measures aimed at providing relief to individuals and households. However, the energy bill relief announcement has sparked controversy due to its universal nature, with critics labeling it a pre-election sweetener.


While the tax cuts and budget's measures, including capping pharmaceutical costs, freezing the Centrelink deeming rate, increasing rental assistance, capping student debt indexation, and paying superannuation contributions on paid parental leave, aim to ease the burden on household budgets, they may inadvertently complicate the Reserve Bank of Australia's (RBA) efforts to rein in inflation. These measures, while well-intentioned, may add to the RBA's challenges in returning inflation to target levels.


 

Australian Federal Budget 2024


Marginal Tax Rate Changes

The Government has legislated tax cuts effective 1 July 2024 and the new rates are shown below:

Taxable Income

Current Marginal Tax Rate*


Taxable Income

1 July 2024 Marginal Tax Rate*

$0

0.0%


$0

0.0%

$18,200

19.0%


$18,200

16.0%

$45,000

32.5%


$45,000

30.0%

$120,000

37.0%


$135,000

37.0%

$180,000

45.0%


$190,000

45.0%

*Exclusive of Medicare Levy (2.0%)


You can estimate your tax cut via the Government's Tax Cut Calculator - https://taxcuts.gov.au/calculator


Centrelink Deeming Rates Frozen

The Government will freeze social security deeming rates at their current levels for a further 12 months until 30 June 2025.


Under the income test, financial assets such as bank accounts, managed investments and shares are deemed to earn a certain rate of income, regardless of the income actually earned.

Status

Deeming Threshold

Rate Below Threshold

Rate Above Threshold

Single

$60,400

0.25%

2.25%

Couple

$100,200

0.25%

2.25%

For clients who are age 67 and above (Age Pension age) who may not be eligible for the Centrelink Age Pension due to the assets test, you may still be eligible for the Commonwealth Seniors Health Card if your total financial assets are less than $4.29 million (for singles) and $6.87 million (for couples). The Health Card provides a discount on many prescription medications and may be useful to some.


 

Superannuation


Superannuation Guarantee

Superannuation Guarantee (SG) continues to increase and will increase to 11.50% from 1 July 2024 and subsequently 12.00% from 1 July 2025.


Superannuation Contribution Caps

Contribution caps have also been indexed and the new caps effective 1 July 2024 are as follow:


Concessional Contribution - $30,000 per financial year. This cap includes any employer contribution and salary sacrifice contributions made.


If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years if you have a total superannuation balance of less than $500,000.


Non-Concessional Contribution - $120,000 per financial year or $360,000 over three financial years. Individuals need to have a total superannuation balance of less than $1.68m - $1.90 million to be eligible for this contribution.


Transfer Balance Cap

There has been no further indexation to the Transfer Balance Cap this year and remains at $1.9 million. However, there is a possibility of the cap being indexed to $2.0 million from 1 July 2025 depending on CPI numbers this calendar year.


 

Div 296 Tax - $3 Million Super Tax - Effective 1 July 2025


Despite the unintended consequences of certain key measures in the draft legislation, the Economics Legislative Committee’s report on the Bill remained unchanged from previous drafts and it is now slated to proceed to the lower house for consideration.


The new tax, known as Division 296 tax, which applies an additional 15% tax on "earnings" within superannuation funds. This tax will cover a wide range of income sources, including:

  • Interest

  • Rent

  • Dividends

  • Trust distributions

  • Growth in investment values (even if not sold)


This last point is important, as it means that the tax will apply to "unrealised capital gains" - essentially, increases in the value of assets that haven't been sold. Normally, these gains aren't taxed until the asset is sold, as their value can fluctuate. However, under Division 296 tax, these gains will be taxed regardless, which has been a point of contention.


Fund trustees should plan for liquidity needs over the next three years to avoid potential issues. This is crucial because disposing of illiquid assets such as residential/commercial properties or private equities to pay tax can take time.


Taxing unrealised gains means that trustees with significant property or share portfolios may need consider additional liquidity to cover the increased tax liability, rather than being forced to sell assets.


 

RBA Key Economic Snapshot (9 May 2024)

Source: RBA


 

Our Services


Should you or your friends/family require personalised financial advice or wish to explore our range of services, including investment strategies, retirement planning and risk management, please do not hesitate to reach out or to pass on our details. We are committed to assisting you in making informed decisions and achieving your financial goals. Your financial well-being is our priority, and we look forward to continuing this journey together.


 

The information on this site is general in nature. It does not take into account your specific needs/circumstances into consideration. You should review your financial position, objectives and requirements and seek financial advice before making any financial decisions.

 

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