A fresh batch of tax and super changes have arrived. The Albanese Government calls it “reform”! Here’s what’s different in your pay packet, your super fund, and your tax return from today.
The Albanese Government calls it tax reform and what was rolled out at Budget time was definitely tax change. However, whether it is reform (which is defined as an alteration to improve to correct an error or remove a defect) is debatable.
I’ll touch on this issue later. For now, let’s look at what hip pocket changes kick off today, July 1, courtesy of the AFR’s wealth reporter Rebecca Pike. Here goes:
- Taxpayers earning more than $45,000 pocket a $269 tax cut, which goes to $536 next financial year and future financial years.
- The tax rate for anyone in the income group of $18,201 to $45,000 drops from 16% to 15% and the tax-free threshold is $18,200.
- The national minimum wage increases by 4.75% to $26.44 per hour.
- Your concessional contribution, which is made up of the 12% compulsory super payment by your employer, plus any other you add from salary sacrifice or by making an extra concessional contribution to super goes from $30,000 to $32,500.
- The non-concessional super contribution — your money that has already been taxed — rises from $120,000 to $130,000. The possible three-year contribution now rises to $390,000 from $360,000. This is called the “bring forward rule”.
- The Medicare levy surcharge threshold changes so a taxpayer can earn up to $105,000 before tax penalties will apply for not having private health cover. For families, the total income threshold is $202,000 after which a surcharge of between 1% and 1.5% would apply depending on the level of income. For singles, this higher surcharge kicks in at $158,001 and for families, it’s $360,000 or more!
- Employees can claim $1,000 as an automatic tax deduction for work-related expenses but it applies to this financial year, so you won’t be able to claim it until this time next year.
- Government-paid parental leave goes from 120 to 130 days to cope with a newborn! The number of days that can be shared with a partner rises from 15 to 20 days.
- Employers will have to pay super within seven days of any wage or salary payment. Until today, super payments were paid quarterly by most businesses. Pike reports: “According to the Association of Superannuation Funds of Australia, the change could give the average 25-year-old worker an extra $5000 at retirement.”
- The Super Transfer Balance Cap goes from $2 million to $2.1 million. This affects anyone who starts a retirement pension as of today.
- The despised Division 296 super tax starts today, so that earnings on super balances over $3 million cop an extra 15% tax on top of the usual 15% on non-pension super balances. And if you have $10 million in super, the earnings on balances over that figure will cop a 25% extra tax.
- Any business with a turnover under $10 million can claim an immediate $20,000 tax deduction on the business proportion of an asset.
- As of today, the loss carry back offset returns, meaning if a business has a turnover less than $1 billion, a tax loss can be offset against tax paid in the previous two years. This means a business could get a tax refund for losses to improve cashflow.
These changes largely come from budget changes before the most recent Budget, which will have the biggest impact on hip pockets after July next year. That said, in coming months the hit to housing and then confidence, both business and consumer, will be an important issue for the economy and the Government’s popularity.
If headlines keep telling homeowners that their prized asset is now worth less, it will not only have a negative wealth effect, it could reduce business borrowing because banks link loans to the value of borrowers’ homes.
The only plus from this potential negativity is that it could stop the RBA from raising interest rates. However, if history is any guide, our central bank often goes too far in both raising and cutting rates.
Interestingly, if the RBA does raise rates again, we could end up with a recession-threatened economy with higher unemployment and even lower house values. And if that happens, and Angus Taylor can’t boost his own popularity and that of his Coalition, he could be replaced by Andrew Hastie, who to date, would be seen as a relative unknown by most voters.
A Coalition-One Nation pairing up is looking more likely.
