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Taxing Time

As winter approaches the Southern Hemisphere, the attention of investors naturally turns to the announcement of the annual federal budget and to tax returns in the lead up to 30 June. This year is no different and, with economic growth and revenue projections better than expected, Treasurer Scott Morrison delivered a surprisingly benign budget for FY2019. Austerity and emergency settings receded into history and the focus fell squarely on tax reform and infrastructure.

In this edition of Investment Enews, we take a look at the key issues arising from the federal budget and highlight some items investors may wish to consider as the end of the financial year approaches.

The Budgetary Bottom Line

The bottom line of this year’s was a modest surprise to the upside as revenues benefitted from increased corporate tax payments and a stronger-than-expected global economy. The underlying cash deficit in the federal budget is projected to fall from $33.2b in 2016-17 to $14.5b in 2018-19, with a very small surplus projected for 2019-20. Whilst there is little room for error in the projected surplus (one year earlier than previously expected), this is a still a very positive result for the economy and reflects the dividend from a strengthening global economy. Net national debt is expected to peak in 2017-18 at 18.6% of GDP, which remains relatively low by international standards.

Personal Tax

In a win for investors, personal tax cuts were announced, albeit with a very long, seven-year implementation period. A modest decrease targeting low to middle income earners in 2018-19 will expand to higher tax brackets in forward years. By 1 July 2024, the 37% tax rate will be removed entirely, and the 32.5% upper threshold will increase to $200,000. The Medicare levy will remain at 2% and plans to increase it by 0.5% to fund the NDIS have been abandoned.

This is welcome relief for taxpayers and is a significant step towards addressing ‘bracket creep’. On the other hand, the seven year implementation period puts it at the mercy of the political cycle, so there must be some doubt as to whether it will be delivered as promised.


An infrastructure road train is coming down the highway fast. This budget saw the government commit $25 billion in new transport infrastructure to an already impressive pipeline, taking total spending over the next decade to $75 billion. A key focus of this budget is state-level road and rail projects targeting congested urban areas. As the table below shows, some long-awaited projects are moving into production.

We have been on the record, along with many commentators, in arguing that increased infrastructure spending is an essential component of the proper management of our growing population and see the budget as extremely positive in this respect. With population and infrastructure continuing to attract a lot of comment, the government will be hoping that this budget acts as a circuit-breaker on the issue. Treasury analysis suggests that every dollar of infrastructure spending results in a GDP increase of $4 over the life of the asset, so this should have a significant impact on economic growth as well.

Business Taxation

Small business will benefit from the further extension of the $20,000 instant asset write-off. The existing 10 year Enterprise Tax Plan (reducing the company tax rate to 25% at the end of the period) has been confirmed and 27.5% tax rate has been expanded to cover businesses with an annual turnover of up to $50 million.

A range of measures have been introduced to enhance the integrity of our taxation system. An extraordinary $3.6 billion over four years is proposed to be raised simply from cracking down on illegal tobacco. Cash payments for goods and services are to be limited to $10,000 and further limitations will be placed on the ability of multi-national entities to claim interest deductions in Australia.

Aged Care

Long-time readers of Investment Enews will be familiar with our focus on Australia’s demographic evolution. A key challenge for policy makers is to provide for older Australians in a way that is both dignified and fiscally responsible. The announcement of an additional 14,000 high level Home Care Packages is welcome, but should be measured against the 104,000 consumers currently on the waiting list. The Pensions Loans Scheme is also being extended to include all eligible retirees.

We welcome all initiatives to allow older Australians to access equity tied up in property so that they can live better lives. Our own Aged Care Loan is designed to fund the payment of the refundable accommodation deposit for entry into residential care and pursues the same theme of empowering older Australians. Our Chief Corporate Treasurer, Martin Barry, commented on the subject for the Australian Financial Review shortly after the budget was announced and you can read the article by clicking here.

Tax time for Investors

Budget time always means that the end of financial year is approaching. Careful analysis and decision-making lead up to 30 June can generate significantly better investment and portfolio outcomes. Here are some of the issues to consider this financial year.

  1. Maximise superannuation contributions

    Despite all the changes that have occurred, superannuation is still a highly tax-favoured environment in which to save and invest. There are a number of key issues that you should consider in managing your superannuation investments this financial year.

    1. Finalise your superannuation contributions: The maximum concessional (pre-tax) contribution is $25,000 and the maximum non-concessional (post-tax) contribution is $100,000. Ensure that these are made prior to the end of the financial year – remember that 30 June is a Saturday this year and contributions count in the year in which they are received by the fund. Don’t get caught by delays in electronic transfers that push contributions into the next financial year.
    2. Consider co-contributions: Where a person’s taxable income is less than $51,813, they may be eligible for a co-contribution from the federal government to their superannuation of up to $500. This could apply to a spouse or, say, a university student child doing some part-time work. In those cases, you could potentially contribute $1,000 on their behalf and receive a co-contribution of $500 from the government – an instant 50% return is nothing to be sneezed at!
    3. Manage your transfer balance caps: The transfer balance cap has been in place since 1 July 2017 and limits total superannuation savings in retirement phase to $1.6 million. For couples, it simply makes no sense for one partner to hold in excess of this amount if the other partner is below it (unless you like the idea of a voluntary donation to Australian government consolidated revenues). Where possible, contributions should be made to the lower balance partner’s superannuation to maximise tax efficiency. You can also consider “spouse super splitting” to roll over contributions from one spouse’s superannuation account to the other.

  2. Manage your pension

    Remember that pensions must make a minimum payment each year. If they don’t, the fund will potentially be taxed at 15% on its investment earnings. The minimum payment is based on age and a percentage of the assets. For pensions commenced through the year, the minimum pension amount is pro-rated based on the number prior to the end of the year on which it commenced.

  3. Ensure that you are receiving available tax deductions

    SMSF members in particular sometimes overlook available tax deductions (that are, of course, only applicable when the fund is in accumulation phase and actually paying tax). These include insurance premiums for death and disability policies, accounting and auditing fees, costs of updating a trust deed to comply with the SIS Act, adviser fees, subscriptions, bank fees, filing fees and interest costs on borrowing arrangements.

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La Trobe Financial Services Pty Limited ACN 006 479 527 Australian Credit Licence 392385
La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213 is the issuer and manager of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important for you to consider the Product Disclosure Statement for the Credit Fund in deciding whether to invest, or to continue to invest, in the Credit Fund. You can read the PDS on our website or ask for a copy by telephoning us on 1800 818 818. *Returns on our investments are variable and paid monthly. Past performance is not a reliable indicator of future performance. The rates of return from the Credit Fund are not guaranteed and are determined by the future revenue of the Credit Fund and may be lower than expected. Investors risk losing some or all of their principal investment. An investment in the Credit Fund is not a bank deposit. Withdrawal rights are subject to liquidity and may be delayed or suspended. Visit our website for further information.

Copyright 2018 La Trobe Financial Services Pty Limited ACN 006 479 527. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial.

This publication does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and a general overview on matters of interest and it is not intended to be comprehensive. You should seek your own financial or other professional advice before acting or relying on any of the content.