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The government’s latest tax cuts could give you more money in your pocket. Here’s how to put those extra dollars to good use.
On 4 July 2019, the Australian Government passed a law that will provide tax cuts to most Australians. These cuts are in addition to the tax relief offered by the Coalition’s Personal Income Tax Plan, which took effect in June 2018.
These tax changes will be delivered in three stages [1]:
1. From 1 July 2018 until 30 June 2022 the temporary Low and Middle Income Tax Offset (LMITO) will be introduced. This means that people earning less than $126,000 a year will receive a tax offset worth between $255 and $1,080. During this time, people earning less than $66,667 will also still be eligible for the Low Income Tax Offset (LITO) worth up to $445.
2. From 1 July 2022 the LMITO will cease, but people earning below $66,667 will still be entitled to a LITO of up to $700. What’s more, the threshold for the 19% personal income tax bracket will increase from $41,000 to $45,000. This is on top of previous legislated tax cuts, so people earning between $37,000 and $45,000 a year will pay 19% tax instead of 32.5%.
3. From the 2024–25 financial year Australians earning between $45,000 and $120,000 will have their marginal tax rate reduced from 32.5% to 30%, those earning between $120,000 and $180,000 will have their marginal tax rate reduced from 37% to 30%, and those earning between $180,000 and $200,000 will have their marginal tax rate reduced from 45% to 30%.
What could this mean for you?
If you earn between $37,000 and $126,000, you could be eligible for a tax refund worth between $255 and $1080 on your 2018–19 tax return. These tax offsets will then continue for the next four years. And if you earn less than $66,667 you may also be entitled to an additional offset each year.
To claim your offsets, you don’t have to do anything. Simply lodge your tax return and the Australian Tax Office will work out how much you’re entitled to.
Having some extra money up your sleeve is great, but it’s easy to blow it on little things. Here are some tips to help you make better use of your tax refund:
Squirrel it away
Is there a specific goal you’re saving towards, or could you do with some emergency funds? Consider ramping up your savings by putting your tax refund into a high-interest savings account and then adding to it each payday. By saving regularly, even small amounts can build up substantially over time.
Clear your debts
If you’re got credit card debt or a personal loan to pay off, it’s likely that you’re paying far more in interest than you could ever earn in a savings account. In this case, you might be better off putting your tax refund towards clearing your debts once and for all.
Create an investment portfolio
If you’re already debt-free and would like to start building wealth for the future, you might consider investing your tax refund in direct shares or a managed fund. When your investment pays dividends, you’ll also have the option to reinvest your earnings so your investment can grow even further.
Salary sacrifice into super
Having some extra money in the bank could give you the flexibility to try salary sacrificing. By asking your employer to put some of your pre-tax income into your super, you can build your retirement savings faster while taking advantage of the low 15% tax rate on these types of contributions.
Make a personal super contribution
Another way to top up your super is to make a non-concessional contribution directly to your super account. As this is considered an after-tax contribution, it won’t be taxed again when your super fund receives it. You can even make a non-concessional contribution to your spouse’s super if their retirement savings need a boost.
Talk to your Verve Group financial adviser and tax agent
Not sure of the best use for your tax refund? Your financial adviser can look at your overall financial situation and show you how this extra cash can help you get ahead.
There can be significant financial consequences associated with making additional contributions to super that exceed contribution caps, so speak to a Verve Group Adviser to make sure you’re getting all the tax breaks you’re entitled to.
Learn more about how Verve Group can help you develop a sound financial plan. You can book a free initial consultation with a Verve Group Adviser on (08) 8120 4877 or book your appointment online.
1 ATO, Lower taxes for hard-working Australians: Building on the Personal Income Tax Plan, 2019.
Please note that any taxation and accounting services are not endorsed nor the responsibility of Count Financial Limited, and they do not fall under the authorisation of Count’s Australian Financial Services Licence (AFSL 227232).
This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a Financial Adviser before making a financial decision. This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, nonguaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. The Bank has agreed to sell Count Financial Limited ABN 19 001 974 625 AFS Licence 227232 to CountPLus Limited ABN 11 126 990 832, with settlement to complete in 2019. On settlement of this sale, Count Financial Limited ABN 19 001 974 625 AFS Licence 227232 will no longer be a related party of The Bank. ‘Count’ and Count Wealth Accountants® are trading names of Count. Count Financial Advisers are authorised representatives of Count. Information in this document is based on current regulatory requirements and laws, as at 11 August 2019, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. The Q&As in this publication are hypothetical scenarios and for illustrative purposes only. Count is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your authorised representative may not be a Registered Tax Agent, consequently tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent. Should you wish to opt out of receiving direct marketing material from your adviser, please notify your adviser by email, phone or in writing.
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