6 new opportunities not to be missed

4th July 2018

The new financial year always brings change, and 2018/19 is no different. An array of rates and thresholds have moved, but this year the first week of July brings more than just incremental changes. A number of laws affecting the clients of financial planners are markedly different in the new financial year. July’s Industry Insights focuses on 6 of these changes planners need to know.

First Home Super Saver (FHSS) withdrawals commence

The FHSS provides a tax-effective way for first home buyers to save all or part of a deposit on their first home. wealthdigital provided a detailed analysis of the FHSS scheme for subscribers in February’s technical journal. If used to its full extent, the tax breaks in the FHSS scheme can help a high-income earning couple save almost $20,000 in pre-tax income. Even couples earning median incomes can still save over $14,000 in pre-tax income.

The ability to make withdrawals under the FHSS scheme commenced on July 1, 2018. The first step in making a withdrawal is to request a FHSS determination from the ATO. The determinations can now be requested using the client’s MyGov login.

Amounts available for withdrawal under the FHSS scheme include all voluntary contributions to super made by the client or their employer since July 1, 2017. It is important to keep in mind that the ability to claim deductions on personal contributions became widely available in 2017/18. Combining personal deductible contributions and the FHSS scheme should be a strategic consideration for all income-earning clients looking to buy their first home.

The Child Care Subsidy replaces the Child Care Benefit and Rebate

On July 2, the Child Care Benefit and Rebate were replaced by a single payment, the Child Care Subsidy (CCS). The Child Care Subsidy (CCS) is now the payment through which working, studying or training parents can receive government subsidies to help pay for child care.

The Child Care Subsidy changes the way in which parents’ government support is calculated in significant ways. wealthdigital took a deep dive into these changes for subscribers in April and found that those paying higher rates for care, particularly where children are in care for fewer hours per week, may see a reduction in their entitlements.

Furthermore, the activity test under the CCS is generally more stringent than those used for the Child Care Benefit and Rebate. In situations where the primary carer has lower activity hours per week, the family may see their child care support drop, or disappear entirely.

Very high income earners will also see their benefits reduce significantly.

Overall, the CCS changes the goalposts for parents when deciding when to return to work and for how long. A sound understanding of the rules can make planners invaluable in clients’ decision-making processes.

Downsizer contributions go live

Downsizer contributions can now be made where the client (or their spouse) enters a contract to sell their home on or after July 1, 2018. Downsizer contributions are available for those aged 65 or older and do not require the contributor to meet the work test.

There are a number of tips and traps to be aware of when recommending a client make a downsizer contribution. The timing of the sale and contribution, particularly where the client is approaching their 65th birthday, must be managed carefully to gain the benefit of the downsizer contribution. It is also possible for a spouse to make a downsizer contribution, even when they didn’t own a part of the property.

wealthdigital’s analysis of the opportunities presented by the downsizer contribution, was provided to subscribers in March.

Low and Middle Income Tax Offset (LaMITO) introduced

2018/19 sees the introduction of LaMITO. LaMITO will be in place for four financial years and is on top of the existing Low Income Tax Offset (LITO). LaMITO is based on the client’s taxable income and is calculated as outlined in the table below:

Taxable income LaMITO entitlement
Up to and including $37,000 $200
$37,001 to $48,000 $200 plus 1.5c for every $1 above $37,000
$48,001 to $90,000 $530
$90,001 to $125,333 $530 minus 3c for every $1 above $90,000
Over $125,333 Nil

LaMITO will increase the effective tax free threshold to $21,594 when viewed in conjunction with LITO. LaMITO is non-refundable and cannot be carried forward to future years.

LaMITO will mean a tax saving for every client earning between $20,594 and $125,333. Furthermore, every client earning more than $87,000 will benefit from the upper threshold for the 32.5% tax bracket being increased to $90,000. These tax savings provide opportunities for clients.


Josephine earns $50,000 pa as a shop assistant. She could contribute her $530 in LaMITO to super under the FHSS scheme, claim it as a tax deduction then withdraw it to purchase her first home. This process will see Josephine pay only 19.5% total tax on that income (15% contributions tax and 4.5% upon withdrawal) – well below their marginal rate of 34.5% (including Medicare levy).

More companies considered small businesses

The aggregated turnover threshold under which companies classify as a small business, and hence pay tax at a rate of 27.5% (as opposed to 30%), has increased. The threshold in 2018/19 is $50 million, double the 2017/18 threshold. This lower rate does not apply to investment companies.

This means more small companies will be paying the lower tax rate. This will provide opportunities for those businesses to retain greater profits or invest in growth. It also means that, if they distribute franked dividends, the franking rate will be 27.5%, not 30%.

Preservation age increased

Preservation age has been slowly increasing since July 2016. After two years where preservation age was 56, 2018/19 sees preservation increase age again to 57. Preservation age will increase again in 2020/21.

It is important to keep in mind the new preservation age when discussing strategies with clients. A range of super rules reference preservation age. These include when a transition to retirement pension can commence, the rate of tax payable on a lump sum withdrawal and a number of conditions of release (such as the retirement condition of release).

Not everything changes

There are a range of thresholds that did not increase on July 1, 2018. Some prominent ones include:

  • The concessional contributions cap
  • The non-concessional contributions cap
  • The general transfer balance cap
  • The rate of SG
  • The rate of social security pensions
  • LITO
  • Basic daily care fees for residential aged care and home care

Stay up to date

wealthdigital subscribers can keep up to date with all the July 1 changes, including:

Click here for more information on subscribing to wealthdigital.

The wash

The changes that take effect in 2018/19 are overall positive for clients and their planners. Clever management of the new rules will open up a raft of opportunities, particularly for a younger age demographic that has not, historically, sought financial advice.

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Belrose NSW 2085
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