Marginal Tax Rates (MTRs) in 2017-18

When making various financial decisions, such as assessing the potential tax saving from putting additional pre-tax income into Super (for those who haven’t fully utilised their concessional contribution cap of $25,000), or working out how much tax saving you will get from claiming your income protection premium,  it is important to know what your marginal tax rate (MTR) is. That is, how much tax saving you will get by reducing your assessable income. This table helps you identify your applicable taxable income bracket and the applicable marginal tax rate.

Taxable incomeTax on this income and MTR
$0 – $18,200Nil
$18,201 – $37,00019c for each $1 over $18,200
$37,001 – $87,000$3,572 plus 32.5c for each $1 over $37,000
$87,001 – $180,000$19,822 plus 37c for each $1 over $87,000
Over $180,000$54,232 plus 45c for each $1 over $180,000

The above rates for Australian adult tax residents do not include the Medicare levy (2% for most), the Medicare Levy Surcharge for higher income earners without private health insurance or the effect of any applicable Income Tax Offsets.

Cautious, Alert, but not Alarmed

No this isn’t about the North Korean situation, though if you are interested in that issue you might find this article instructive, but about the state of financial markets 8 and ½ years after the March 2009 stock market bottom during the global financial crisis (GFC). In short, while there are no clear signs that the US economic expansion and stock market rally are about to end, my belief is that after such a prolonged period of growth it is a time to be more cautious rather than assuming that the good times will roll on indefinitely or chasing high returns in aggressive investments. I can’t predict when the next downturn will occur but history tells us it will occur and this upturn (increase in the prices of shares, property and the like) has been quite lengthy by historic standards. My reasoning outlined here borrows significantly from the thoughts of veteran US investor, Howard Marks, of Oaktree Capital Management. This is NOT a recommendation to sell your shares, managed funds, property, etc, but rather a suggestion to be disciplined and somewhat cautious in the current environment.

My reasons for exercising a degree of caution include the following:

  • Asset prices (shares, property, etc) are high by historic standards and there are few if any bargains around. For example, the US S&P index is currently at around 25 times earnings versus its long term median of around 15x. The price to earnings (rental income less expenses) ratio for Sydney residential property is between 30x and 40x.
  • Prospective or future returns for most assets are quite low because current prices are high. If share price multiples mean revert, as may occur, returns to investors will be low even if profits keep growing.
  • Most investors seem to be discounting the possibility of things going wrong and are embracing risk at what may prove to be the top of the cycle. For example, the Chicago Board Options Exchange Volatility (VIX) index was recently at the lowest level in its 27 year history and remains low even after a recent North Korea induced spike. Investors have embraced the FAANGs (Facebook, Amazon, Apple, Netflix & Google) even though not all of them are even making profits! Some of this behaviour is reminiscent of what we saw in the tech boom pre 2000 and then again in 2007 and 2008 before the GFC struck.
  • Uncertainties and risks, be they the impact of rising interest rates in the US, political dysfunction in most countries or geopolitical risks, like North Korea, are being largely ignored by financial markets.

Home Care Reforms

Home Care Package provides Government funded services that can help you (or your partner or parent) remain at home for longer, as well as providing choice and flexibility in the way that the care and support is provided. The Australian Government provides a subsidy to an approved home care provider towards a package of care, services and case management to meet your individual needs.

Reforms to the way home care packages are administered commenced on 27 February 2017. The reforms change the way home care packages are allocated and aim to encourage competition by allowing clients to choose their home care provider. However, the reforms rely on you navigating the new system and proactively researching home care providers.

Overview of the Changes

From 27 February 2017, the way home care packages are administered changed. The main changes are:

  • Funding for home care packages follows the client allowing them to direct funding to their chosen home care provider. This replaces the previous system where home care places were allocated directly to home care providers.
  • A new national queue prioritises access to home care packages through My Aged Care. Clients can change home care providers more easily and any unspent home care package funds (less any exit amounts) will move to the new home care provider.

The new system is aimed at giving clients more flexibility and choice as to who delivers their home care services and the type of care they receive. Importantly, the fees that clients pay (basic daily fee and income tested fee) are unchanged under the reforms.

If you would like more detail click here and you can also access information on the My Aged Care website including the “find a service” section for comparing home care providers and the home care fee estimator. The government publication ’Your guide to home care package services’ may also be of assistance.

This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

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