What an exciting night we had last night watching the Federal Budget over a glass of red.
There was a few winners and losers out of last nights budget, but all in all, we thought it was a pretty good budget.
LIFETIME CAP FOR NON-CONCESSIONAL SUPERANNUATION CONTRIBUTIONS
One of the biggest losers that will effect our clients is the changes to contributions caps, meaning the amount you can contribute to super with after tax money. Individuals were able to contribute $180,000 or $540,000 using the 3 year bring forward rule into their super with after tax money per year.
The governments proposed changes will put a lifetime cap on this of $500,000. This is to commence 3 May 2016. However, the lifetime cap will take into account contributions made between 1 July 2007 and 3 May 2016. Any contributions in this time will be counted towards your cap, if you have gone over the $500,000 in these years you will not be penalised. However, any excess contributions after 3 May 2016 will need to be removed or face a penalty tax.
The clients this will effect is farmers selling farms at retirement and wanting to move those funds to super, or property investors wanting to sell down their portfolios and move funds into super, or business owners selling their businesses and moving funds through. Clients also need to be very aware of what they have contributed if they have done a re-contribution strategy.
REDUCTION OF THE CONCESSION CONTRIBUTION CAP TO SUPERANNUATION
The current concessional contributions caps, meaning money put in to super before tax is pad via salary sacrifice and from your employer, are $30,000 per financial year, or $35,000 if you are over 49 .
The government now proposes a reduction of the limit to $25,000 per year for anyone.
This will effect people doing a transition to retirement strategy and should see their planner to update their contributions.
CATCH UP CONCESSIONAL CONTRIBUTIONS
There is a slight win to the above changes though. Those people with super balances of less than $500,000 are eligible to carry forward any unused concessional contributions from previous years. This is from 1 July 2016, only contributions after this date are eligible, but you can carry forward 5 years of contributions.
HIGHER SUPERANNUATION TAX FOR INCOME OWNERS OVER $250,000
Not that this effects many of us, but the government has reduced the earnings from $300,000 to $250,000 for people that have to pay an additional 15% tax on contributions to super.
WORK TEST REMOVED FOR SUPERANNUATION CONTRIBUTIONS
From 1 July 2016 individuals aged under 75 will no longer need to meet the work test of working 40 hours in 30 consecutive days to contribute to their super funds.
This is a great move to help move money into super when retiring.
NEW LOW INCOME SUPER TAX OFFSET
From 1 July 2017 the government proposes to introduce a tax offset up to $500 for those earning less than $37,000 to ensure low income earners aren’t getting penalised by higher tax for contributing to super.
Removal of the work test for people under 75 raising the income threshold to $37,000 makes contributing to your spouses super a more attractive strategy.
CHANGES TO THE TAXATION OF TRANSITION TO RETIREMENT STRATEGIES INCOME STREAMS
From 1 July 2017 pension account earnings as part of a transition to retirement strategy will now be subject to a maximum 15% tax rate as applicable to accumulation funds. Previously these have been tax free.
They have also removed the potential tax savings you could of been eligible for if you took money as a lump sum instead of income.
NEW $1.6 MILLION SUPERANNUATION TO PENSION ACCOUNT CAP
From 1 July 2016 you will only be able to transfer a maximum of $1.6 million into a super pension account, any over this will face a penalty tax. The remaining funds must remain in accumulation until it is under this limit.
REMOVAL OF THE ANTI-DETRIMENT PAYMENT
The anti-detriment payment is a tax rebate paid by the superannuation fund to beneficiaries of estates for tax paid on contributions. This is now getting removed.
CHANGES TO TAX RATES FOR $80,000 AND ABOVE
The marginal tax rate for income earners earning $37,001- $80,000 is 32.5%, this has now been raised to $87,000, where those over $80,000 were at 37%. This means everyone over $80,000 will see slight tax deductions. Don’t get too excited though, it equates to maybe $6 per week extra.
Taxpayers with a low level of taxable income will now not be liable or at a reduced rate for the Medicare levy surcharge. They are also pausing the indexation on the Medicare levy surcharge for a further 3 years from 1 July 2018. The surcharge is payable for those over a certain income without private hospital cover. For singles the limit is over $90,000 and for families over $180,000.
INCREASE IN SMALL BUSINESS TURNOVER THRESHOLDS
From 1 July 2016 the government proposes to increase the small business turnover limit from $2 million to $10 million for certain small business concessions.
-Lowering the company tax rate to 25% by 2026/27. Initially they will be lowered to 27.5% from 1 July 2016.
-Businesses with turnover of less than $10 million are able to claim purchases of up to $20,000 for instant write off until 30 June 2017
-Plus other tax concessions for work-related portable electronic devices and the immediate deduction of professional expenses.
-Unincorporated businesses will still win with a small business tax discount
Families and social security
DEFERRAL OF REFORMS TO CHILD CARE PAYMENTS
As part of the May budget they announced changes to child care payment schemes, this has now been deferred to 1 July 2018 for the start date.