Federal Budget Update 2016–17
Q: Who will be the Budget’s main winners and losers?
A: Small and medium enterprises, middle income earners, and women returning to paid work will benefit from the proposed Budget measures.
SMEs and workers earning over $80,000 will receive some tax relief while individuals with relatively low super balances, particularly women, will be able to make “catch-up” contributions to enhance their super savings.
Young job seekers also stand to benefit from a Youth Jobs Path program while the Government’s decision to leave negative gearing and capital gains tax alone is positive for property investors. Conversely, high income earners and wealthy Australians will see generous tax concessions cut under proposed super changes.
Q: What are the changes to superannuation?
A: The Budget contained over a dozen super changes including a cap of $25,000 per year on concessional super contributions; a new lifetime cap of $500,000 on non-concessional contributions; reduced income threshold at which higher income earners pay additional contributions tax (from $300,000 to $250,000); removal of the tax exemption on earnings of assets supporting transition to retirement income streams; and the introduction of a super transfer balance cap of $1.6 million to limit the amount of accumulated savings an individual can transfer into the tax-free retirement phase.
It also abolished the anti-detriment death benefit payment (which represents a refund of a member’s lifetime super contributions tax payments) and removed restrictions on people aged 65 to 74 to make super contributions.
Q: How does the Budget impact on retirees and pre-retirees?
A: One major change for pre-retirees is the reduction in concessional contributions caps. From 1 July, 2017, the concessional contributions cap will reduce to $25,000 from the current $30,000 cap for those under age 50 and $35,000 for workers aged 50 and over.
Consequently, the effectiveness of concessional contributions as a strategy to boost retirement savings will be reduced. The change is likely to see many people rush to take advantage of the higher concessional contributions cap for the balance of 2015/16 and the 2016/17 financial years.
It may also prompt people to review any salary sacrifice arrangements ahead of the 2017/18 financial year.
The Budget also included a range of concessions to encourage mature Australians to contribute to super.
For starters, it will be simpler for individuals aged 65 to 74 to make voluntary super contributions with current restrictions requiring them to meet minimum work requirements to be lifted from 1 July, 2017. They may also be eligible to claim a tax deduction for these voluntary contributions.
Q: Are there any proposed changes to the Age Pension or Aged Care?
A: There are no material changes to the Age Pension or Aged Care.
Q: How does the Budget impact on wealth accumulators?
A: Medium and high income earners stand to benefit from a modest tax cut for workers earning over $80,000.
To prevent approximately 300,000 middle income earners from creeping into the second highest tax bracket due to wage inflation, the threshold over which income is taxed at 37c in the dollar will increase from $80,000 to $87,000 from 1 July, 2016.
High income earners will be hit hardest by super changes designed to reduce their access to generous super tax concessions. These measures include a reduced income threshold at which higher income earners pay additional contributions tax (from $300,000 to $250,000); removal of the tax exemption on earnings of assets supporting transition to retirement income streams; a cap of $25,000 per year on concessional super contributions; a new lifetime cap of $500,000 on non-concessional contributions; and the introduction of a super transfer balance cap of $1.6 million to limit the amount of accumulated savings an individual can transfer into the tax-free retirement phase.
Q: Is there anything in the Budget specifically for families?
A: Many families are set to benefit from the modest tax cut given to workers earning over $80,000. However, significant proposed changes to child care related payments contained in the 2015 Budget and expected to commence from 1 July, 2017 have been deferred to 1 July, 2018. Existing child care arrangements will continue to operate until 30 June, 2018.
The Interim Home Based Carer Subsidy Pilot Programme, also known as the Nanny Pilot Programme, which commenced on 1 January, 2016, will also be extended for six months to 30 June, 2018. The hourly fee cap will be increased from $7 to $10 from 1 June, 2016.
The Budget also included a means-tested child and adult dental scheme to provide access to public dental services to children and Commonwealth concession card holders.
Q: How will SMEs be impacted?
A: Proposed changes will see the small business entity turnover threshold increase from $2 million to $10 million from 1 July , 2016. That means SMEs with an annual turnover of up to $10 million will qualify for small business income tax concessions including a lower corporate tax rate and generous equipment write-offs.
If legislated, all businesses with an annual turnover of up to $10 million will have their tax rate cut to 27.5 per cent from 1 July, 2016. The threshold to access the 27.5 per cent tax cut will progressively increase to ultimately include all companies by 2023/24 and will gradually reduce to 25 per cent by 2026/27.
Q: Can I continue claiming a tax deduction against the rental income on my negatively geared investment property?
A: Yes. There were no changes to capital gains tax and negative gearing.
Q: What happens next?
A: The vast majority of changes must be legislated and passed through Parliament before they apply.
If you think you might be affected by some changes, you should speak to your financial adviser.
If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today, or contact us for an obligation-free discussion today.