10 May 2017
Last night, the Federal Treasurer Scott Morrison delivered a measured and largely uneventful Federal Budget. There were few announcements which impact superannuation and financial advice strategies, particularly when compared to the 2016 Federal Budget.
There are many opportunities to enhance superannuation, and for others to reduce the impacts of the superannuation changes. Many of these items need to be addressed before 30 June 2017 and time is ticking to get affairs in order. A quick overview of some of the major items which you need to think about in the short time period up until 30 June 2017 are listed below;
- Concessional, before tax, contributions – from 1 July 2017, these reduce from $35,000 / $30,000 (depending on age) to $25,000.
- Non concessional, after tax, contributions – from 1 July 2017, these reduce from $180,000 (or $540,000 if using the 3 year bring forward provisions) to $100,000 (or $300,000 if using the 3 year bring forward provisions).
- Superannuation Contributions Cap of $1.6 million comes into effect from 1 July 2017. This is very complex and depends on the type of superannuation and pension you have. There is the opportunity to reduce the impacts of the changes by amending pensions and electing to receive CGT relief. Specialised advice is highly recommended.
- Changes to Transition to Retirement pensions make them less attractive from 1 July 2017– you can do nothing or make some minor adjustments to potentially reduce the impacts.
- Other changes which may impact you include reviewing your contributions from 1 July 2017 (strangely there are actually more opportunities to claim tax deductions from superannuation contributions in the future for many people), re-asses any insurances held via super, and consider a strategic review of any reversionary pension options and death benefit nominations.
The more significant changes are summarised below:
The Medicare Levy is set to increase by 0.5% (from 2% to 2.5% of taxable income), from 1 July 2019. The revenue from this measure will help fund the National Disability Insurance Scheme (NDIS). Most people will pay the higher levy, as few are exempt. Be aware that certain lump sum payments from superannuation which attract Medicare Levy will be impacted.
The five biggest banks in Australia (CBA, ANZ, Westpac, NAB and Macquarie) will, from 1 July 2017, essentially pay a new tax being a levy of 0.06% on liabilities above $100 billion. Expect extensive analysis on the impact of this levy on bank dividends, market share, and both depositor and borrower interest rates.
Small businesses with turnover of less than $10 million, have had the period extended until 1 July 2018 to claim an immediate tax write off on expenditure of up to $20,000. This is in addition to recent legislation passed by both Houses of Parliament to reduce the company tax rate for small to medium businesses.
Continued funding for investigations into businesses which fail to comply with Multinational Anti-Avoidance Law and Diverted Profits Tax.
As announced in the lead up to the Federal Budget, university and higher education students will pay higher fees to undertake courses, plus the income level for repayment of HELP (Higher Education Loan Repayment) will reduce, meaning earlier repayment of these loans.
Aged Pension and Retirement Strategy
Older Australians are largely unaffected by the 2017 Federal Budget. A positive is that approximately 93,000 people who lost their pensioner concession card as a result of asset test changes on 1 January 2017, will have this reissued with an ongoing income and assets test exemption. Pensioners will also receive a one off energy assistance payment of $75 per individual or $125 per couple in 2016/2017.
An interesting new strategy is for those over the age of 65 who downsize their home. In these situations, you will be able to contribute up to $300,000 per person of the home proceeds into super to help fund retirement. The existing voluntary contributions rules for people aged 65 and older (ie. work test for 65-74 year olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances over $1.6 million, will not apply to contributions made under this new downsizing cap. This change is proposed to be effective from 1 July 2018 and applies to a principal residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, meanings $600,000 per couple can be contributed to superannuation through the downsizing cap.
Various measures to improve housing affordability have been announced. One interesting concept is that, from 1 July 2017, First Home Buyers will be able to make voluntary contributions to super to save for a house deposit with the usual super contribution and earnings tax rates applying. The measure comes into effect from 1 July 2017 and contributions must be within existing superannuation caps. Withdrawals of contributions and deemed earnings (currently 4.77%) will be permitted from 1 July 2018, and will be taxed at a lower rate of the Marginal Tax Rate less 30%. The amount is restricted to $15,000 per year per person with a maximum of $30,000 in total per person.
Restrictions on foreign ownership of developments, and abolition of capital gains relief on the main residence for foreign property owners will come into effect.
Various infrastructure projects – Snowy Hydro 2.0, Brisbane to Melbourne Inland Rail, Western Sydney Airport, numerous WA projects, etc.
Freezing of foreign aid funding so that total aid as a proportion of Gross National Income will fall to the lowest level in history.
NDIS fully funded, via an increase in the Medicare Levy.
Education Funding – Gonski 2.0 coming.
Disallowing, from 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for residential rental property. In addition, effective immediately, deductions relating to the depreciation of plant and equipment in residential properties will be restricted to the investor who actually incurred the liability.
Various measures to address expenditure such as not increasing Family Tax Benefit payments, various working age payment reforms, tighter controls on welfare recipients in terms of liquid assets tests, random drug testing, and tighter activity test monitoring for some welfare payments, etc.
A lift on the freeze for Medicare rebates which may hopefully increase the propensity for GPS to bulk bill.
Fitzpatricks Private Wealth Pty Ltd, ABN 33 093 667 595, holder of Australian Financial Services Licence (AFSL) No. 247 429. This is general information only and is not intended to provide you with advice or take into account your objectives, financial situation or needs. Because of this, we recommend you consider, with the assistance of your financial adviser, whether the information is appropriate in light of your particular needs and circumstances. It is important to remember this material relates to proposals that have not yet been legislated. Our analysis should be viewed in that context. We recommend you do not take any specific action until the Government provides greater detail in draft legislation.