Last night, while most of us were busy watching MasterChef to find out who would get the final apron, the treasurer announced the 2016 Federal Budget. Below we summarise the key proposals.
Changes to super were wide-ranging and aimed to help those on lower incomes while trimming some of the concessions available to those on higher incomes.
Lifetime cap on non-concessional (after-tax) contributions
The existing cap of $180,000 pa will be replaced with a lifetime cap of $500,000. It is planned to make this retrospective in order to take into account all non-concessional contributions made since 1 July 2007. If you’ve already contributed more than $500,000 since 1 July, the extra amount will not be taxed but you won’t be able to make any future contributions.
Author’s Comment This will be difficult to administer. A lifetime cap does not suit the contribution patterns of most Australians who tend to make large, one-off contributions following the sale of a house/business or inheritance.
Reduced concessional contributions (employer & salary sacrifice) cap
The concessional contributions cap will reduce to $25,000 for everyone, from 1 July 2017, regardless of age. The cap is currently $30,000 for people under age 50 and $35,000 if over age 50.
Author’s Comment A lower, fixed cap does not suit the contribution patterns of most working Australians, who tend to make higher levels of super contributions once they reach their 50’s and have higher income + lower debt levels.
Concessional contributions catch-up
Individuals with a super balance under $500,000 will be allowed to make ‘catch-up’ concessional contributions in excess of the $25K pa cap. The aim of this change is to allow unused concessional cap amounts can be carried forward for 5 years. The changes will become effective from 1 July 2017.
Author’s Comment This will help those with broken work patterns or contractors whose income fluctuates. The $500K account balance restriction is not needed and will only further complicate matters.
Tax deductible super contributions for all
From 1 July 2017, all individuals (up to age 75) will be able to claim a tax deduction for personal super contributions. This was previously restricted to the self-employed.
Author’s Comment Common sense prevails.
Removing the work test
The requirement for those aged between 65 and 74 to ‘work 40 hours in a 30-day period’ in order to put money into super will be removed.
Author’s Comment Common sense prevails (did I say that twice?).
Additional super contributions tax (extra 15%) for incomes $250,001-$300,000
Currently, individuals who earn over $300,000 have their super contributions subject to an additional 15% tax. From 1 July 2017 this tax will apply to those earning $250K an over.
Author’s Comment This will discourage people saving for their own retirement, which is not good.
$1.6m cap on amount transferred to pension
In a move to limit the amount of tax-free earnings on your super, the Government intends to place a cap of
$1.6 million on the amount you can transfer into a pension account. Planned to start 1 July 2017.
Author’s Comment Account based caps are difficult to administer and giving affected individuals little over 12 months to plan and prepare for this radical change is extremely unfair.
From 1 July 2016, the 32.5% tax threshold will increase from $80,000 to $87,000.
Author’s Comment A small win for those earning over $80,000.
In 2016-17 the company tax rate for small businesses will reduce to 27.5% (from 28.5% currently and 30% prior to 2015-16). The rate is set to reduce further to 25% in 2026–2027.
Author’s Comment A win for companies who pay tax.
GST will be payable on imported goods, regardless of the value. Currently only goods valued at over $1,000 purchased overseas attract GST.
Author’s Comment Good for local businesses that have not been able to compete on a level playing field. Bad for those who like to buy goods online (because they are much cheaper than identical products available locally and are delivered to your door in a matter of days).
If you would like to find out more, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.
Disclaimer: This publication has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions.
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