And How you might be impacted
Well if you are a small to medium business, celebrate loudly with another budget supporting an industry that employs so many others within the Australian workforce and funded in part by going after the larger multi-nationals (Google Taxes) meaning a fairer playing field, maybe.. Less tax and greater innovation start-up allowances for the risk takers creating industry is a good thing.
Superannuation, yes, still tax free – With changes in that if you have more than $1.6m in superannuation at retirement the amount over that’s earnings (not the withdrawals) will not be tax free from July 2017. Not all bad news as the bits above $1.6m still receive low concessional tax rates (10 or 15%) and in most cases far better than being taxed outside of superannuation.
Changes to transition to retirement (July 2017) that may require a rethink for those aged between 60-65.
But, let us not get to excited just yet as there is another budget to come before these changes are enacted (and an election with a senate makeup that none of us will be sure of for quite a while yet).
What it does mean is that over the next year a review of our superannuation strategies would be prudent.
The biggest surprise of the night came with capping after tax payments into superannuation at a lifetime maximum of $500,000 and backdated to 2007, we cannot believe this will come in without a watering down as it effects many people that superannuation is there to support.
Nip and Tuck’s – Let’s wait until we see the devil in the details as they fully emerge over the next few months.
The key points below summarised courtesy of Host Plus:
Tonight the Federal Treasurer, the Hon. Scott Morrison, MP presented his first Budget to the Federal Parliament. Many of the items announced tonight have been reported in the media in recent weeks with much speculation about what would be included. The major changes to superannuation and other policy areas announced that may impact you include:
Superannuation and retirees
- Increased tax on super contributions for high income earners – Currently, when personal income exceeds $300,000 the tax payable on any superannuation contributions increases from the standard concessional tax rate of 15% to 30%. The government has now proposed to decrease this income threshold from $300,000 to $250,000 per year from 1 July, 2017.
- Contributions caps – Currently, the annual cap on concessional (before-tax) contributions is $30,000 for under-50s and $35,000 for those aged 50-plus, these will be both decrease to $25,000 per year effective 1 July, 2017. These concessional contributions are generally superannuation guarantee (SG) contributions and salary sacrifice.
- Current legislation allows for Non-concessional (after-tax) contributions of $180,000, or $540,000 every three years for people under aged 65. These contributions are usually voluntary and effective 3 May, 2016 will also be subject to a lifetime cap of $500,000, taking into account all non-concessional contributions made since 1 July, 2007.
- Catch up contributions for individuals who have time out of the workforce – From July 1, 2017 the Government will allow individuals to make catch-up concessional super contributions for those people with balances under $500,000. This measure is to allow people with lower contributions, interrupted work patterns, or irregular capacity to make contributions to make catch up payments to their super.
- Low income superannuation tax offset – A new scheme will be introduced that provides a tax offset of up to $500 p.a. on concessional superannuation contributions for individuals earning less than $37,000 per year, effective 1 July, 2017.
- Transfer of superannuation into retirement phase – From July 1, 2017 a cap of $1.6 million will be placed on the transfer of superannuation balances into the tax-free retirement phase (Pension accounts). Any existing Pension accounts with balances beyond $1.6 million will have to be transferred into accumulation accounts and will be subject to up to 15% tax.
- Extended ability to make contributions – From 1 July, 2017 the Government is extending the ability for all individuals aged between 65 – 74 to make concessional tax contributions to their superannuation, and to make or receive payments from their spouse, without having to meet the current work test criteria.
- The tax offset for spouse contributions where the spouse income was previously less than $10,800 has now increased to $37,000 per year effective 1 July, 2017.
- Easing of restrictions on tax deductibility of personal super contributions – From 1 July, 2017 the Government will allow individuals regardless of employment status to make concessional super contributions up to the concessional cap (subject to 15% contribution tax). Individuals can claim a personal income tax deduction for personal super contributions.
- Transition to Retirement (TTR) Accounts – The existing tax exemption on investment earnings for supporting TTR income streams will be removed from 1 July, 2017. This means members with a TTR accounts will now have their investment earnings subjected to 15% tax.
- Anti-detriment death benefit provisions – From 1 July, 2017 ‘Anti-detriment’ payments previously made as part of the death claim process to beneficiaries of a deceased member from super will be removed. These payments were the result of any contribution tax paid from a member’s account over their lifetime.
- From 1 July, 2016 small and medium-sized businesses will receive a tax cut, with their company tax rate falling to 27.5%. The Government has also announced a timetable to lower corporate tax for all businesses with the turnover threshold for the reduced tax rate rising incrementally to $100 million in 2019-20.
|Turnover Threshold||Effective Date|
|$10 mil||1 July, 2016|
|$25 mil||1 July, 2017|
|$50 mil||1 July, 2018|
|$100 mil||1 July, 2019|
- The Government also plans to keep raising the maximum turnover threshold for the 27.5% corporate tax rate until all businesses are included by 2023-24. By 2026-27 the intention is to lower the corporate tax rate to 25% for all businesses.Non-incorporated businesses do not miss out on tax relief, with those turning over less than $5 million getting an 8% discount up to a maximum value of $1,000, effective 1 July, 2016.
- All small businesses with a turnover of less than $10 million will also now be eligible for the instant tax write-off for equipment purchases of up to $20,000 made next financial year.
- The salary threshold where the 37% tax rate kicks in will be raised from $80,000 to $87,000 p.a. This measure is designed to reduce the impact of ‘bracket creep’, where inflation pushes income earners into a higher tax bracket.
- The existing temporary deficit levy applying to people earning more than $180,000 per annum will be removed from July 1, 2017.
- The Medicare levy threshold for low income earners has increased. The indexation of the income threshold for the Medicare levy surcharge and private health insurance rebate will continue to be paused for a further 3 years from 1 July, 2018.
- There will be a tax avoidance focus including a diverted profits tax (also known as a ‘Google Tax’) which will target profits that are diverted between countries. Companies will be charged a higher 40% tax rate on money they seek to shift offshore to low-tax jurisdictions through intra-company loans. A tax avoidance taskforce of more than 1,000 specialist staff will be added to the ATO.
- Tobacco taxes to rise 12.5% per annum for four years
Other key measures
- An extra $1.2 billion of funding for schools was announced and an extra $2.9 billion will be allocated to Health funding for public hospitals between 2017-18 and 2019-20.
- $32.3 billion will be allocated to Defence for the 2016-17 financial year. Central to that funding will be the naval shipbuilding strategy, already announced as part of the Defence white paper, which will see the construction of new submarines and patrol boats in South Australia and Western Australia.
If you have any questions regarding these matters or your superannuation generally, please contact us and one of the Hostplus team will be able to assist you.