In his budget speech, the Federal Treasurer Scott Morrison put forward a number of proposed changes, mainly around contributions to superannuation and taxation.
Here’s a brief roundup of what the proposals could mean for you—whether you’re starting out in your career, taking care of family, on the cusp of retirement or enjoying life after work.
Remember, proposals are not set in stone and could change as legislation passes through parliament.
- Lifetime cap for non-concessional superannuation contributions
Currently, the non-concessional contributions cap is $180,000 per person, per financial year. If you are under age 65 at any time in the financial year, you can make a non-concessional contribution of up to $540,000 under the bring-forward provisions.
The government proposes to replace the current contribution cap with a $500,000 lifetime non-concessional contribution cap.
Excess contributions made after commencement will need to be removed or be subject to penalty tax.
- Reduction of the concessional contribution cap
Currently, the standard concessional contribution (CC) cap is $30,000 per financial year. A higher temporary concessional contributions cap of $35,000 (unindexed) applies if you are aged 49 years or over on 30 June of the previous financial year.
The Government is proposing to reduce the annual cap on concessional superannuation contributions to $25,000 for everyone, irrespective of their age.
- Reduction to Division 293 tax threshold
From 1 July 2017, the government has proposed to lower the Division 293 threshold (the point at which high income earners pay an additional 15% tax on contributions) from $300,000 to $250,000.
- Allowing catch up concessional contributions
Currently, the concessional contribution cap is applied on a ‘use it or lose it’ basis.
From 1 July 2017, the government will allow eligible individuals to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
- Removal of the work test to contribute to superannuation
Currently, individuals aged 65 to 75 who want to make voluntary superannuation contributions need to meet the work test. People aged 70 or over are also currently unable to receive contributions from their spouses.
The government will remove these restrictions for all individuals aged less than 75, from 1 July 2017.
- Making it easier to claim tax deductions for personal super contributions
If legislated, this will effectively allow all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap.
This measure assists those whose employer may not provide the ability to make salary sacrifice contributions to super. It will also assist those who are partially self-employed and partially wage and salary earners.
- Introducing the Low Income Super Tax Offset (LISTO)
From 1 July 2017, the government is proposing to introduce a replacement – the Low Income Superannuation Tax Offset (LISTO). The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to an annual cap of $500.
- Making spouse contributions more attractive
Currently, if you make contributions into your spouse’s account you are entitled to a tax offset of up to $540 if certain requirements are met.
The government proposes to remove the work test restrictions for all individuals aged up to 75 and increase access to the spouse superannuation tax offset by raising the lower income threshold for the receiving spouse to $37,000 (cutting out at $40,000).
- Changes to the taxation of Transition to Retirement (TTR) income streams
The internal earnings within a superannuation account on the amount used to purchase a pension are currently tax free. This will no longer apply to transition to retirement income streams from 1 July 2017 should the proposal go ahead.
This means that earnings on fund assets supporting a transition to retirement income stream after this date would be subject to the same maximum 15% tax rate applicable to an accumulation fund.
- Introduction of a $1.6 million superannuation transfer balance cap
From 1 July 2017, the government is proposing to introduce a $1.6 million transfer balance cap. This cap will limit the total amount of accumulated superannuation benefits that an individual will be able to transfer into the retirement income phase. Subsequent earnings on pension balances will not form part of this cap.
- Changes to marginal tax rates
As speculated, a tax cut has been proposed at the current $80,000 taxable income threshold. If passed this will increase the 32.5% bracket cut-off to $87,000.
- Increase in small business entity turnover thresholds
Starting from 1 July 2016, the government proposes to increase the small business annual aggregated turnover threshold from $2 million to $10 million for certain small business concessions.
- Lowering the company tax rate to 25 per cent
The government proposes to reduce the company tax rate to 25 per cent by 2026-27.
- Unincorporated small business tax discount
For small businesses, that are not companies, the government proposes to extend the unincorporated small business tax discount.
- Deferral of reforms to child care payments
As part of the May 2015 Federal Budget it was proposed that a new single Child Care Subsidy (CCS) would replace the Child Care Benefit, the Child Care Rebate and the Jobs, Education and Training Child Care Fee Assistance from 1 July 2017.
This measure has not yet been legislated and the proposed start date will now be deferred until 1 July 2018.
Like to know more?
To find out more about how the Budget could affect you, go to www.budget.gov.au or speak to us. Again the proposals may change or be withdrawn as legislation passes through parliament.
Need more information?
For more information on how the Federal Budget 2016/17 will affect your personal financial situation, please contact us today.
Note: Any advice contained in this document is general in nature and does not consider your particular situation. Please do not act on this advice until its appropriateness has been determined by a qualified financial adviser. Whilst the tax implications have been considered we are not, nor do we purport to be a registered tax agent. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.