Budget Update Our core purpose is ‘HELPING CLIENTS ACHIEVE FINANCIAL SECURITY’ MULCAHY & CO | P 03 5330 7200 | INFO@MULCAHY.COM.AU | 300B GILLIES ST NTH, BALLARAT
Just under a month ago Federal Treasurer Scott Morrison handed down the Federal Budget for the 2016–17 financial year. The Turnbull Coalition Government slated some major changes to superannuation as well as announced a number of tax initiatives to benefit small business and low-to-middle income earners. Here we give you a rundown of the measures that are most likely to affect you or impact on your current financial situation;
Tax Changes From 1 July 2016
PERSONAL TAX
FROM 3 MAY 2016
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COMPANY TAX •
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The company tax rate will be reduced to 25% over 10 years. Currently, small companies with aggregated turnover less than $2 million pay tax at a rate of 28.5%. Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution. The small business entity turnover threshold will be increased from $2 million to $10 million so that more businesses can access certain existing income tax concessions, including simplified depreciation and trading stock rules. The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%. The discount rate for 2016–17 will be 8%.
The 32.5% personal income tax threshold will increase from $80,000 to $87,000. This will reduce the marginal rate of tax on income between $80,000 and $87,000 from 37% to 32.5% to ensure that the average full-time wage earner will not move into the second highest tax bracket in the next three years.
SUPERANNUATION CHANGES Changes to super rules could affect your financial position if you: •
make concessional (before tax) contributions up to your annual contribution cap
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plan to make non-concessional (after tax) contributions of more than $500,000
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have an annual income (including super contributions) above $250,000
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have a super balance of more than $1.6 million.
These and other super changes are described below.
A lifetime cap of $500,000 for non-concessional contributions has replaced the existing annual cap of $180,000 (or $540,000 every three years under the bring-forward rule). The lifetime cap takes into account all non-concessional contributions made from 1 July 2007. Contributions made from 7.30pm AEST on 3 May 2016 that exceed the cap (taking into account all previous non-concessional contributions) will need to be removed or will be subject to the current penalty tax arrangements.
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The cap on concessional contributions will reduce to $25,000 a year for everyone, regardless of age. Currently the concessional contributions cap is $30,000 under age 50 and $35,000 for ages 50 and over. Individuals with super balances under $500,000 who don’t reach their concessional cap in a given year will be able to carry forward their unused cap amounts on a rolling basis over five consecutive years.
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The current work test that applies for people making voluntary contributions between age 65 and 74 will be removed. Individuals will also be able to make contributions for a spouse aged under 75 without requiring the spouse to satisfy a work test.
IMPORTANT DISCLAIMER: This document does not constitute advice. Clients should not act solely on the basis of the material contained in this document. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and we therefore recommend that our formal advice be sought before acting in any of these areas. This document is issued as a helpful guide to clients and for their private information.
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MULCAHY & CO | P 03 5330 7200 | INFO@MULCAHY.COM.AU | 300B GILLIES ST NTH, BALLARAT
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The tax-exempt status of income from assets supporting transition to retirement (TTR) income streams will be removed, with earnings taxed at 15%. This change will apply regardless of when the TTR income stream commenced. A transfer balance cap of $1.6 million will be introduced to restrict the total amount of super that can be transferred from the accumulation phase to the pension phase. If an individual accumulates more than $1.6 million, they will be able to maintain the excess in the accumulation phase (where earnings will be taxed at 15%). Those already in the pension phase on 1 July 2017 and whose balances exceed $1.6 million will need to either withdraw the excess or transfer it back into the accumulation phase. Division 293 tax — an additional 15% contributions tax payable by high income earners with earnings over $300,000 — will also apply to those with incomes above $250,000. A Low Income Superannuation Tax Offset (LISTO) will be introduced to reduce the tax on contributions for low income earners. The LISTO will provide a non-refundable tax offset to super funds, based on the tax paid on concessional contributions up to a cap of $500. It will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf. The threshold for the spouse super tax offset will increase from $10,800 to $37,000. A contributing spouse will be eligible for an 18% offset worth up to $540 for contributions made to an eligible spouse’s super account.
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Australians under 75 will be able to claim an income tax deduction for any personal contributions made to a complying super fund up to their concessional cap. Individuals will need to notify their super fund or retirement savings provider of their intention to claim the deduction, before lodging their tax return.
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Anti-detriment provisions will be abolished, effectively removing the ability of super funds to increase lump sum death benefits when paid to eligible beneficiaries.
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The tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products. The Government says it will consult on how products are treated under the age pension means test.
At Mulcahy & Co we are in a unique position to provide the expert advice and solutions of accounting, financial planning, lending, legal and information technology all under the one roof. This makes a normally complicated process seamless to help you on your way to becoming financially secure.
WHAT DOES BEING FINANCIALLY SECURE MEAN? It means assessing your personal and business goals and developing a plan to achieve them.
While the above proposed changes are not currently legislated, they possess the ability to severely impact your current financial situation.
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Contact Mulcahy & Co today to ensure your financial security continues into the future.
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If you have any queries at all please do not hesitate to contact our office.
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