As you would be aware the budget was handed down last night here in Federal Parliament. There have been a number of personal tax changes proposed along with some minor changes to superannuation (in comparison to last year). The National Tax & Accountants’ Association (NTAA) has prepared this summary which is available on their website.
Please do not hesitate to contact us here at Greenlight if you have further questions in relation to the changes.
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Government delivers stability in 2017-18 Federal Budget
Stability and confidence for superannuation is the good news coming out of the 2017-18 Federal Budget. With SMSF members still working through the wide-reaching and complex superannuation changes of the last Budget which take effect from 1 July 2017, this Budget’s minimal changes will result in a period for members to ensure they have the correct strategies in place.
The main change impacting superannuation involves allowing people aged 65 and over to downsize their home and gain exemptions to superannuation caps, a First Home Super Saver Scheme and the rounding up of minor technical changes already announced.
The key changes proposed for superannuation are:
Downsizing exemption to superannuation caps
From 1 July 2018, individuals aged 65 and over will be able to downsize their family home and place proceeds up to $300,000 per member into their superannuation fund without breaching any of the current superannuation caps, work test and age test. The measure will apply to a principal place of residence held for a minimum of 10 years. This means even if an individual has a total superannuation balance of $1.6 million or more they will not be restrained from making an after-tax contribution with their house proceeds. This exemption also extends to the annual after-tax contribution limit which is currently $100,000.
First Home Super Saver Scheme
Individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation to later withdraw to purchase a first home. Voluntary contributions and associated earnings that are withdrawn will be taxed at a person’s marginal tax rate less a 30% offset. The measure will assist first home buyers to save a deposit for their home faster.
Integrity of limited recourse borrowing arrangements
The Government is proceeding with amendments to the transfer balance cap and total superannuation balance rules for limited recourse borrowing arrangements (LRBAs). The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance for all new LRBAs once this legislation is passed.
Integrity of non-arm’s length arrangements
The Government will amend the non-arm’s length income rules to prevent member’s using related party transactions on non-commercial terms to increase superannuation savings by including expenses that would normally apply in a commercial transaction.
Other changes
The Government will reinstate the Pensioner Concession Card for pensioners who were no longer entitled to the pension following changes to the pension assets test from 1 January 2017.
The Government will introduce a major bank levy which will raise $6.2 billion in the next four years.
The Government will introduce a new single body external dispute resolution scheme for financial services from 1 July 2018.
The Medicare Levy will be increased from 2% to 2.5% from 1 July 2019.
You can read more about the Federal Budget handed down on 9 May 2017 on the Australia Government’s official budget website – http://budget.gov.au/.
How can we help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2017-18 Federal Budget, please contact us to discuss your particular requirements in more detail.
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Superannuation legislation proposed end of September 2016 have passed through both houses of parliament today. These make significant changes to the superannuation laws and do differ from the original changes announced in the Federal Budget in May 2016.
The below changes will apply from 1 July 2017 so it might be sensible to for you to start thinking about how your superannuation and retirement planning will be impacted by the changes now and whether you need to change any of your super arrangements.
Changes in the legislation which you might need to consider include:
The new $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017.
Note – this includes defined benefit funds in the assessment eg CSS/PSS pensions
Contributions
The lower contribution caps for all taxpayers applying from 1 July 2017. The new caps will be:
Concessional contributions (pre-tax contributions) — $25,000 per year.
Non-concessional contributions (after-tax contributions) — $100,000 per year
Revised limit of $300,000 on the bring forward provision of 3 years’ worth of contributions to a single year. However to note:
If you have triggered but not utilised the whole amount of the $540,000 limit in 2015-2016 or 2016-2017, the balance left to contribute needs to be reviewed carefully as a reduced limit may apply.
If you have super balances exceeding $1.6 million you will no longer be able to make non-concessional contributions post 1 July 2017.
Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
Removing the tax-free treatment of assets that support a transition to retirement income stream.
From 1 July 2018 the following change will apply:
Individuals with balances of less than $500,000 will be able to ‘carry forward’ unused concessional cap space for up to five years. This will provide greater flexibility for those with broken work patterns.
How can we help?
The above legislative changes will most likely have an impact on your circumstances if you have a superannuation balance close to or over $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now.
If you would like to discuss your particular circumstances in more detail as a result of the above please do not hesitate to contact us to arrange a meeting.
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As you would be aware the budget was handed down on 3 May 2016. The potential impacts to superannuation are unfortunately significant and harsher than was alluded to prior to budget night.
What does it mean for your right now?
The only change that is in place from 3 May 2016 is the introduction of a life time limit on non-concessional (after tax) contributions which is now $500,000 per person. This test backdates to contributions made from 1 July 2007. This replaces the $180,000 limit per year per person and the bring forward option of $540,000.
This is a significant reduction of what can be contributed into superannuation and may impact your future plans for contributions. Essentially you have to know your contribution history from 1 July 2007 before placing any further non-concessional contributions into super. If you put in over the limit from now you will have to withdraw the amounts or face a penalty tax.
Superannuation related changes from 1 July 2017:
Lowering the concessional contribution cap to $25,000 for all individuals. The current $30,000 if under 50 and $35,000 if over 50 remain for 15-16 and 16-17 years
Introducing a $1.6 million superannuation transfer balance cap. This is the big change that will impact everyone and their retirement plans. From 1 July 2017 there will be a limit as to how much can be in placed into a pension of $1.6mil . If you have more than $1.6mil in your name in pension phase then amount exceeding the cap will need to be rolled back into accumulation phase where earnings are taxed at 15%.The concessional rate of 15% is still attractive for investment purposes as compared to marginal rates so we don’t see too many people taking the excess above the $1.6mil out of super.
Transition to retirement pensions (TRIS) – tax concessions to be reduced. The proposal is to remove the tax exempt status of earnings supporting a TRIS, instead they will be taxed at 15%. This will apply to all TRISs from 1 July 2017 regardless of when commenced. This is another significant change that will require a review of any TRIS strategies.
Allowing catch-up concessional contributions. Proposed to allow people with balances under $500,000 to carry forward unused concessional caps on a rolling 5-year basis to help with broken work patterns.
Tax deductions for personal superannuation contributions. This one is beneficial! It will allow anyone under age 75 to claim a personal tax deduction for super contributions they make. You no longer need to be primarily self employed to access this.
Work test removed for those aged 65-74 – the work test will no longer apply to allow the fund to accept contributions made for you or your spouse
Lowering the threshold of Div 293 tax – The income test limit for this tax has been lowered from $300,000 to $250,000 where a further 15c is charged on concessional contributions
Introducing a Low Income Superannuation Tax Offset (LISTO). This relates to people earning below $37,000 where a non refundable tax offset will be provided to super funds based on tax paid on concessional contributions up to a cap of $500.
There are further proposed changes and details in the paper prepared by SMSF Association if you wish to read more.
Other measures that may affect you personally from 1 July 2016:
Personal income tax relief by changing the threshold for the 32.5c tax rate to apply from $87,000 rather than the current $80,000
10 year plan to reduce the company tax rate to 25%. The rate will be reduce to 27.5% from 1 July 2016 where turnover less than $10mil (increased from $2mil)
Increase unincorporated small business discount over 10 years from 5% to 16%. 5% applies from 1 July 2015, 8% will apply from 1 July 2016 for eight years. The current cap of $1,000 per individual per year will be retained
Medicare levy low income thresholds will be increased
The most important action from today is to review your contribution plans and ensure you get appropriate advice before making new contributions. All the other proposed changes to superannuation will not commence until 1 July 2017 so there is no need for immediate action at this time.
Please do not hesitate to contact us here at Greenlight if you have further questions in relation to the changes.