Federal Budget Summary
The first Budget from the Turnbull government revealed a $39.9 billion deficit for 2015/16 moving to a $37.1 billion deficit for 2016/17 and forecasting a drop to $6 billion by 2019/20.
Treasurer Scott Morrison unveiled an economic plan designed to “build a brighter, more secure future in a stronger, new economy with more jobs”. The Budget centrepiece was a 10-year enterprise plan to boost new investment, create jobs and deliver wage growth, starting with income tax concessions for small and
Under proposed changes, the small business entity turnover threshold will increase from $2 million to $10 million from 1 July, 2016, seeing SMEs with an annual turnover of up to $10 million qualify for small business income tax concessions including a lower corporate tax rate of 27.5 per cent and generous equipment write-offs.
Over the next 10 years, the company tax rate will gradually fall to 25 per cent.
The Budget also revealed further investment in innovation and start-ups, initiatives to help young people into jobs and measures to combat tax avoidance.
Middle income earners were among the winners, benefiting from a modest tax cut, however, many of the super tax concessions for higher income earners will be scaled back.
Unlike last year’s Federal Budget which contained very few super changes, the Turnbull government announced over a dozen super changes.
They include a cap of $25,000 per year on concessional super contributions; a new lifetime cap of $500,000 on non-concessional contributions; increasing the number of people subject to a higher tax (up to 30%) on concessional contributions where income is above $250,000; and the introduction of a super transfer balance cap of $1.6 million to limit the amount of accumulated savings an individual can transfer into the tax-free retirement phase.
In line with pre-Budget speculation the government also made changes to Transition-to-Retirement (TTR) income streams by removing the current tax exemption on earnings from 1 July 2017.
Workers who have attained age 60 will still be able to draw a tax free retirement income stream while continuing to work and contribute to super.
Other changes include the abolition of anti-detriment death benefit payments (which represent a refund of a member’s lifetime super contributions tax payments) and the removal of the 10 per cent test for personal tax deductible super contributions.
Women and lower income earners
Under changes to the concessional super contributions cap, individuals with account balances under $500,000 will be able to make additional concessional contributions where they have not used up their caps in previous years.
Unused concessional amounts accrued from 1 July 2017 can be carried forward on a rolling basis for a period of 5 consecutive years.
The measures aim to give workers with relatively low account balances, as a result of broken work patterns, the ability to top up their super.
Women, who commonly take time out from paid work to care for children and are more likely to return to lower-paid, casual or part-time work, will be a key beneficiary of the catch-up scheme given they typically retire with significantly less super than men.
Women will also be key beneficiaries of a planned increase in the threshold for the Low Income Spouse Tax Offset from 1 July, 2017 to $37,000 from $10,800.
The Low Income Spouse Tax Offset provides up to $540 per annum for the contributing spouse, and is designed to boost the super balances of low income spouses, particularly women.
The Budget also featured a Low Income Super Tax Offset (LISTO) to effectively replace the Low Income Contribution Scheme (LISC).
The LISTO will reduce the tax on super contributions paid by workers who earn less than $37,000 a year by providing a tax offset to super funds from 1 July, 2017, based on the tax paid on concessional contributions up to the value of $500.
The vast majority of changes must be legislated and passed through Parliament before they apply. The government’s top priority is to see the proposed company tax cuts and personal income tax cuts start on 1 July, 2016, which will put pressure on Parliament to pass legislation quickly. If you think you may be negatively affected by some of the Budget’s proposed changes, you should consider seeking professional advice.
We can give you a clear understanding of where you stand and how you can manage your cashflow, super and investments in light of proposed changes. We can also ensure you’re not missing out any new benefits you may be entitled to.
Source from Fairway Financial Advice.