Possible 2016 Federal Budget changes you might want to pre-plan for

February 25, 2016

Peter Cramer

My take on what might be in the 2016 Federal Budget – and what to do about it!

(Matt, Kerry and I spent 3 full on days at the SMSF Association Conference in Adelaide finishing with a great presentation by Todd Sampson about the power of your ‘ordinary brain’ and what can be done with ‘brain training’. Fascinating insights and, wow – what can be achieved with some effort is amazing…!)

But I digress – back to the Budget…

Scott Morrison, the Federal Treasurer spoke and from his speech I took the following away:

1. He said the Government supports negative gearing and taxpayers saving for their future, however they need to “look at excesses”. This may indicate a limit to the tax losses that can be claimed to a dollar figure (eg $10,000 or $15,000). Above that, the losses may be quarantined and only used against future profits from the property investment.
2. He quoted that around 80% of negative gearing claims are less than $15,000 – so it won’t be as politically dangerous to have a cut off as ‘most’ won’t be affected.
3. The taxation of Superannuation income streams won’t be affected for over 60’s. Great news for those receiving income streams!
4. No mention of ‘Transition to retirement income streams’ – so if you are over 56 and not yet into your income stream – maybe you should be looking at this carefully?
5. No retrospective changes to the Rules. So if you have a strategy in place before Budget night – you should be ok.
6. I suspect taxpayers with higher individual taxable incomes will pay a higher rate of tax on their contributions (in the superfund), or have their effective tax savings reduced (in their tax return). I suspect this will be reduced to an effective tax saving for everyone of around 15%. They are being sucked into the argument that those with higher incomes shouldn’t get a larger tax deduction than those on lower incomes. (I would argue that as they pay more tax they should get a higher deduction!)
7. “Superannuation is not an Estate Planning Tool” – that I didn’t like to hear! I suspect they may reduce the non-concessional contribution limits per year and may impose a lifetime non-concessional limit to super. It may be that they increase the requirement to withdraw down pension amounts – however there were some comments that it might be appropriate to reduce the required drawdowns due to current investment volatility.

So – what to do?

1. If you were planning to purchase a rental property using debt and expected the net annual result to be a tax loss – then you might want to have the contract settled before May 2016.
2. Consider structuring your next rental property purchase to be revenue neutral or only a small tax loss – so any ‘changes’ wont impact upon you.
3. If you were considering moving large chunks of assets into super then doing so before May 2016 might be smart; (whether this be cash contributions up to $540k or land or business assets). This has provided many clients with great retirement asset building and great tax advantage – make use of it in case it is restricted!

As always, you should talk to us before undertaking a significant strategic move – we can explain the rules and options to allow you to make an informed decision.

Finally – this is my reading of what might happen – no responsibility is taken if it is wrong! But sometimes it is good to take action in advance of what might happen – even if it doesn’t!