2016 Federal Budget

May 18, 2016

Peter Cramer

Some really good things coming out of the Budget announcements!

I am sick of all the negativity from commentators and Politicians following the Budget. So I am setting some facts straight!

Firstly of course – the Budget is a proposal, it is not law and won’t be until a Party gets elected and then their policies get passed. Many of the changes apply from 1/7/2017 – ie 14 months away!

The following assumes everything comes in as proposed (but it probably won’t!)

• Superannuation: Some really good changes. Removal of Work Test for over 65’s. Everybody up to age 75 can contribute to super and get a tax deduction up to an aggregate $25,000 per year.
• Removal of 10% Rule. Means you can get a tax deduction for a super contribution even if you earn wages and your employer is paying super. This is great! Allows for more tax planning and options. Means you won’t have to salary sacrifice into super – can do it when it suits you (eg year end).
• Carry forward of $25k annual deduction. Allows you to contribute up to an average of $25k per year over the last 5 years. Great! To illustrate:. For the last 4 years your income has been low so you have only contributed $5k into super per year. This year you have a big capital gain or big profit or big bonus – you can catch up past super and get a tax deduction this year of up to $105,000! ($5 * $25k less 4*$5k). Fantastic idea! (Must have less than $500k in super to do this).
• Bad stuff: The TTR option (taking an income stream from super before you retire) is still available but the tax concession inside super goes – ie the Fund income will be taxable. The strategy will be to cease them or convert to a normal pension (if possible) which will still have the tax free income.
• Good and bad news – the majority of pensions will still be tax free inside super – up to a limit per member of $1.6m. Whilst those already with balances over $1.6m are not happy – there is still a significant amount of retirement money totally tax free! ($3.2m for Dad and Mum).
• Normal pensions paid to over 60yo’s still totally tax free. So still massive tax savings!
• Bad bit: A limit on the amount you can put into super on a non concessional basis (ie no tax deduction). This is set at $500k and includes anything put in since 2007! Grrrr!! However I am betting they change that (lots of people are kicking up a fuss as it is retrospective) and I suspect they will make it as from 3/5/16 – ie get another crack. Hold your breath…. However at the moment – do NOT contribute anymore NCC until this is sorted.
• Small Business: Fantastic news – the definition of small business to be defined as turnover under $10m. This will fix many problems of trade ins on machinery that was unfairly costing small business big tax bills. Also simplified PAYG payment conditions, GST on a Cash Basis and greater access to some FBT lurks on portable electronic devices. (This doesn’t apply to CGT rules).
• Company tax rate for Small Business to fall to 27.5% (currently 28.5%). Somewhat helpful.

There are many other things in the Budget – but what I wanted to highlight were some of the proposals that are really good!

Re the future of Super: If you have listened to me over many months and years my message has been constant: “the rules we have are unbelievably fantastically good!!! – but they won’t last for ever, and when they do change, super will still be great – just not as great as it is now”. Summary? Super with all the proposed changes will still be super.