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:
- 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.
- 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.
- The taxation of Superannuation income streams won’t be affected for over 60’s. Great news for those receiving income streams!
- 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?
- No retrospective changes to the Rules. So if you have a strategy in place before Budget night – you should be ok.
- 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!)
- “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?
- 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.
- Consider structuring your next rental property purchase to be revenue neutral or only a small tax loss – so any ‘changes’ wont impact upon you.
- 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!