The 2016 budget contained extensive changes to superannuation – the biggest in a decade. These unfortunately will add complexity to savings and investment plans and of concern include some retrospective measures.
While the media has widespread coverage, we will recap a few key aspects of budget announcements on saving and investment. These are proposals yet to be legislated and the election is upcoming, many have 1/7/17 start dates and we will have time to consider with you steps to take given changes.
There are several changes that limit the ability to add savings into super, there is a $1.6M limit on how much super can fund a retirement super pension. Transition to retirement (TTR) super pensions are to change, we will review those who have them. For many these won’t require any changes, however a different pattern of saving and investment may be appropriate for some.
Apart from the budget the RBA moved interest rates lower to 1.75%, giving the economy extra stimulus and contributing to a lower A$. After a volatile period in investment markets early in 2016, investments have largely recovered. The very low inflation, low interest rates, and low growth environment makes it important to diversify and invest for tax effective income and long term growth.
The main budget changes are:
- Lifetime $500K limit for personal NCC (after-tax) super contributions, counted from 1/7/07. If the cap has been breached any time before budget night on 3/5/16, there is no impact except that no further contributions are possible thereafter.
- For super pension accounts with NIL tax treatment an account balance limit of $1.6M applies from 1/7/17. Any excess balances above this amount need to be transferred to an accumulation account and are taxed at the regular 15% earnings tax . This applies to existing super pensions as well as new accounts.
- Concessional Deductible Contributions (CDC) to super reduce to $25K p.a. for all individuals regardless of their age from 1/7/2017. The budget introduces a wider scope to catch up on unused concessional contribution limits over a rolling 5-year period for anyone with account balances up to $500K.
- The additional 15% contributions tax for high income earners (Div293 tax) applies on incomes of $250K pa from 1/7/2017, reduced from previously $300K.
- From 1/7/17 earnings in Transition to Retirement (TTR) super pensions are taxed at 15% compared to currently NIL.
- From 1/7/17 those aged 65-75 will no longer require a work test to add further funds to super, and the ability to claim tax deductions on personal contributions has been extended to all individuals. This was previously limited to self-employed and substantially self-employed people.
- A small income tax reduction in moving the 37% marginal tax bracket to start at $87,000 rather than $80,000, and the Temporary Budget Repair Levy of 2% on incomes in excess of $180K ends on 30.6.17.
- A Low Income Superannuation Tax Offset (LISTO) will be introduced from 1/7/17 which reduces the tax on superannuation contributions for low income earners.
- The LISTO effectively replaces the current Low Income Superannuation Contribution (LISC).
- The Low Income Spouse Tax Offset income threshold increased from $10,800 to $37,000.
- Anti-Detriment payments will be abolished from 1 July 2017.
Subject to personal circumstances an increased use of gearing strategies, steps to even up amounts in spouse’s super accounts, adding to super earlier and more regularly, and greater use of family trusts may be appropriate.
We will need to review a range of details as they apply to each person, some of the specifics of these changes will not be known until legislation is released.
Should you have any urgent queries please contact us to discuss, we look forward to working with you to deal with these changes effectively and take up any opportunities presented.