This year’s Federal Budget was not as controversial as previous years, however there are still changes which may affect you and your family.

Additional super contributions from proceeds of downsizing your home

From 1 July 2018, individuals aged 65 and over will be able to make an after-tax super contribution of up to $300,000 ($600,000 for couples) from the proceeds of the sale of their home, providing it was held for a minimum of 10 years. This measure will not attract any special Centrelink treatment but will allow individuals to make contributions above the super caps, without meeting work or age test requirements.

First home saver scheme

The Government will allow voluntary super contributions to be withdrawn for a first home deposit.  From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year, up to $30,000 in total to super for the purposes of this measure.

Increase in Medicare Levy

From 1 July 2019, the Medicare levy will increase by 0.5% to 2.5% of taxable income. The increase ensures the National Disability Insurance Scheme (NDIS) is fully funded.

Extending the immediate $20,000 asset write-off for small business

Accelerated depreciation rules for small businesses will extend until 30 June 2018. This allows small businesses, with aggregate annual turnover of less than $10m to immediately deduct purchases of eligible assets up until that date, provided the asset costs less than $20,000. Assets valued $20,000 or more can be depreciated at 15% in the first income year and 30% each income year thereafter.

Disallowing deduction of travel expenses for residential property

From 1 July 2017, the Government will no longer allow deductions for travel expenses related to inspecting, maintaining or collecting rent for residential rental property. However, investors can continue to deduct those types of expenses incurred by third parties such as real estate agents and property management services.

Reducing the corporate tax rate

The legislation to reduce the corporate tax rate has passed both houses but is not yet law. The reduced company tax rate will progressively apply to companies with an aggregated annual turnover of less than $50m only. The proposed rate for 2016/17 onwards is 27.5% for companies with annual aggregated turnover of less than $10m per year.  

Changes to repayment of HELP debt

The income thresholds will be revised for the repayment of HELP debt, repayment rates and the indexation of repayment thresholds. A new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate.

Pensioner concession card reinstatement

Age pensioners who lost entitlement to their Pensioner Concession Card due to the assets test changes on 1 January 2017 will have their card reinstated. The card will be automatically reissued over time with an ongoing income and assets test exemption.

Family Tax Benefit (FTB)

The FTB payment rate will remain fixed until 1 July 2019 and indexed each year thereafter. From 1 July 2018, all families with total income over $94,316 will have their FTB Part A reduced by 30 cents for every dollar above $94,316.

 

In writing this article, Planning for Prosperity (ABN 97 110 670 463), has not taken into account any particular person’s objectives, financial situation or needs. Before acting on this information, consider the appropriateness of this information having regard to your financial situation or needs. We recommend seeking financial advice specific to your situation before making any financial, investment or insurance decisions.

budget-2016Tuesday 3rd of May saw the release of the Federal Budget for another year.  For those who missed it, this year’s theme is “Jobs and Growth”, which is slightly more appealing than “Fiddled with things”.

But what does it mean for farmers and small businesses in the rural community?  While there are many things to note, I’ve picked out a few key points that may be the most relevant.

Please note these proposals will depend on the outcome of the upcoming election before being legislated.

Tax savings

The tax rate on small businesses has been reduced from 28.5% to 27.5% for the 2017 financial year.  In addition to this, the definition of a small business has been extended from $2m to $10m in turnover.

Sole traders and partnerships will see an increase in the unincorporated tax discount from 5% to 8% for businesses with turnover less than $5m, capped at $1,000 per year.

The accelerated depreciation allowances introduced last year (which allow an asset up to $20,000 to be instantly written off) will be extended to include business with a turnover of up to $10m.  New accelerated depreciation rates will apply to farmers who make purchases above $20,000 at 15% in the first year and 30% each year thereafter.  These changes could be beneficial for regional businesses that are supported by farmers.

For individuals, the threshold for the 32.5% tax bracket has been moved from $80,000 to $87,000, which represents a modest $315 saving per year.  The 2% temporary debt levy for those on incomes of $180,000 and above will be removed from 1 July 2017.

Changes to Superannuation

The annual cap on tax deductible super contributions has been reduced to $25,000 for all age groups from 1 July 2017.  This still leaves opportunities to maximise contributions at the current higher rates for the current and next financial year.

There are also several positive changes which will make it easier for people to contribute.  Anyone under 75 will be able to make a tax deductible contribution into super, regardless of their employment status.  This will remove the restrictive ‘work’ test that applies for those aged between 65 and 74.

People with super balances under $500,000 who have not used their entire $25,000 deductible contribution cap will be able to be carry the unused amount forward on a rolling 5 year basis.  This may present opportunities for people to manager their tax in higher income years where they would have otherwise missed out.

Currently the tax applied to internal earnings from assets supporting ‘Transition to Retirement’ pensions is zero.  From 1 July 2017 this tax will be increased to 15%, which is in line with accumulation accounts.  Income streams from these pensions will still remain tax free for those over age 60.  People with these strategies in place should definitely have them reviewed to ensure they are still relevant.

Assistance to farmers

In addition to the increasing of Farm Management Deposits to $800,000 per person, the Government is providing an additional $7.1m in funding for Rural Financial Counsellors who will provide free financial advice to farmers in drought-affected areas.

The recent Federal Budget has caused quite a stir amongst the Australian people.  Treasurer, Joe Hockey has labelled it not as “the age of austerity” but “the age of opportunity!” in a budget full of cuts to welfare and public spending.  Recent reports suggest it has hurt consumer confidence.

It was always going to be a case of tough love if the government is serious about one day achieving a surplus again.  For some this is a hard pill to swallow, particularly when we look around us.  The sun is still shining, people are still working… everything appears to be good on the surface.  So why are we being told that things are bad?  The first thing we need to recognise that it may not always appear this good if we continue to head down the same path we are on.  Think of a person with a credit card stretched to its limit.  The problem isn’t reaching the credit limit per se; it was the over-spending that occurred along the way.

It’s popular for the Liberals to blame Labor for the debt but the Howard government had their role to play in this also.  Federal Budgets used to be like Christmas eve.  We’d all wait to see what Santa was going to give us in the way of tax cuts, concessions and middle class welfare.  Only now has this become an issue.

The more contentious parts of the budget perhaps, are where the cuts are coming from.  It can be argued that the young and the poor have been hit the hardest.  Families will have their tax benefits permanently reduced whereas high income earners will have a temporary 2% levy applied to all income over $180,000.  In a budget where we have all been asked to chip in, it’s fair to say some are chipping in more than others.  The truth is, nobody likes to have something taken away from them.

A demographic headwind looms as the baby boomers begin to exit the workforce.  This poses a growing challenge to governments as to where they can find a secure source of taxation revenue.  It should not be ignored and rather seen as an opportunity to reform our painfully inefficient tax system.

One common suggestion has been to broaden the GST to include fresh food, education and some utilities.  While this would also hit poorer members of society, a portion of the additional revenue raised could be used to provide aid to those in need directly.

The Henry Tax Review made a raft of recommendations to the government in 2008 but sadly these continue to get ignored in the political spin cycle.  In short, it suggested transitioning away from inefficient taxes, such as personal income, company and payroll tax to rely more on a broader and more stable base made up of GST and land tax.  There is much academic research to support such reform.

Thankfully we still live in a lucky country.

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