Below I have set out a summary of the personal tax and superannuation changes announced in the budget on 3 May 2016.
In summary, the tax benefits associated with contributing into super for higher income earners (i.e. > $250,000 p.a.) are proposed to be scaled back. Whilst it is still largely beneficial to contribute the maximum into super (which will be $25,000 p.a. after July 2017), it will become more important for higher income earners to consider additional tax minimisation measures such as borrowing to invest to minimise paying a 49% marginal rate (being 45% + budget deficit levy of 2% which ends 1 July 2018 + Medicare levy of 2%).
The vast majority of the changes below do not take effect until 1 July 2017 which provides you over 12 months to take any action. However, if you have any questions, do not hesitate to reach out to us.
Income tax cuts
- From 1 July 2016 the second highest tax bracket will increase from $80,000 to $87,000 saving $315 in tax for those who currently earn over $87,000 p.a.
- The company tax rate (for companies with turnover of $10 million or less) will reduce from 30% to 27.5% from 1 July 2016.
Superannuation changes
- The annual concessional contribution cap will reduce from $30,000 (or $35,000 for people over 50) to $25,000 on 1 July 2017.
- A limit on the amount that you are able to transfer into a tax-free pension phase of up to $1.6 million will be introduced from 1 July 2017. Any super in excess of $1.6 million will remain in accumulation phase and investment earnings will be taxed at 15%.
- If you earn over $250,000 your (concessional) super contributions will be taxed at a rate of 30% instead of 15% p.a. from 1 July 2017 (currently the threshold is $300,000 p.a.).
- From 3 May 2016 the government will introduce a non-concessional (after-tax) contribution lifetime limit of $500,000 (including non-concessional contributions made since July 2007). Prior to this announcement, people could make non-concessional contributions of up to $180,000 p.a. with no lifetime limit.
- From 1 July 2017, employees will be able to make additional superannuation contributions separate from their employer’s contributions (but both still count towards the cap). For example, if your employer has contributed say $15,000 for the year to June and you feel it’s appropriate for you to contribute an extra $10,000 (to take total contributions for the year to $25,000), you can do that from your own cash savings and claim a tax deduction for it. This gives employees that same end-of-financial-year tax planning opportunities that are currently only available to self-employed taxpayers.
- From 1 July 2017 people will be able to utilise any unused concessional contribution caps going back up to 5 years. This provides a great tax and wealth planning opportunity.
- From 1 July 2017, anyone earning less than $37,000 p.a. will get a refund on the tax paid inside super of up to $500 to ensure that they don’t pay more tax inside super than they do in their personal name.
- From 1 July 2017 the government will make it easier for people aged 65 to 74 to make super concessional and non-concessional contributions without needing to be employed (i.e. meet a work test).
- From 1 July 2017 you can make contributions into your spouse’s super as long as they earn less than $37,000 and receive an 18% tax offset of up to $540 (i.e. max contribution of $3,000 p.a.). The offset is gradually scaled back if your spouse’s income is between $37,000 and $40,000 p.a. (nil if > $40,000 p.a.).
- From 1 July 2017, super used to fund transition-to-retirement income streams will be taxed at 15% – thereby essentially ending the transition-to-retirement tax minimisation strategy.
Negative gearing and CGT
- No changes were announced to negative gearing or capital gains tax for investors.
