The Release of the Federal Budget 2016

How will it effect you?
The Treasurer Scott Morrison has delivered his first Budget, but his Governments third. It is based on a lot of things going Australias way.

How will it effect you?
The Treasurer Scott Morrison has delivered his first Budget, but his Government’s third. It is based on a lot of things going Australia’s way.

Like playing Keno and hoping your numbers keep coming up, Mr Morrison and Mr Turnbull need some luck which has largely deserted Australian treasurers since 2008.  Last week lady luck played a dead hand for Mr Morrison with an ultra-low inflation result. The Budget and the economy desperately needs a little bit of inflation in overall consumer prices and wages (but certainly not when it comes to Sydney-Melbourne house prices).

Hence the decision by the Reserve Bank to take interest rates to their lowest level since at least World War II.  It’s all about injecting that touch of inflation into the economy. If it works, then the Budget papers will improve.

 

What are the objectives of the Government?

 

  • Sticking to the plan of jobs and growth
  • Fixing problems with the tax system
  • Ensuring the government lives within its means, to balance the budget and reduce the burden of long-term debt

 

Election year budget….of sorts

 

  • No major tax increases or spending cuts
  • No significant giveaways
  • Major changes to superannuation impacting higher income earners
  • No major changes to social security
  • No changes to negative gearing
  • No changes to the GST

 

What has changed?

 

Taxation

 

  • Small changes to marginal tax rates to combat ‘bracket creep’
  • Maximum tax saving of $315 if earning over $87,000
  • Indexation of Medicare levy low income thresholds
  • Changes to private health insurance rebate

 

Small Business

 

  • Lowering of company tax rate to 25% by 2026-27
  • Unincorporated small business tax discount
  • Increase in small business entity turnover thresholds from $2m to $10m
    • Simplified depreciation
    • Immediate tax deductibility of assets costing >$20k
    • Extension of FBT exemptions

 

Social Security

 

  • Deferral of reforms to child care payment form 2015 budget to 2018 (from 2017)
  • Disability Support Pension eligibility to be reviewed
  • Youth employment initiatives

 

Superannuation

 

  • Non-concessional contributions
    • Abolish $180,000 annual cap and ‘bring forward’ rule
    • Replace with $500,000 lifetime cap
    • Includes all contributions made since 1 July 2007
    • Effective from 7.30pm 3 May 2016
  • Concessional contributions
    • Current cap is $30,000 or $35,000 if over 50
    • Replaced by a $25,000 cap for all
    • Ability to ‘catch-up’ and use previous years unused caps over a 5 year period
    • Catch-up provisions only for those with super balances of less than $500,000
    • Effective 1 July 2017
  • Deduction to Division 293 tax threshold
    • Currently extra 15% contributions tax if earning over $300,000
    • New threshold of $250,000
    • Effective 1 July 2017
  • Removal of work test
    • Currently if aged 65-74 must meet work test to make contributions
    • Work test to be abolished
    • Effective 1 July 2017
  • Tax deductibility for personal contributions
    • Currently must earn less than 10% form ‘employment’ activities
    • From 1 July 2017, anyone can claim a tax deduction for personal contributions
  • Transition to Retirement Pensions
    • Currently earnings on assets supporting a TTR pension are tax free
    • Replaced by 15% tax on earnings – same as when in accumulation
    • Effective 1 July 2017
  • Introduction of $1.6m pension transfer cap
    • Currently any amount can be transferred from accumulation to pension
    • Replaced by a cap of $1.6m
    • Any remainder to stay in accumulation
    • Fund members already in pension will have to reduce their balance to $1.6m
    • Effective 1 July 2017

 

For more information on these changes please contact your Fortunity Advisor on 4304 8888

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