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Industry reaction
Key bodies including the FPA, AFA, ASFA, SMSFA and the FSC paid special mention about to the raft of superannuation changes with particular about the changes to concessional caps and the changes to the Transition To Retirement strategy. Advice bodies have encouraged planners to speak to their clients who are approaching retirement as soon as possible.
Some wins for advice businesses
The AFA said that planners could benefit from some key small business announcements as the tackle a changing market.
Opposition response
Moves to abolish the Low Income Super Contribution (LISC) shows the Federal Government can’t be trusted with superannuation, said shadow minister for financial services and superannuation Jim Chalmers in response to yesterday’s budget.
Superannuation
The government will introduce a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts. This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation.
The governement will also require those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000.
It will also lower the the superannuation concessional contributions cap to $25,000 per annum.
Further, the government will introduce a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning.
Tax plan: target multinationals, changes to super concessions, tax relief for middle income earners & control govt spending #Budget2016
— Dante De Gori CFP® (@ddegori10) May 3, 2016
TRR controversial changes
The government announced it plans to remove the tax exempt status of earnings supporting the transition to retirement income stream (TRIS), with those who currently have arrangements in place expected to be impacted.
Personal income tax relief
The government plans to prevent average full time wage earners from moving into the second top tax bracket until 2019-20 by increasing the 32.5 per cent tax threshold from $80,000 to $87,000. This will stop around 500,000 taxpayers facing the 37 per cent marginal tax rate.
Budget overview from Verse Wealth, a Synchron authorised representative.
Women’s economic security
The government will introduce the ‘Low Income Superannuation Tax Offset’ to replace the ‘Low Income Superannuation Contribution’ when it expires on 30 June 2017.
This will allow individuals with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500. It is also intended to assist women to build their superannuation savings.
In addition, the government will allow the roll over of unused concessional cap amounts in order for individuals with superannuation balances of $500,000 or less to make ‘catch-up’ contributions.
There will also be an extension of eligibility for the tax offset for contributions made to a low income spouse’s superannuation.
The Treasurer will need a financial adviser himself to make the most of these super changes #Budget2016 @AFA_Voice Good, bad and puzzling
— Brad Fox (@AFA_CEO) May 3, 2016
Small business tax
From 2016-17, the unincorporated small business tax discount will be available to businesses with annual turnover of less than $5 million, up from the current threshold of $2 million, and will be increased to 8 per cent. The maximum discount available will remain at $1,000.
Over the next decade, the discount will be further expanded in phases to a final discount of 16 per cent.
The Treasurer says turnover threshold for #smallbiz increased from $2mil to $10mil #Budget2016
— NAB (@NAB) May 3, 2016
Tax avoidance
The government said that it will establish a new Tax Avoidance Taskforce and a Tax Transparency Code will be introduced to encourage greater tax transparency within the corporate sector, especially by multinational corporations.
“These new laws will be backed up by a new operational taskforce of more than 1,000 specialist staff in the ATO to police and prosecute companies, multinationals and high wealth individuals not paying the tax they should,” the Treasurer Scott Morrison said in handing down this year’s Budget.
According to the government, the Taskforce is expected to raise $3.7 billion of additional revenue over the next four years.
Reducing smoking
A further four annual 12.5 per cent increases in tobacco excise will be implemented, with the first increase to take effect on 1 September 2017. The government will also provide an additional $7.7 million for the Tobacco Strike Team to combat illicit activity.
Fintech boost
The government has committed $200,000 in this budget to promote Australia internationally as a fintech destination and to highlight commercial opportunities.
@IFA_AU sounds like “nation building”! #Budget2016
— Dave Rae (@1DaveRae) May 3, 2016
The onus will be on the adviser to establish the records before implementing the advice. More admin hack work for our practise and more risk we take on in advising clients. The only good news is that the banks and industry funds offering limited advice are going to be exposed but they will probably obtain an exemption from the compliance rules advisers are required to live by
A phone call with a colleague today has me somewhat frustrated: this person called the ATO to verify NCC for a client only to be told ‘sorry, we don’t have that information’. So I think this could be very interesting to try and get right and perhaps the logistics need a rethink.
Melinda, there is no portal – we wrote to the ATO to request details on Low Rate Threshold for a client – 6 months later we had a response ( and it was questionable).
Will be interested to see what their records hold?
Dead (wo)men don’t scream too loudly and cannot vote so a death tax on super could have achieved a better result. So whilst this is a better outcome for the constituents it also delays getting the revenue into the government coffers. Conflict of interest indeed?
I’m also not convinced about the negative gearing sentiment in terms of abolishing it as the wealthy have the financial ability to neutralise negative gearing strategies whereas the ‘mums and dads’ trying to get ahead cannot. This widens the gap between the ‘haves’ and ‘have nots’.
A lot of complexity in tracking contributions going backwards. Do we have access to an ATO portal for our clients that can tell us the accumulated balances?
Otherwise it’s going to get messy!
All of these changes are just discouraging people to use superannuation, is that what they want?
Something that may impact on the CAP
Are insurance premiums paid via super, where the contribution tax is refunded caught under the cap rule- no cont tax = NCC ???
Not sure if many will agree but I would have preferred to see less limitations on boosting your superannuation balance and perhaps additional tax upon death…
Promote people to fund their own retirement without significant restriction and then make some of the tax concessions back when they pass.
I’d also have liked to have seen a cap on negative gearing, just seems like a no-brainer.
How do they reconcile restricting super contributions to $25K while bemoaning the fact that not enough Australians take advice and plan for their retirement ? A lower return environment will require more contributions to meet retirement goals . A dumb policy of envy you would expect from a labor government – Is Turnball a labor plant ??
As expected, a peacemeal do as little as possible budget.
Interesting that $250k+ are going to pay a 30% tax on conts whereas retaining in a PTYLTD will only incur 27.5% for earnings…feels a bit like a 2.5% contribution fee surplus to put money away for rainy days.
Really pleased to see the government taking steps to finally gain some much overdue tax from the multinationals reaping millions of dollars in profits out of this country without paying a cent of tax. It should have happened years ago…
So tax planning by contributing to super is restricted but it is fine to continue to have unlimited negative gearing. High income ($250,000) earner can get a 49% benefit on negative gearing but tax effectiveness of super contributions is restricted to 19% on a paltry $25,000.