What the 2017 Federal Budget means for you
Written by Shereen Churchill (Financial Adviser)
On 9 May 2017, the Turnbull Government delivered the 2017/18 Federal Budget which focused on health, home and housing.
From a pure financial planning and wealth perspective, the positive news is that the changes are minimal. This is a very welcome outcome given the significant changes, particularly to superannuation, that were announced in last year’s Budget which are still largely due to come into effect from 1 July 2017 (refer to our end of financial year planning blogs for further info).
It’s important to understand that these proposals are just announcements and the final form may differ when they ultimately become law.
It may be time for you to consider downsizing
We know that many of our self-funded retiree clients have been considering the option of downsizing their home. However, with the restrictions on contributing to superannuation, there hasn’t been much of a financial incentive…until now.
To increase housing stock, the Government is encouraging older Australians, aged 65 or more, to downsize their properties by allowing them, from 1 July 2018, to make a non-concessional contribution of up to $300,000 per individual into their superannuation fund from the proceeds of the sale of their principal home which they have owned for more than 10 years.
Importantly, the normal super contribution rules such as ‘work test’ requirements that currently apply to those aged 65 or older will not apply to these contributions, and they can also be made by those with more than $1.6 million of total superannuation and those who have already used up existing contribution caps. However, consideration needs to be given to the impact on any existing Age Pension entitlements.
Returning Concessions to Self-funded Retirees impacted by Centrelink’s 1 Jan 2017 changes
Some of our clients lost their pensioner concession card when the pension assets test change introduced on 1 Jan 2017– the good news is you will be getting the card back along with all the concessions that come with this.
It may be time for you or your kids to take an interest in super
Our younger clients and many of our clients with young adult kids come to us for advice about helping themselves or their kids get onto the property ladder. It may be time for you or your kids to take an interest in super to boost your first home deposit.
To help first home buyers get ‘into the game’, they will be able to save for a deposit by making additional voluntary contributions into their superannuation account from 1 July 2017. The First Home Super Savers Scheme will enable access to the tax advantages of superannuation with pre-tax contributions and earnings taxed at 15%, rather than marginal rates, and on withdrawal taxed at their relevant marginal rate, less a 30% offset. These voluntary contributions plus their deemed earnings can be accessed from 1 July 2018.
Savers will not have to set up a new account, they can just use their existing super account while contributions will be limited to $30,000 per person in total and $15,000 a year. The contributions made will be counted under the relevant contributions caps so it is important to note caps are reducing from 1 July. The concessional contribution cap will reduce to $25,000 per annum per person and the non concessional contribution cap will reduce to $100,000 per annum per person or $300,000 if you are eligible under the bring forward rules.
Tax break for high income earners
From 1 July 2017, our clients with taxable income in excess of $180,000 per annum will no longer have to pay the 2% temporary budget repair levy. After taking into account the increase in Medicare Levy, means that income tax plus medicare levy at the higher band will reduce overall by 2% until 1 July 2019 then a 1.5% thereafter.
Education and childcare also rated mentions; university fees will rise by 7.5% by 2021 and childcare rebates will be means tested.
Successful Business Owners
For small business owners, the $20,000 write off on capital expenditure that was due to end on June 30, 2017 will continue for another year.
You may also be interested in the cessation of the temporary budget repair levy which is essentially a tax break for high income earners. Refer to the “Professional Families” section for further detail.
To ensure all Australians can continue to access timely and affordable healthcare, the Government announced that it will set up the Medicare Guarantee Fund to pay for all expenses on the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme (PBS). The revenue raised from the Medicare Levy will be credited to this fund (excluding amounts to fund the National Disability Insurance Scheme (NDIS)).
To fully fund the NDIS, the Medicare levy will be increased by 0.5% to 2.5% from 1 July 2019.
Overall, the number of changes announced in this year’s Federal Budget are small compared to prior years. For many, this is important as it allows a continued focus on the significant changes to superannuation which take effect from 1 July 2017. With regards to this, we will be writing to all affected clients in the coming weeks.
This information has been prepared and issued by ITL Financial Planning and is current as at 10 May 2017. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. ITL Financial Planning does not accept responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.