Last night the Federal Government handed down the 2017-18 Federal Budget.
This year’s budget was not expected to be one of great change for most investors and clients (thankfully as we are still dealing with the superannuation changes from the last budget that will be implemented in July 2017) and lived up to these expectations in most areas.
We have reviewed the Budget and prepared a summary of the key measures to be considered.
Pre and post retiree clients:-
- Additional super contribution options for downsizers
- Re-instatement of the Pensioner Concession Card for former pensioners
- Strengthening the aged care sector
- Medicare levy increases
New tax incentives to tackle housing affordability:-
The government has put forward a plan aimed at reducing pressure on housing affordability, including greater incentives for first homebuyers and downsizers as well as tougher rules on foreign investment.
1. From 1 July 2017, a First Home Super Saver Scheme will be introduced allowing individuals to make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation account to purchase a first home.
Treasurer Scott Morrison said the First Home Super Save Scheme will attract the tax advantages of super.
"Contributions and earnings will be taxed at 15%, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less 30 percentage points*," Mr Morrison said.
"Savers will not have to set up another account, they can just use their existing super account and decide how much of their income they want to put aside to save for their first home deposit.
*“30 percentage points” means 30% tax offset.
Super is designed as a long-term investment for retirement income purposes, so using it as a vehicle to save for a home deposit is sending a mixed message. Also be aware how the money is invested in superannuation may see capital go backwards.
2. In addition, from 1 July 2018, individuals aged 65 and over will be able to make a non-concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation.
That's $600,000 for a couple.
Existing voluntary contribution rules for people aged 65 and older (work test for 65-74 year olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under the new downsizing cap.
A welcome change as many people do leave their run to accumulate super to the last minute. We do see many clients downsizing their home being over 65 and having to leave their surplus money in a more highly taxed environment outside Super. Good to see that the $300,000 amount is not part of the non-concessional cap.
3. A 50% cap will also be placed on foreign ownership in new developments and will be applied through conditions imposed on New Dwelling Exemption Certificates. Developments must be multi-storey and have at least 50 dwellings.
Foreign investors will no longer be allowed to claim the main residence Capital Gains Tax exemption. In addition, foreign investors will be charged at least $5,000 annually should they leave their properties unoccupied or not available for six months or more each year.
1. One off Energy Assistance Payment to pensioners $75 for a single person and $125 for a couple and payable 26/6/2017.
2. Enhanced residency requirements from 1 July 2018 - needing to be resident in Australia for a 15 year continuous period to receive Age Pension or Disability Support pension.
3. Reinstatement of the Pensioner Concession Card for those people no longer receiving the age pension as a result of the lowering of the assets test from 1/7/2017.
1. From 1 July 2019 - increase in medicare levy by 0.5% to 2.5% of taxable income ensuring the National Disability Insurance Scheme is fully funded.
2. For the 16/17 tax year there is an Increase in Senior and Pensioner Offsets to $34,244 singles (was $33,738) and $47,670 as a couple (was $46,966), which means you can earn more in ‘rebate income’ before you would start paying the Medicare Levy.
So the majority of retirees over age 65 will continue to not be paying any Medicare Levy. Note that as superannuation pension income is tax-free for the majority of SAPTO recipients, this income is in addition to the income declared on your tax return for SAPTO purposes.
Rebate Income = taxable income plus reportable super contributions (salary sacrifice and deductible personal contributions) + Net investment loss + Adjusted fringe benefits.
1. For small business a reprieve on the $20,000 write off on capital expenditure that was due to end on June 30, 2017. Small business will be able to take advantage of this write off for another year.
Increase in programs to help older people live independently in their homes.
Australian Bank Levy:-
Bank share prices are down as a result of the Federal Budget introducing a levy.
Our Stockbrokers advise that they would expect banks to pass on costs to customers and don’t see a material impact on profitability, not seeing any risk to the stability of the financial system, though it is a reminder of the banks ongoing regulatory challenges.
Morrison announced a six-basis point levy on the big banks’ liabilities, starting on July 1, but made clear that it would not affect either superannuation funds or insurance companies.
"This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks," he said.
Please note that any advice contained in this alert is to be regarded as general investment advice and factual of nature rather than personal advice. As it is not possible to take into account each client's individual circumstances, before acting on the recommendations contained in this report clients must determine the appropriateness of a particular recommendation in the light of their investment objectives and financial situation. Past performance is not a reliable indicator of future performance.