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      Federal Budget FY2016

The Bravien Breakdown
"Jobs n Growth"

Last year we had "steady as she goes", and although there's been much hype in recent weeks about GST (squashed), Capital gains tax (squashed), negative gearing (squashed), and jobs n growth (you decide), quite frankly it's all fairly benign in this election year.


Yes there are some big changes for superannuation contributions and high income earners. Yes, it will be a lot harder for property investors to exit their strategy in a way that minimises capital gains tax, and converts the proceeds into tax free income for retirement. Yes, if you have more than $1.6m in super, you're about to have your balance over $1.6m forced out of pension phase and back to a 15% tax environment. Yes smoking will get even more expensive! On the flipside, lower income earners will pay less tax in super. Super and pensions for retirees with balances under $1.6m are untouched and will continue to enjoy tax free status when you are over age 60. (Retired Centrelink recipients have already been hit with changes starting 1 January 2017). There's the usual suspects for spending measures and spending cuts.

What else can one expect - it's an election year in a tough economic environment!? This Bravien Federal Budget2016 Special Edition will bring you the big ticket items and how they affect you.

In a rush?...you can click here to view an excellent info-graphic of this year's Budget2016 winners and losers.

Please remember, some of the Budget2016 measures will not be confirmed until they've been through the senate and received royal ascent. Most of the superannuation measures take effect immediately, so if you are planning any personal contributions from today or you are salary sacrificing to super, your strategy will need to be reviewed. **Please call us before making any additional super contributions.

As always, if you would like to discuss your situation or how Budget2016 may affect you, please call the Bravien team on 1300 BRAVIEN (1300 272 843).

The Team @ Bravien
Advice | Superannuation | Retirement | Aged Care | Investment | Insurance

The Economy in Summary:

— Let's face it, more than likely in this fairly low growth world, we are headed for "sustained slugishness". To expect much else would be overly optimistic and whilst the conditions for massive downside are not there either, we are likely to see a lot of sideways. Interest rates were cut yesterday for the first time in a year, to 1.75%. That means lower returns on bank deposits, lower returns on bonds, a lower Aussie dollar and a very unlikely injection to business confidence or spending. It probably also means less dividends from bank shares, who make a much bigger margin when interest rates are higher. Sure, there's overall growth and that's forecast to continue, but this is a time for very wise investment selection where quality and value are paramount. This is a VERY good time to be reducing debt, not taking more on...household debt in Australia has now risen higher than pre-GFC (relatively much more than government or corporate debt in the last 5 years) and global debt has increased $57 trillion since pre-GFC! Again, we're not saying it's all gloom...just don't expect a lot of boom.

— The 2016 budget deficit is $37 billion, with government spending roughly the same over the last 10 years (including the Labor terms in office). The government is hoping GDP rises by around 3% pa (forecast) in order to drop that deficit to around $6 billion over the next 4 years.

— Unemployment is around 5.5% and steady.

— As per the last few years, there will be no big pay rises. Wages are expected to rise in line with inflation and the government is hoping that small business tax cuts will encourage greater employment and modest pay increases.

...and our pick for the quirkiest announcement this budget: decisions worth about $1.6 billion that are "not yet announced", and an undisclosed saving in 2019 of almost $2 billion. Like we said, it's an election year so watch this space for further announcements in the next 10 days.


Tax on personal earnings

Tax rates for FY2016/2017 - Try a tax calculator by clicking here

A small cut for middle income earners.

Taxable Income Tax Payable / Marginal Rate
Up to $18,000 Nil
$18,201 - $37,000 Nil + 19% of each dollar over $18,200
$37,001 - $87,000 $3,572 + 32.5% of each dollar over $37,000
$87,001 - $180,000 $19,822 + 37% of each dollar over $80,000 ($6/w saving)
Over $180,000 $54,232 + 47% of each dollar over $180,000

Medicare Levy - remains at 2.0%.  Low-income earners will continue to receive relief from the Medicare Levy through the low-income thresholds for singles, families, seniors and pensioners. The current exemptions from Medicare will also remain and apply to Disability Care.

Temporary Budget Repair Levy (2%) will be removed in July 2017 (although this effective tax cut to high income earners over $180,000 pa will be opposed by Labor)

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How will families be affected?

Not much is changing...

The 3-step Youth Jobs program (PaTH) of skills training, paying bosses to take them ($1,000) on as interns so they get experience and then an incentive to offer them a full time job ($10,000), has the potential to make a massive impact. It will help businesses to hire more readily and get young adults into work more quickly and potentially move out of home sooner in order to free up mum and dad's resources.

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How will super, retirees and pensioners be affected?

OK - BIG changes here.
(If you are retired with less than $1.6m in super...you can skip this section!)

Superannuation & Pensions

  1. The main surprise savings measure is a retrospective cap on the transfer of superannuation balances into the retirement phase being set at $1.6 million, which will limit your tax free retirement income. It will be applied to both current retirees and to individuals yet to enter their retirement phase. Existing tax-free retirement pension fund balances above $1.6 million will have to be transferred into accumulation phase accounts and will be subject to the 15% superannuation earnings tax. Or, the "excess" funds can be withdrawn altogether from pension/super and taxed at your marginal rate. For those affected, analysis will be required and we'll be in touch. High earning (over $100,000 pa) defined benefit public service pensioners will also be affected by this measure, with further details to follow.
  2. This policy change will re-introduce the old financial planning practice of superannuation splitting for high income earners and their spouses...effectively ensuring that where possible, both members of a couple combined could manage up to $3.2m in tax free pensions with the right planning.
  3. The Government is lowering the income threshold at which the 30 per cent tax rate kicks in on superannuation contributions from $300,000 to $250,000, which matches one of Labor's policy commitments. This will mean more tax on super for high income earners.
  4. In a significant change for all ages currently salary sacrificing into super, the annual cap on 15% taxed contributions will be lowered to $25,000 from the current $30,000 for under-50s and $35,000 for those aged 50-plus. This means you could be paying up to $3,200 per annum more tax personally. This affects all money paid to your super fund by your employer, including super guarantee and salary sacrifice, as well as all contributions you are claiming as a personal tax deduction. It will not affect contributions up to 30 June 2016.
  5. Non-concessional (personal after tax from your bank account) contributions will also be subject to a lifetime cap of $500,000 from budget night, down from the current annual cap of $180,000 or $540,000 using the bring forward rules. All non-concessional contributions made from 1 July 2007 will be counted towards the lifetime cap - which will mean serious research required before ANY personal contributions are made to super going forward, or potentially face penalty tax. This is a big tax blow to property investors selling around retirement in order to get rid of debt and transfer wealth into the tax free superannuation environment because it limits contributions to super. It will also affect those gaining windfalls such as inheritances or winnings, basically meaning more tax to pay in retirement. Although contributions from 1 July 2007 will count towards the cap, this measure is not retrospective, so people who have already made non-concessional contributions above $500,000 will not have to pull the money back out of their super funds.
  6. A new tax offset of up to $500 will apply to the concessional superannuation contributions made on behalf of workers earning less than $37,000. This ensures that they do not end up actually paying more tax on their super contributions than they do on their income.
  7. The Government is extending the ability for all individuals aged under 75 to make tax concessional contributions to their superannuation (currently 65 unless you meet the work test). People aged 65-74 will also now be able to make contributions to, and receive contributions from, their spouse.
  8. In a move that will particularly benefit women who take time out from their careers to have children, from 1 July 2017 the Government will allow catch-up concessional super contributions for those people with balances under $500,000 who did not reach their $25,000 concessional contribution cap in earlier years. This will take careful planning and may be less desirable for younger workers who could instead be focussing on home loan repayments, kids education and lifestyle. Maximum catch up timeframe is 5 years.
  9. From 1 July 2017, the Government will increase access to the low-income spouse tax offset – which provides up to $540 per annum tax rebate for the contributing spouse (18% of the contribution). The low-income spouse’s income can now be up to $37,000 (increased from the current $10,800).
  10. From 1 July 2017, the anti-detriment payment (which effectively repays all tax paid by the super fund where the member has died and therefore boosts the payout to certain beneficiaries) will be abolished. This means around 17% less super payout than is possible now, in the event of death.

Still with us????

Age Pension. These changes were announced last budget and take effect from 1 January 2017. The assets threshold for the full pension, which excludes the family home, has been raised from $202,000 to $250,000 for singles, and from $286,000 to $375,000 for couples. But the limit at which someone can receive the part-pension has been dramatically reduced from $1.15 million for couples, to $823,000. This means 91,000 people will no longer receive a pension payment while another 235,000 people will receive less.

Even if you are no longer eligible for pension payments because of these changed thresholds, you’ll still qualify for the Commonwealth Seniors Health Card or Health Care Card.

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How will business be affected?

In two words: tax cuts!

The company tax rate will reduce to 25% over 10 years. From 2016-17 income year, the tax rate for businesses with an annual aggregated turnover of less than $10 million will be 27.5 per cent.

Business purchases costing less than $20,000 will be immediately tax deductible for businesses with an annual aggregated turnover of less than $10 million.

Now this seems good and is good for small business owners and most privately owned firms. But there is a little bit of smoke and mirrors here for tax collection. By and large, the 2.5% saving is simply deferred until you take the money out of your company as a dividend. So effectively, the rate of imputation and franking credits will reduce for all shareholders over the next 10 years, so that whilst the company will be paying less tax, the individual will pay more tax (or get a lower refund). This reduction to your franking credits will apply to all publicly listed shares you hold too.

This measure is really best for companies who are trying to grow and reinvest, because they retain more earnings in the company.

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Public service 

Public servants are again facing more job losses as the government cuts $1.4 billion over the three years to 2019-20. The government is backing away from a pledge last year to reduce the so-called efficiency dividend — an annual reduction in the resources available to a government department. The efficiency dividend will instead be maintained at 2.5 per cent for an extra year before reducing to one per cent by 2019-20.

Start tuning up your redundancy calculations again!...we're ready to advise you on the best way to receive your entitlements and assess your post-redundancy cashflow!

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If you’re a smoker…bad news. The Government is planning a further four annual 12.5 per cent increases in tobacco excise, raising $4 BILLION over 4 years. Starting September 1 next year, the price of cigarettes will go up every single year for at least the next four, edging closer to the $40 pack or $2.00 for every biggie (that'll be really killing you financially as well as physically!). So maybe, it's good news!!

The Budget’s major contribution to hospitals is making sure they run better with an additional $2.9 billion for public hospitals over the next three years. This funding will focusing on improving patient safety, the quality of services and reducing avoidable hospitalisations. Cancer research gets a boost and overall, the government’s health spend for 2016-17 will be $71.4 billion.

For the NDIS, $162.4 million will be set aside for the new Savings Fund. The Government announced in the Budget it will credit an additional $2.1 billion to the fund over five years because when it's fully operation, it's expected to cost over $21 billion per annum.

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