Published on May 9, 2016 12:57 pm, by Pete Lalor
The dust has settled on the Government’s 2016 Federal Budget announcements and we have heard from the Opposition. It’s a good time to think about how the measures proposed in the budget will impact you.
These proposals have to be passed by Parliament before they become law. Some of them may not actually be implemented.
If you will be affected we suggest you discuss your situation with an accountant, tax adviser or financial planner. Alternatively conduct your own detailed research and analysis to understand the impact they will have on you before taking any action.
IF YOU TAKE A CAREER BREAK
You will be allowed catch up superannuation contributions
Under the proposed rules, most people will only be able to contribute up to $25,000 per year to superannuation (down from $35,000). However the budget proposes that if your superannuation balance is less than $500,000 you will be able to roll forward any unused caps after 1 July 2017 for up to 5 years and catch up on any contributions. This is good news for people that leave the workforce temporarily for things like raising children.
IF YOU ARE IN A RELATIONSHIP
Making superannuation contributions for your spouse is more attractive
Under the proposed rules you will get a tax offset for a superannuation contribution you make for your spouse where they earn up to $40,000 per annum. The income threshold is currently $10,800. You will also be able to make a superannuation contribution for your spouse regardless of whether they are working or not. This will allow couples to build up superannuation savings in both their names more easily
IF YOU ARE A HIGH INCOME EARNER
Changes to tax rates
The government is increasing the upper limit for the second highest tax bracket of 37 cents in the dollar from $80,000 to $87,000. If you earn over $87,000 per year you will be up to $315 better off each year.
Increasing tax on superannuation contributions
The threshold at which you pay 30% tax on superannuation contributions is being reduced from $300,000 to $250,000.
IF YOU ARE A LOW INCOME EARNER
Changes to the Medicare Levy
The amount of income you have to earn before you pay the Medicare levy will be increased. For singles, the threshold will be increased to $21,335. For couples with no children it will be increased to $36,001. For senior and pensioner couples with no children the threshold will go up to $46,966. For couples, the additional amount of threshold for each dependent child or student will increase to $3,306.
Changes to the Superannuation co-contributions and the low income super tax offset
The government currently makes a superannuation contribution of up to $500 for individuals with an income of up to $ 37,000 per annum. From 1 July 2016 the government will replace this with a non-refundable tax offset to superannuation funds based on the tax paid on concessional contributions made for low income earners up to a cap of $500.
IF YOU ARE UNEMPLOYED
New job training and internship programs
The government is introducing new training and intern programs for young people. Starting in April next year, job seekers under the age of 25 will be able to register for “intensive pre-employment skills training”.
The government will also introduce an internship program where job seekers will work 15 to 25 hours per week for between one and three months. During the internship the government will top up the job seeker’s regular income support payment with an extra $200 per fortnight.
IF YOU OWN A SMALL BUSINESS
Small business tax cuts
Last year the government reduced the tax rate from 30% to 28.5% for businesses with turnover of less than $2 million. The budget proposes to reduce this further to 27.5% and increasing the scope to businesses with turnover of less than $10 million.
IF YOU ARE RETIRED OR PLANNING YOUR RETIREMENT
Ability to make superannuation contributions
The government will get rid of the requirement that someone ages 65 to 74 years old has to be working to put money into super.
Putting brakes on superannuation balances
The total amount of extra money people can voluntarily put into their super funds (not including money they salary sacrifice) will be capped at $500,000.
Limiting the size of tax free pensions
The budget proposals will prevent people from holding more than $1.6 million in tax-free super pensions. People will either need to withdraw the money from their accounts or transfer it in to a separate accumulation account, where the earnings will be taxed at 15%.
IF YOU SMOKE
The government is planning to increase tobacco excise every year for at least the next four years. Starting September 1 next year, the price of cigarettes will edge closer to $40 per pack.
Duty free cigarette limits are being reduced.
Peter is the CEO of MoneyBrilliant. He has over 20 years experience in banking, insurance and accounting. Peter has three sons, ranging in age from 16 to 3, is a sport and fitness fanatic and a volunteer firefighter. He is passionate about improving people's lives through making financial services more accessible.