The 2016 Budget was mooted to be a benign budget with some changes to superannuation and heavy increases for smokers being the key points to be aware of. As the budget was released, the actual reality was in stark contrast to pre-budget anticipation. The major changes that have been implemented are in relation to superannuation and these changes will have an impact on our clients’ plans that are in place and also those plans that are being implemented into the future.

Some of the key changes that we see impacting clients from an advice point of view are:

Concessional Contribution Cap reducing to $25,000 from 1 July 2017 – This will mean less can be contributed to superannuation and a review of current salary sacrifice arrangements may be required.
Lifetime cap for Non-Concessional Contributions of $500,000 – As of budget night the non-concessional caps have been removed and replaced with a lifetime limit of $500,000. The biggest impact here is that the $500,000 lifetime limit starts from 1 July 2007. So for some clients this lifetime cap may already be reached and therefore no more non-concessional contributions can be made. For clients making non-concessional contributions we will need to review this strategy immediately to ensure the $500,000 lifetime limit is not breached.
Removal of Work Test for those aged 65-74 – Currently if you are aged over 65 but under 74 you can make contributions to super only if you have worked 40 hours in 30 consecutive days. This requirement to work will be removed from 1 July 2017 allowing you to make contributions to super if you aren’t working, however you will still have to consider the new $500,000 lifetime limit.
Change in taxation of Transition to Retirement (TTR) Pensions – Clients with TTR income streams currently enjoy the benefits of earnings within their TTR being taxed at a rate of 0%. From 1 July 2017 this tax exemption will be removed and TTR earnings will be taxed at the accumulation tax rate of 15%. This is a very common strategy for clients and therefore a review of these pension will be required before 1 July 2017.

Change in Tax Free Pension accounts – Currently there is no limit on how much you can have in a pension account and receive the 0% tax on earnings within the pension account. From 1 July 2017 you will only be allowed to have $1.6m in a tax free pension account. Anything over this amount will be subject to tax at the rate of 15% (as per the accumulation phase). Anyone with a pension greater than $1.6m on 1 July 2017 will be required to return the pension balance back to $1.6m by either making a withdrawal or converting excess funds back to accumulation phase. Again for clients this affects, we will review this strategy prior to 1 July 2017.

These are very significant changes to superannuation and we are working through the challenges their implementation will present, but importantly also the opportunities that arise. Apart from the $500,000 lifetime limit cap, all of the above changes are implemented from 1 July 2017 so we have plenty of time to make adjustments to your plans where necessary. The important thing to consider is that an election is in 2 months and these changes still have to be passed by Government. A change in Government could result in changes to these changes.

We have attached our 2016 budget summary for your perusal and suggest you take a few minutes to have a read through.

If you have any queries or concerns about any budget issues or wish to review your current plan, please do not hesitate to call our office on 07 3720 1299 and arrange an appointment.

Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances.

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