In the news ... Federal Budget, 03 May 2016
Key points for property investors ...
Like all good little property nerds, we eagerly awaited the Federal Budget which was broadcast on TV this evening. We've taken a few key points that we feel will be relevant to the bulk of our clients and note them below. If you feel you will be impacted by the budget for better or worse, you might choose to speak to your accountant to better understand what it means to you. No doubt your accountant was just as nerdy and this program was right up there among the most important programs on TV to him/her. From now we will watch government folks and the media debate the budget before deciding in the senate whether it shall become law.
What was said : "We will not remove or limit negative gearing - that would increase the tax burden on Australians just trying to invest and provide for their families".
What it means : Precisely what was said. That the Coalition Government has announced a promise to not change or limit negative gearing.
Are we happy? : Yes. However we reiterate that a property should not be invested in solely "for the negative gearing.... you know... to save tax". A property should be viable as it stands, and negative gearing is cream on top.
What was said : "From 1 July this year, we will increase the upper limit for the middle income tax bracket from $80,000 to $87,000 per year."
What it means : Those on taxable incomes of $80,000.01 to $87,000.00 would go down a tax bracket.
Are we happy? : Yes. More money in your pocket for your lifestyle or family or investing.
Contribution caps of concessional contributions to super
What was said : "From 1 July 2017 we will be reducing access to generous superannuation tax concessions for the most wealthy by reducing the annual cap on concessional superannuation contributions to $25,000, and from tonight, establishing a lifetime non-concessional contributions cap of $500,000."
What is a Concessional contribution? : "Concessional (before-tax) contributions include compulsory Superannuation Guarantee contributions and other employer or salary-sacrificed contributions, or contributions where a tax deduction is claimed. Non-concessional (after-tax) contributions can include contributions made from individuals’ take home pay, inheritances and proceeds from asset sales. Once in the fund, both concessional and non-concessional contributions benefit from the concessional 15 per cent tax rate on earnings."
What it means : From initiation of this ruling (understood to be July 1st 2016), the permissable contributions of pre-tax income into super per annum is reduced. This will likely affect SMSF owners seeking to increase balances rapidly to enable the SMSF to acquite a property sooner.
Are we happy? : No. The $25k annual cap on concessional contributions wouldn't be an enormous game-changer. It might delay investing plans for some SMSFs by 6 months or so. The $500k limfetime cap on non-concessional contributions however would be be an enormous blow to those who left retirement planning until very late in life, realized they will not have enough and utilised non-concessional contributions as a rectification measure. The current caps are $180k per year. As such, a drop to a lifetime cap of $500k is huge.
Our Question : Whether the $25k annual cap would apply to everyone, or only "the wealthy" (and what the definition of "wealthy" is in this context). We'll update this page when we locate the answer to this question. Caps are published on the ATO website here ; https://www.ato.gov.au/printfriendly.aspx?url=/rates/key-superannuation-rates-and-thresholds/ however the 2016-2017 caps are not yet published on this page.
The full transcript is visible here;