Federal Budget May 2017

Federal Budget May 2017

June 12, 2017

Written by Choon Kwa – Resolution Wealth

The 2017 Federal Budget was handed down last month. Like all budgets, the changes are only proposals until they are passed into law and from past experience there is no guarantee that this will occur.

We have had a look at all the proposed measures and have chosen to highlight some that may be of interest to you. Importantly, each proposed measure may offer an opportunity to gain a benefit but there could also be some risks and implications. It is very important that advice is sought first, before making any changes to your situation.

A summary of some of the main proposals are:

1. Contributing the proceeds of ‘property downsizing’ to super

The government wants to allow people to be able to sell their home and use some of the sale proceeds to contribute to super. The main requirements are:

• The property must be the person’s principal home for over 10 years.

• The person must be over age 65 (no other age restriction applies)

• The amount that can be contributed to super from the sale proceeds will be $300,000 per person.

• This takes effect from 1 July 2018

• This amount is in addition to the normal contribution caps

At the moment, once a person reaches age 65, it is harder to add monies to super and the amounts that can be added are relatively low.

These measures will benefit those over age 65 and even much older Australians that want to downsize and use additional funds towards their retirement income needs. It may also benefit people who have small amounts in super (e.g. selfemployed business owners) but have a large value home debt free once they retire.

Importantly however, there does not seem to be any Centrelink concessions. This means that people on a government pension may find that doing this reduces or eliminates their eligibility for that pension.

2. First home super saver scheme

The government wants to assist first home buyers by helping save for a home deposit tax effectively. Essentially, a person will be able to contribute up to $15,000 pa into super or $30,000 in total and then withdraw this to be used as a home deposit.

As this applies individually, it means a member of a couple could essentially save $60,000 doing this. The reason why this is potentially a very good strategy is;

(a) A person can save tax effectively as each dollar contributed to super via employer is only taxed at 15%.

(b) It creates forced savings by removing the temptation to use the savings for luxuries as the amount contributed to super can only be removed if used for a home deposit.

(c) The savings will be invested and potentially earn an amount well above the rate offered by most cash savings accounts.

We are yet to see the policy around this but it is proposed that this is monitored by the ATO and any withdrawals can only be made for the purchase a person’s first home. This measure is going to be a real winner for any person/couple trying to save for their first home.

3. Medicare Levy changes

Currently, we all pay a Medicare levy of 2.0% on top of our marginal tax rate. This will increase to 2.5% from 1 July 2019 and the increase will be used to fund the NDIS.

In addition, the temporary budget repair levy of 2.0% which applied to the top marginal tax rate (i.e. for taxable incomes above $180,000) ends on 30 June 2017. Therefore, from 1 July 2017, the top marginal tax rate will reduce back to 45% plus Medicare levy.

4. Disallowance of deduction for travel expenses and other measures

At the moment there is the ability to claim a deduction for the cost of travelling to inspect a residential investment property. This ceases from 1 July 2017. There are some additional proposals around the ability to depreciate plant and equipment purchased for a property (e.g. a dishwasher) and these are prospective meaning that they only apply for future purchases. We would recommend that you consult your tax adviser for specific advice in this area.

5. Pensioner concession card reinstatement

On 1 January 2017, the means testing limits for various Centerlink pensions (e.g. the age pension) changed. This meant that many people suddenly lost their eligibility to receive a pension. This is also meant that they lost their eligibility for the Pension concession card (PCC). The PCC offers a lot of ancillary benefits (e.g. discounted medication and reduced shire rates to name a few) and will now be reinstated for those people who wereeligible for this prior to 1st January 2017.

Choon Kwa and Sam Pizzata are directors of Eight Financial Services Pty Ltd ABN 25 114 328 942 and Plexus Wealth Pty Ltd ABN 35 002 976 294 trading as Resolution Wealth Partners and are authorised representatives and credit representatives of Charter Financial Planning Limited ABN 35 002 976 294, AFSL 234665 and Australian Credit Licensee (Charter). Australian Investment Solutions Pty Ltd ABN 14 124 764 576 and Catalworx Pty Ltd ABN 58 126 066 859 also trade under Resolution Wealth Partners. This editorial provides general information only. Before making any financial or investment decisions we recommend your consult a financial planner to take into account your particular investment objectives, financial situation and individual needs. Charter Financial Planning and its Authorised Representatives do not accept any liability for any errors or omissions of information supplied in this editorial.

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