Federal Budget 2016/17

Good? Bad? Or won't affect your bottom line.

Headlines

• How will the changes to the tax treatment of super affect your plans (eg: I don't have $1.6m in super and don't care)
• Changes to company tax rates
• Excise on ciggies
• Additional imposts on banks to fund ASIC
• Tax cut for 'average wage earners' > $80k & removal of budget repair levy > $180k
• $1.2B school funding
• $115m to Badgerys Creek
• $857m to Melbourne metro
• $594m to Brisbane/Melbourne inland rail

 

I was expecting a bit more, given that it's an election budget.

I have to say that I don't agree with your poll options. I might well see a budget in which I'm worse off as a good budget if the additional revenue is going towards worthwhile causes.

 

Personally, election will be more important for the investment decisions.

 

Where is "not sure" option?

 

Added option 4

 

I think if they announced everything in the budget , then

• people will have forgotten the good stuff by election time
• the opposition will have more time to find holes , if any , to exploit and fine tune their attacks
• they won't have any big ticket things to announce in the election campaign .

It's a nothing event , which is what they want . A cleaning out of the barrels before they load up the bigger shots .

Cliff

 

Selfishly disappointed with the $500k lifetime cap on non-concessional contributions, but that's not enough for me to label it "bad", so I haven't voted.

 

Is that true? (about the lifetime cap). That seems a bit ridiculous. So the Government is telling us we will have no pension, we have to look after ourselves in retirement and we have to save but not too much. The rules around super are absurd:
- you have to contribute a certain amount but not too much
- if you contribute too much you are penalised
then when you retire, you have to spend a minimum amount or you get penalised.

I don't like.

EDIT: At this rate we will end up with a new underclass of citizen... the retired poor.

 

Yep. I don't mind being penalised on the way in but this idea is awful.

 

And another one - gst to be charged on your low value internet imports from 1/7/17 (CBA tweeted it)

 

The problem for the Budget is that the profit you then make in super isn't taxed. So although it sounds odd to reduce you saving it's the profits that then sting the Gov.

 

True. But the government made us get super in the first place and it saves them paying us a pension. At the rate we are going:-
- we will be slugged for putting money in super
- we will be slugged for taking money out of super
- we will be slugged if we earn money in super
- probably penalised if we don't earn money in super
- we will be penalised if we don't put enough in super
- we will be penalised if we don't take enough out of super

But then there is no aged pension, so may as well super!

 

I don't know if I will live till 70 either. Can't I have the super money out now to invest please

 

We do get slugged if we don't take enough out.

 

You cant. But you can influence where and how its invested. Way too many people have been educated by the Trade Union movement that super is safest in industry funds owned and managed by trade unions that offer a limited range of options. The biggest defect in their limited strategies is the mandated investment problem. If you use growth then they hold all the same investments whether markets rise or fall. They never exit a market before or at time of a fall !! Its changing. Many more now offer alternatives and then there is a SMSF for those who want it.

Any form of saving and investment for the future is good. 9.5% of income for a lifetime isnt something to just "hope" it comes good...Thats the strategy 95% seem to adopt.

 

I do have a concern for the death tax announced in the budget.

Its in the detail of the super. Mum and Dad have $1.6m each in a super pension account all tax free. Dad dies. Mums reversionary pension mean she now exceeds her cap. So she is forced to revert Dads pension to accumulation. So then that account is subject to 15% income tax....
Lets say earnings of 5%. Thats $12,000 a year.

Mum could gift it away (no age pension anyway)
Mum could draw it out of super...And thereafter pay $19,000pa in income tax

And the other sting in the tail is the end to strategies to recontribute so that tax applies to super inheritances by adult children. So even after death they will dig the hooks into the super balance and tax that too.

Self funded retirees are the ones being hurt here. No matters what they do it seem they will soon be paying far far more tax in life and after death their kids pay more. He kept his promise not to raise taxes on super. He just upped the types of income subject to the tax.

 

I didn't think of that but, yes, it is true.

I don't like retrospective taxes and I understand this new rule is one. We got caught out when Keating stopped SMSFs buying assets from beneficiaries. We had bought an IP partly owned by us and partly by our SMSF, prior to that change. Our strategy was to move full ownership to our SMSF over time. Keating stopped us because the rule change wasn't from Budget night forward. Instead, we had to move the SMSF share into one of our trusts, paying stamp duty, etc so we could move forward.

I feel sorry for those who already have SMSF balances over $1.6M. They will now have to take corrective action to meet the new rules. They made investment decisions in the past which they may not have made if the was a transfer cap. I would find it far more acceptable if this rule was effective from Budget night forward.

@Paul@PFI, do you know if the $1.6M limit is indexed to CPI?

 

Yes it is intended to be indexed based on CPI and would increase in $100K increments.

However it has a catch. A dangerous one.
If you use the $1.6m then you are considered to have a 100% use of the cap. Therafter you cant use any increase. But lets say you had a $1.4m balance then you would be taken to have used 81.5% of the cap. So lets say several years later cap is $2m you would be entitled to a total pension of $1.4m plus 18.5% x $200K = $1.437m

Any breach of any cap or lifetime limit will result in excess contribution rules and removal of the amounts from the super system OR for the above pension issue the excessive pension and its notional earnings must be moved to accumulation. This is going to lead to some real messy actuarial certificate issues.

Who the hell will track that ??

Lets see who wins the election. The $1.6m cap is effective 01 July 2017 meaning at that date any person with a pension > $1.6m must decide which account/s must be moved to accumulation. Where all balances are with one fund its fairly easy. Problem will be those with multiple accounts such as defined benefit + SMSF + industry funds etc.

 

Paul

Sounds like now is a good time to buy shares in the companies that manage SMSF

Cliff

 

Sounds like the cap will be set when you transfer your Super to pension phase.

Just to make sure I am getting this right, can I pose a scenario. Two people, A and B, both have the same job/pay, both are the same age and both have $1.6M in Super. A retires and transfers their Super to pension phase; their cap is $1.6M. B works for longer (say another 8-10 years and assuming CPI is 3%, the cap moves to $2M), then B retires and transfers their Super to pension phase; their cap is $2M. B gets tax-free income on $400,000 of investment more than A for the rest of their lives. Say, $20,000pa or about $400pw. What is the rationale for this?

Also, can you change your mind and move your Super back to accumulation phase. In the scenario above, could A go back to work fulltime after a few years in retirement (because a lucrative opportunity came their way), then retire again, say at the same time as B above. A transfers their super back to pension phase for the second time. Which cap would apply to A this time - the original cap of $1.6M or the current cap of $2M (same as B)?

This implies that when the current cap get to $3.2M through CPI increases (might take 20 years), this poor retiree's cap will finally make it to $1.6M. Wow!!! That is a big penalty for retiring early. Is this right?

if so, what idiot thought up this scheme?