The 2016 Federal Budget released on Tuesday 3rd May has certainly been a ‘Super’ budget, given its strong focus on changes to Superannuation. Super has been targeted this year given its tax efficiency, along with some small changes to Corporate and Individual taxes.
We have highlighted below the important changes that Australian expatriates need to be aware of.
1. Corporate Tax Rate: Lowered over 10 years from 30% to 25% This rate will be reached by the 2026-27 financial year.
Our View: We have been well above the global average corporate tax rate of 23% for far too long. This is an important step in the right direction in boosting our global competitiveness.
2. Personal Tax Rate: There have been no changes to the rates themselves, but we have seen the amount at which the 37% tax rate kicks in from $80,001 increased to $87,001.
Our View: No increases in personal tax rates is a positive for Australian tax-payers.
3. Temporary Budget Repair Levy: Currently, tax-payers with an annual gross income above $180,000 have had to pay an additional 2% as a Budget Repair Levy. There has been no extension announced which should see it abolished at 30 June 2017.
Our View: Positive news for tax-payers that this levy has not been extended.
1. Concessional Contributions:
- Decreased Contributions: From 1 July 2017, the concessional contributions (pre-tax contributions) will be reduced to $25,000 per year. This is a reduction from $30,000 for those under the age of 50, and from $35,000 for those above 50.
- Carry Forward: For those with a super balance of less than $500,000 you will be able to carry forward un-used concessional contributions for future years.
Our View: This limits the ability for higher-income earners to contribute funds into super and those on higher earnings will also need to be mindful of their employer (SG) contributions exceeding this lower limit.
2. Non-Concessional Contributions: For all non-concessional contributions since 1 July 2007, the lifetime cap is $500,000. This lifetime cap replaces the ability to roll-in $180,000 per annum or bring forward three years into one and contribution $540,000.
Our View: This limits the ability, particularly for Australian expats, to focus solely on superannuation for their retirement vehicle. For those working offshore, it can be important to consider other strategies and their implications.
3. Work Test for Contributions: From 1 July 2017, the age at which Australians must satisfy the work test to contribute to super will be lifted from 65 to 74 years of age.
Our View: This is a positive change allowing individuals to continue to boost their retirement savings for longer periods of time. A particularly valuable move as life expectancy continues to climb.
4. Low-Income Superannuation Tax Offset: This will replace the Low Income Super Contributions Scheme. This will allow low income earners to receive up to a $500 non-refundable tax offset to compensate for the tax they’ve paid on their super contributions. This will be for individuals with an income of less than $37,000.
Our View: This is a small change and a positive one for low-income earners. If they didn’t receive this offset, they would in fact pay more tax contributing the funds to super than if they’d received it as taxable income.
5. Retirement Phase Super Cap: The limit of an individual’s superannuation balance that can be converted into pension phase will be $1.6M. Any balance above this amount will remain in accumulation phase and continue to be taxed at the usual 15%. Anyone with a balance of above $1.6M that is in pension phase, is expected to reduce their balance to $1.6M by 1 July 2017.
Our View: Higher-income earners need to be mindful of this change, particularly if you’re working offshore and planning to utilise superannuation for a tax-efficient retirement in Australia. It’s important to explore your projections and where necessary, explore additional strategies that can complement your super.
6. Transition to Retirement Income Streams: Transition to Retirement Income Streams (TRIs) will, from 1 July 2017 will no longer attract the same tax concessions as previously. The income streams will remain available to those who’ve reached their Preservation Age, however the tax liability on earnings within the fund will remain as if the fund was still in accumulation phase.
Our View: This is an important change for anyone considering a Transition to Retirement strategy, as it certainly changes the attractiveness of such an option.
To Your Financial Success!
Jarrad Brown is the trusted fee-based financial advice provider for Australian expatriates living in Singapore and throughout Asia-Pacific.
To learn more about how we may be able to help you, please contact us:
✆ +65 8282 5702
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.