With speculation rife in the media as to what’s to come in the Budget and with tax reform, we attempt to prepare you for what you can expect and look at the rumors. Prime Minister Turnbull’s conditions for tax reform are that they:
The government, in its response to the Murray Financial System Inquiry, pledged to develop and introduce legislation to enshrine the objective of the superannuation system by the end of 2016. The Treasurer, Scott Morrison, has said that the purpose of superannuation should be to reduce pressure on the age pension and the Government is intent on super not being used as means of building tax-free inheritance pool (Click here to read more).
What appears to be off the table is the increase in the GST to 15% and/or broadening of the base.
The Government’s challenge is to ensure that any reforms have the dual effect of increasing productivity and encouraging growth. There’s no doubt that there are some difficult decisions ahead.
Some of the following rule changes are rumored to be ahead:
- – Limit of the amount of superannuation that can be rolled over to commence an income stream in retirement (APRA proposes $2.5 million)
- – Review of minimum drawdown percentages from super income streams and reintroduction of maximum drawdown percentages
- – Tax-free (including capital gains) earnings on super income streams (scrapped or capped at, for example, $100,000)
- – A portion of super benefits to be taken as an income stream
Super contributions including caps
- – Tax super contributions at marginal tax rates with a 15% rebate
- – Reduction in contribution caps (Grattan Institute proposes annual concessional contributions cap of $11,000, and/or;
- – Lifetime cap on super contributions ($500,000-$1 million cap on non-concessional contributions)
- – Super guarantee (SG ) rate rise to 12% (Mr Turnbull has stated the government has “no plans to change the rise in compulsory super”)
- – Compulsory super opt out by low income workers.
- – Personal and corporate tax cuts
- – Halve the current 33% CGT discount for super funds
- – Work expense tax deductions replaced with lower marginal tax rates
- – Abolition of anti-detriment payments
- – Negative gearing (possibly scrapped, limited to new housing only or cap on number of properties and deductible expenses)
- – General 50% CGT discount on assets held for more than 12 months (possibly reduce and extend to all investment income including rent, dividends and bank interest)
- – Capital gains tax exemption on main residence capped at $2 million
- – Dividend imputation
- – Tax-free super from age 60
- – Abolition of real estate stamp duty (replace with higher rates and land taxes).
Estate planning/tax strategies:
- – Recontribution strategy
- – TTR/salary sacrifice – scrap or water down TTR (eg only allow compulsory super contributions and not salary sacrifice or introduce work test, account threshold)
- – SMSFs
- – Mandated minimum balances in the range of $150-$250,000
- – Tightening of borrowing in SMSFs.
Labor’s proposals in response to the Murray Report are:
- – Negative gearing to be limited to new housing from 1 July 2017. All prior investments grandfathered.
- – Reduce the CGT discount from 50% to 25% from 1 July 2017
- – Tax-free earnings up to $75,000 in pension phase (ie account balances over $1.5 million); 15% tax on earnings in excess of $75,000.
- – 30% contributions tax for individuals with income of $250,000+.
Click here to read Labor’s complete fairer super plan.
The government is working to release a tax statement in early April that will outline its plans to fund income tax cuts primarily via changes to superannuation, negative gearing and workplace expenses.
The Federal Budget in May is likely to include concrete serious options for tax reform and will effectively be the white paper on tax reform. It is likely that further announcements will be made before then. We will provide further analysis as announcements are made.