The Major Parties’ Superannuation and Tax Policies

The federal election has been called for May 18 and both major parties have outlined their superannuation and tax policies. With the federal election only weeks away many people have been asking what the major political parties’ policies are that may impact their SMSF, individual taxation circumstances or personal investments. It is important to educate yourself to can make an informed decision.

Liberal-National Coalition

Superannuation

  • Australians aged 65 and 66 will be able to make voluntary superannuation contributions without needing to work a minimum amount. Previously, this was only available to individuals below 65.
  • Extending access to the bring-forward arrangements (the ability to make three years of post-tax contributions in a single year) to individuals aged 65 and 66.
  • Increasing the age limit for individuals to receive spouse contributions from 69 to 74.
  • Reducing red-tape for how SMSFs claim tax deductions for earnings on assets supporting superannuation pensions.
  • Delaying the implementation of SuperStream (electronic rollovers for SMSFs and superannuation funds) until March 2021 to allow for greater usability.

Taxation

  • From 2018-19 taxpayers earning between $48,000 and $90,000 will receive $1,080 as a low and middle income tax offset. Individuals earning below $37,000 will receive a base amount of $255 with the offset increasing at a rate of 7.5 cents per dollar for those earning $37,000-$48,000 to a maximum offset of $1,080.
  • Stage 1 tax cuts: From July 1 2018, increasing the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000.
  • Stage 2 tax cuts: From 1 July 2022, increasing the top threshold of the 19 per cent personal income tax bracket from $41,000, to $45,000.
  • Stage 3 tax cuts: From 1 July 2024, reducing the 32.5 per cent marginal tax rate to 30 per cent which applies from $120,000 to $200,000. The 37 per cent tax bracket will be abolished.

Australian Labor Party

Superannuation

  • Disallowing refunds of excess franking credits from 1 July 2019 – this would mean SMSF members in pension phase no longer receive refunds for the franking credits they receive for their Australian share investments.
  • Banning new limited recourse borrowing arrangements.
  • Reducing the post-tax contributions cap to $75,000 per year down from $100,000.
  • Ending the ability to make catch-up concessional contributions for unused cap amounts in the previous five years.
  • Ending the ability for individuals to make personal superannuation tax deductible contributions unless less than 10 per cent of their income is from salaries.
  • Lowering the higher income 30per cent super contribution tax threshold from $250,000 to $200,000.

Taxation

  • Labor supports the stage 1 tax cuts and will match the $1,080 low and middle income tax offset. From 1 July 2018, individuals earning below $37,000, will get a $350 a year tax offset, with this amount increasing for those earning between $37,000- $48,000 to the maximum $1,080 offset.
  • Introduce a 30 per cent tax rate for discretionary trust distributions to people over the age of 18.
  • Will limit negative gearing to newly built housing from January 1 2020. (Existing investments are grandfathered under the current law)
  • Reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent. (Existing investments are grandfathered under the current law)
  • Limit the deductions for the cost of managing tax affairs to $3,000.

Domestic Outsourcing for Accounting Firms

Outsourcing has come a long way and it is now a well understood word around the accounting industry, predominately in relation to tax compliance preparation. It is more common than ever for accountants to outsource their compliance work, and domestic options are now available.

Based on discussions with our current clients, we look at the top reasons why accounting firms are outsourcing, and specifically what benefits a domestic firm can provide:

1. Cost

Cost cutting should not be the only reason to outsource, however, it certainly is a major factor. These costs can be reduced through outsourcing: staff wages, entitlements, retainment costs (bonuses), equipment, physical space, licences, overheads, training and importantly freed-up time for key senior personnel.

DOMESTIC BENEFIT: The common perception is overseas workers are always going to be cheaper. While their hourly rate is low, don’t forgot the middle man is based in Australia and has the same wage costs and overheads you do. Fixed-price domestic outsourcing has been shown to be cheaper and more efficient than maintaining a full-time overseas team.

2. Job Efficiency

Outsourcing allows you to start more jobs more often, reducing turnaround time and increasing cash flow.

DOMESTIC BENEFIT: Having your outsourcer based locally means they’re on the same clock, and can be reached at a moment’s notice during your work hours. It is also reduces any language or ethical barriers provided they operate under a professional standard.

3. Growth

Outsourcing allows your firm to grow without growing pains. Grow your client and fee base without the need for additional physical space, licences, hardware and recruitment.

DOMESTIC BENEFIT: The fear for accountants running this model is the high turnover factor for offshore workers, which can stunt your growth when replacement staff require training in busy periods. Domestically trained staff require little to no training as they have always operated in the Australian tax system. Generally you won’t notice staff turnover with a domestic provider.

4. Realign Firm Goals

Outsourcing compliance allows your firm to realign its goals going forward. You can shift the firms focus and allow your employees to focus on developing and delivering advisory services.

DOMESTIC BENEFIT: You can generally access the principal of a domestic provider at any time to discuss any potential changes that might require an increase in capacity. You can ensure you’re always one step ahead of any big changes, knowing what your outsourcing provider can and can’t accommodate.

5. Flexibility

Outsourcing provides additional resources without the cost of recruiting and overheads. This can assist during busy periods or unforeseen staff absences.

DOMESTIC BENEFIT: Domestic outsource providers are more likely to work on an ad-hoc basis, providing greater flexibility during both the busy and quiet times of the year. Offshore outsourcing requires full-time maintenance of a staff member/team, which can reduce cost effectiveness during quiet periods when your staff can handle the work internally

6. Confidentiality

Client confidentiality and handling of sensitive information is of high importance to all firms and outsourcers alike.

DOMESTIC BENEFIT: The right domestic provider will maintain Australian servers, meaning no data crosses borders, significantly reducing the risk of data leaks and misuse.

If you are interested in outsourcing please contact us for a chat. We are at our core accountants and have become a friendly extension of our partnering accounting firms.

Superannuation Year End Planning for the 2016/17 Financial Year

The end of the financial year always seems to crop up faster than it should. Given the impending July 2017 superannuation changes, being on top of your client’s end of financial year planning is as important as it has ever been.

Decreased concessional contributions cap

For anyone who was under 49 years of age on 30 June 2016 the maximum amount of concessional (tax deductible) contributions that can be made to superannuation without penalty is $30,000. However, for anyone who is at least 49 years of age or older on 30 June 2016 the maximum amount is $35,000.  This includes amounts your employer may make as compulsory super and salary sacrifice contributions as well as any personal deductible contributions you may have made if you qualify.

From 1 July 2017, this cap will fall to $25,000 for everyone, so ensure any reserving and salary sacrifice strategies are appropriate. If you wish to maximise your contributions before June 30 make sure you talk to your professional advisor so that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed. Also ensure that all contributions are deposited with enough time so they are received by your fund before Friday 30 June 2017.

If you are older than 65 you will need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make tax deductible and non-deductible contributions to super.

Claiming a tax deduction for personal superannuation contributions

If you are self-employed, an investor or in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments as an employee you may be eligible for a tax deduction for personal contributions to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a deduction and seek advice if you are unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year or the end of the day on which the individual tax return was lodged, whichever occurs first. Make sure you keep all relevant paperwork to save stress when the time comes to see your SMSF advisor.

From 1 July 2017, everyone who is eligible to make a contribution will be able to claim a tax deduction for personal superannuation contributions without needing to satisfy the 10% rule.

Making after tax contributions to super

You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. This financial year the maximum personal after tax contribution is $180,000, however, if you are under 65 years of age you can contribute up to $540,000 over a fixed three year period.  This allows you to make substantial contributions to super and build up your retirement savings.  The way it works is that if you are under 65 and make total after tax contributions of more than $180,000 in a financial year the bring forward rule is triggered.  This allows you to make non-deductible contributions of up to $540,000 in total over a fixed three year period commencing in the year in which you contributed more than $180,000.

From 1 July 2017, this cap will fall to $100,000 per annum with a $300,000 fixed year bring forward. This also means if you triggered the bring forward rule before 2016/17 but the full $540,000 was not contributed, you will be limited to a transitional bring forward cap.

Those with a total superannuation balance of $1.6 million or more will not be able to make after tax contributions past 1 July 2017.

Beware of excess contributions tax

Anyone making large superannuation contributions should exercise extreme care for any type of contributions to avoid excess contributions penalties.   This can apply to any tax deductible and non-tax deductible contributions made to super.  Making sure you do not exceed the contribution caps will save you both the money and time of dealing with excess contributions tax.

Drawing superannuation pensions

If you are in pension phase make sure the minimum pension has been paid to you for this financial year. If you do not take your minimum pension, the pension account is to cease and the assets that supporting this pension are deemed to not be in retirement phase for the whole year meaning your fund will lose its tax exemption on earnings!

Drawing superannuation lump sums

Once you reach 60 years of age all lump sums from superannuation are tax free. However, before age 60 any lump sums that include a taxable component can be taxable.  The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit.  No tax currently is payable on taxable amounts of up to $195,000, in total, you receive prior to age 60.

If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching the age of 60 or until a later financial year when you may end up paying a lower rate of tax.

SMSF fund expenses

For SMSF members in the accumulation phase, tax deductions for expenses are usually not significant, but it’s important to ensure expenses are actually incurred or paid before 30 June to be deductible in the current financial year.

Preparing for the $1.6 million transfer balance cap and capital gains tax (CGT) relief

Be aware of the new $1.6 million transfer balance cap that will limit the amount you can keep in the pension phase of superannuation from 1 July 2017. This new cap will limit the assets you can have supporting superannuation pensions to $1.6 million. It is essential that your plan to comply with the transfer balance cap and all relevant documentation is formulated by 30 June 2017.

Transition to retirement income streams losing their tax-exempt earnings status

From 1 July 2017, superannuation fund members will lose the tax-exempt treatment of earnings on assets that support a transition to retirement pension (TTR). Members will still be able to start new or maintain existing TTRs, but they should be reviewed before 30 June in accordance with their SMSF’s objective.

New Superannuation Reforms – Things You Might Have Missed

The changes to superannuation announced in the 2016 Federal Budget have been passed by Parliament. Amongst the changes was a raft of legislation which may have been overlooked given a few of the substantial changes taking the headlines but these measures are just as important in your planning for 1 July 2017.

The main issues that you need to consider because of the changes include:

  • Lower threshold for increased contributions tax
    • Reviewing if your income will be more than $250,000 from 1 July 2017.
    • If so, concessional contributions you make may be assessable for an additional 15%
  • Personal contribution deductions – 10% rule repealed
    • Reviewing if you have income available to contribute to your SMSF.
    • Determining if and when you would be able to claim a personal deduction for these contributions up the annual cap of $25,000.
    • Reviewing any current salary sacrifice arrangement you may have for its necessity and benefits.
  • Spousal contribution threshold increased
    • Reviewing if your spouse’s salary is below the new threshold of $37,000.
    • Reviewing if your spouse’s and your own SMSF balance may need to be rebalanced.
    • Determining if you have any available after tax income to contribute to your spouse’s superannuation and be eligible for an offset.
  • Catch up concessional contributions (First available from 1 July 2019)
    • Reviewing your work patterns to determine your future likely income streams
    • Reviewing if your total superannuation balance is under $500,000 to determine your eligibility to make catch up contribution payments in the future.
  • Anti-detriment reduction repealed from 1 July 2017
    • Determining if your SMSF was intending to or currently funding a future anti-detriment payment.
    • If an SMSF member dies before 1 July 2017, anti-detriment payments will still be possible up until 30 June 2019

The changes mentioned above are all diverse and need specific discussion and review of your circumstances to determine their impact so discussions with your specialist advisor are recommend.

Contributions – What the Changed Concessional and Non-Concessional Caps May Mean for You

With many of the changes announced in the 2016 Federal Budget now passed by Parliament, there is an amount of certainty that you can have when approaching your SMSF planning and the contributions you might wish to make to your SMSF.

The Government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution limits from 1 July 2017.

One of the original proposed measures which received a lot of comment and caused concern was the $500,000 lifetime non- concessional contributions (after-tax contributions) limit. This proposed measure was dropped and replaced with a $100,000 annual limit on after-tax contributions.

Pre-tax contributions will be limited to $25,000 for all taxpayers from 1 July 2017.

Below is a summary of the changes for both concessional and non-concessional contributions.

After- tax contributions

  • The $500,000 lifetime limit has been dropped in favour of a $100,000 annual cap. The rules allow the opportunity to bring forward three years of contributions – making it possible to contribute $300,000 in one year.
  • For the 2016/17 year, it is still possible to make a contribution of up to $180,000 for one year, or to bring forward three years’ contributions – so you are able to make a contribution of up to $540,000. If you do not use this full limit of $180,000 or $540,000 in the 2016/17 year, then you will be limited to the $100,000 annual and $300,000 bring forward caps for future years.
  • Where the bring forward of contributions has been triggered before 1 July 2017, transitional contribution caps may apply.
  • If you have a balance of $1.6m or more in your SMSF at 1/7/2017 then you will not be able to make further after-tax contributions.
  • When approaching the $1.6m cap care will need to be taken with the bring forward rules as these are restricted by the new $1.6 million balance restriction.

Pre-tax contributions:

  • The concessional contributions cap is lowered to $25,000 per year for all taxpayers from 1 July 2017.
  • Taxpayers who were aged 49 or over on 30 June 2016 can make up to $35,000 in pre-tax contributions in 2016/17.
  • Those aged under 49 on 30 June 2016 can make up to 30,000 in pre-tax contributions in 2016/17.

Some of these changes may require you to adjust your contribution strategies going forward.

This will most likely be the case if you have a superannuation balance of over or close to $1.6 million or were planning on making significant contributions to superannuation in the next few years.

Changes to the Assets Test for Centrelink Aged Pensions from 1 January 2017

As the end of the year is drawing rapidly to a close it may feel like the changes to the Asset Test for the Aged Pension have just been drawn up, however, these were announced in the 2015 Federal Budget.

As a trustee, you may be asking yourself, “what does this really mean for me – and what are my options?”

Firstly, let’s look and see who these measures apply to.

If you are over 65 and in receipt of a full or part Aged Pension, then you need to be aware that for every $1,000 owned above the assets test free amount your pension will be reduced by $3 (this was previously reduced by $1.50 for every $1,000).

The thresholds that apply are dependent on whether you are single or a couple, own your own home or not, and are either in receipt of a full or part pension.

For those on full pensions and are single homeowners, the pension starts reducing when assets reach $250,000. For couples it is when their assets reach $375,000. For non-homeowners, it is $450,000 for a single and $575,000 for a couple.

For single homeowners with a part pension, the pension cuts out when assets exceed $542,500 and for a couple it stops when assets exceed $816,000.

For non-homeowners who are single the pension ceases when assets exceed $742,500 and for couples, when assets exceed $1,016,000.

What assets are included in the threshold?

The market value of most of your assets is taken into account when calculating your Age Pension. This includes, but is not limited to, things such as:

  • Property (excluding your home)
  • Motor vehicles, boats and caravans
  • Financial investments
  • Superannuation if you’re over Age Pension age
    • Business assets
    • Household contents and personal effects

For some trustees, there will be little or no effect at all. They had always planned that their SMSF would provide them with their income stream in retirement. For other trustees these changes may impact on their spending patterns and the quality of life they are looking at in retirement.

Commonwealth Seniors Health Card

For those pensioners who lose their Age Pension entitlement on 1 January 2017, all is not lost! You will be issued with a Commonwealth Seniors Health Card and this card is exempt from the usual income test requirements indefinitely.

Government Releases More Superannuation Legislation

On 27 September 2016 the Government released another round of draft legislation implementing a number of the changes to superannuation it announced in the 2016 Federal Budget.

Many of these changes will apply from 1 July 2017 so it might be sensible to for you to start thinking of how your superannuation will be impacted by the changes now and whether you might need to change any of your SMSF’s arrangements.

Included in the latest legislation were amendments relating to:

  • Implementing the Government’s $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017.
  • Lowering the concessional contributions cap to $25,000 per year for all taxpayers from 1 July 2017.
  • Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
  • Providing greater flexibility for those with broken work patterns by allowing individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years.
  • Removing the tax-free treatment of assets that support a transition to retirement income stream.

Some of these changes may require you to adjust your investment, contribution, pension and estate planning strategies going forward.

This will most likely be the case if you have a superannuation balance of over or close to $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now.