Scott Morrison’s First Budget Very Illiberal

There are a number of nasty shocks in the 2016 federal budget that unfortunately probably outnumbered some of the pleasant surprises. There are some massive changes to superannuation and small changes to small business concessions and tax rates.

The biggest shock was Scott Morrison proving that he would make a good Labor party treasurer with the introduction of a number of retrospective changes to superannuation. Up until last night’s budget the liberal party had always set itself apart from Labor by not making or proposing changes to superannuation that affected the current status quo.

Unfortunately there are two measures that are definitely retrospective in nature that could pose some problems for clients. The first is a $1.6 million limit on superannuation pension balances that will apply to future and current superannuation pensioners from July 1, 2017. Where a person’s superannuation pension account balance exceeds the $1.6 million limit the excess must be transferred back into an accumulation account or withdrawn.

The second measure will result in clients with Transition To Retirement pensions paying tax on the income earned in their superannuation fund account that pays their pension from July 1, 2017. Although this does reduce some of the benefits of starting a TTR pension there will still be cases where people will be better off.

One of the most shocking measures is a lifetime limit of $500,000 that will apply to non-concessional contributions. Rather than this measure applying to all future non-concessional contributions it will apply to all non-concessional contributions made after July 1, 2007.

Where clients were able to take advantage of the generous non-concessional contribution limits that applied up until July 1, 2007 they will still retain this benefit. In addition non-concessional contributions that exceed the $500,000 limit made up to 7:30 PM on May 3, 2016 will not be required to withdraw. Non-concessional contributions made after this date and time will need to be withdrawn or subject to a penalty tax.

The only bright spot in this new limit on non-concessional contributions is that that they will increase each year in line with the annual increases in average weekly ordinary times earnings.

The other changes made to superannuation include:

• the lowering of the threshold at which high income earners pay 30 per cent on superannuation contributions down from $300,000 down to $250,000,
• the current maximum concessional contribution limits of $30,000 and $35,000 will be reduced to $25,000 from July 1, 2017,
• people with superannuation balances of less than $500,000 can carry forward any unused amounts of the maximum concessional contribution limit of $25,000 for five consecutive years,
• the current restrictions on people aged 65 and up to 75 on making a tax-deductible personal superannuation contributions will be removed,
• access to the low income spouse superannuation tax offset will be increased by the raising of the income threshold for the low income spouse from $10,800-$37,000,
• a new low income superannuation tax offset will be introduced for people with an adjusted taxable income of up to $37,000 a year in the form of a non-refundable tax offset to the superannuation fund receiving the concessional contribution, and
• anti-detriment payments relating to the death of a member will cease from July 1, 2017.

There were several tax sweeteners in the 2016 budget aimed at both individuals and small business owners. The threshold at which the 37% marginal tax rate applies will increase from $80,000-$87,000.

For small business owners that operate through a company the tax rate the business pays will decrease to 27.5% from July 1, 2016. Small business owners that do not operate through a company will have access to a tax discount up to a maximum of $1000 a year from July 1, 2016.