Federal Budget Implications and Opportunities
Last night's Federal Budget has completely rewritten the superannuation and investments landscape. It will take some time to evaluate the full effects of these proposed changes on advisers and clients.
Overall, retirement and investment strategies for the short and medium term will have to be reassessed as will issues such as capital gains tax, FBT, salary packaging and social security. We believe the changes may have a positive effect on most Australians.
The two main changes affected are personal income tax and superannuation. These changes will require careful consideration as the effects are far ranging and are cross-linked. TOWER is now assessing the full implications across all areas and will provide commentary very soon.
As a brief summary the main changes are listed below:
Personal income tax cuts effective 1 July 2006
These changes are significant and offer major benefits to clients that overtake tax changes announced last year. The main changes are:
- $0-$6000 is tax free
- $6001 to $25,000 is taxed at 15% plus Medicare Levy. (The cut-off threshold has lifted from $21,600).
- $25001 to $75,000 is taxed at 30% plus Medicare Levy. (This has cut-off threshold has lifted from $63,000).
- $75001 to $150,000 is taxed at 40% plus Medicare Levy. (This has cut-off threshold has lifted from $95,000 and the rate has come back from 42%).
- $150K + is taxed at 45% plus Medicare Levy - this cut-off threshold was $95,000 at 47%).
Other tax changes are also proposed:
- the FBT rate is proposed to decrease from 48.5% to 46.5% effective from 1 April 2006
- the net asset threshold will be increased (effective 1 July 2007) from $5 million to $6 million for the CGT small business concession eligibility rules.
Clearly, with changed marginal tax rates, FBT and Capital Gains Tax implications alter. We are working on the impacts and expect to have more detail to you shortly. Remember, these changes are proposals only by the Treasurer and may have to pass both houses of Parliament and receive Royal Assent before they are law.
Superannuation
Most of these changes are effective from 1 July 2007. Overall, the most significant change is that superannuation benefits (paid from a taxed fund either as a lump sum or as an income stream such as a pension) would be tax free for people aged 60 and over. It's important to note that it is proposed that for those aged less than 60, tax would still be paid on superannuation benefits, although it may mean the rules are to be simplified.
Other changes:
- RBL's to be abolished - previous limits that applied will now go.
- Age based restrictions limiting tax deductible superannuation contributions would be replaced with a streamlined set of rules (these new rules seem to be based on a new annual contribution limit of $50,000 with transitional arrangements in place for people aged 50 and over). It is also proposed that post tax contributions be capped at $150,000 a year (it seems that this rule change will apply from 9 May 2006 if implemented).
- Ability may exist to make deductible super contributions to age 75 years.
- People would no longer be forced to draw down on their superannuation benefits after age 65.
- Self employed people may claim a full deduction for super contributions (limits may be established).
- The Government co-contribution extended for self employed people.
One last aspect worthy of mentioning is that the pension assets test taper rate is proposed to change from $3.00 to $1.50 effective from 20 September 2007.
TOWER will be advising you on an ongoing basis of the full impact of these proposed changes as more details emerge. This will take some time to work through so please advise your clients to be patient. Also remember that some of these changes are up to 13 months away before implementation.
Regards
Grahame Evans
CEO, Investments
Disclaimer
This document has been prepared to be used by financial planners and advisers only. It is not to be provided to individual clients. The information contained in this document is general information only and cannot be considered to be financial advice. The information does not take account of the investment objectives, financial situation or particular needs of any particular client. To the extent permissible by law, TOWER Australia Limited (ABN 70 050 109 450, AFSL 237848) and its related companies (TOWER) specifically disclaims any liability that may arise for any direct, indirect, incidental, consequential or special damages that may arise from the access to or use of this document. No liability is accepted by TOWER for errors and omissions or for loss or damage suffered as a result of reliance on this document.
Important
If you no longer wish to receive the TOWER Executive Address please e-mail
us at TowerTalk@au.towerlimited.com
providing your full name and the email address these are being sent to.
Login to the TOWER adviser website to obtain other information on TOWER products, investments, or technical news. All current PDS's are on the site and can be printed off for sales use.
TOWER Australia Ltd
A.B.N. 70 050 109 450
AFSL Number 237848