How will the Budget affect you?
If you only looked at the newspaper headlines, you might think most people won’t be affected by this year’s Federal Budget.
Dig a little deeper though, and there are measures (some of which don’t kick in until 2020) that will have an impact on nearly everybody.
We’ve summarised some of the big-ticket items so you can see whether you’re better, or worse off in the wake of the 2017/18 Budget.
Australians with super can rest easy – the goal posts haven’t been moved this year.
Super’s been left largely untouched in the Budget, and that’s welcome news, with last year’s sweeping reforms yet to be implemented (you can read more about the 1 July super changes here).
That means you can look forward to the future with confidence, knowing that super’s still the best way for you to save for your retirement.
There are two positive changes to super in the Budget:
Help for first home buyers
Rather than let people dip into their existing super to put a deposit together, the Government has decided to help people save by taking advantage of super’s tax concessions, launching the First Home Super Saver Scheme.
From 1 July, savers will be able to make personal contributions of up to $15,000 each year into super (subject to a maximum of $30,000) towards the purchase of their first home. Contributions can be made using salary sacrifice or making personal tax-deductible contributions, and savers will benefit from concessional tax rates.
When they make a withdrawal to put towards their first home (after 1 July 2018), the money withdrawn will be taxed at their marginal rate, less a 30% tax offset.
Here’s an example of how it will work1:
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she contributes $10,000 of her pre-tax income into her superannuation account. After contributions tax has been paid, that’s $8,500 extra into super each year.
After three years she can withdraw those contributions and deemed earnings. After paying tax on the withdrawal (including Medicare levy) she has $25,760 that she can use for a deposit.
That’s around $6,240 more for than if she’d saved money from her after-tax income in a standard deposit account.
Contributions to the scheme will be subject to the existing limits on contributions for both concessional (for which a tax deduction is claimed) and non-concessional (no tax deduction claimed) contributions.
Encouraging older Australians to downsize their homes
Older Australians who downsize their homes will soon be able to contribute some of the sale proceeds to super.
From 1 July 2018, people aged 65 and over will be able to make a non-concessional (which means no tax deduction is claimed) contribution to super of up to $300,000 when they sell their principal place of residence (as long as they’ve lived in it for 10 years).
Members of a couple can both take advantage of the new rules, potentially contributing a combined $600,000 to super.
The contribution won’t count towards the existing contribution caps, and will also help older Australians who aren’t able to make super contributions because of their work status or age.
The Government provides the following example in the Budget papers2:
George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million.
They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75.
They can make these special contributions regardless of how much they already have in their accounts.
The Government promised not to increase personal income taxes in the Budget, and they’ve delivered on that commitment. However, if approved by parliament, the Medicare Levy will increase by 0.5% to 2.5% from 1 July 2019, generating an extra $4 billion in revenue every year.
A taxpayer earning $75,000 per annum will pay an extra $375 each year as a result of the change.
The Government says the extra revenue will be used to fully fund the National Disability Insurance Scheme.
Age and Disability Pensioners will be paid a one-off $75 ($125 for couples) in late June 2017 to help meet the rising cost of energy bills.
Other than that, retired Australians can breathe a sigh of relief – both super and the Age Pension escaped being targeted in the Budget this year.
For more information on how the Budget will affect you, or to discuss anything super related, call 1800 444 396 to chat to one of our friendly team today.
Note: any initiatives proposed in the Budget must pass through Parliament before they can take effect.
1. Source: Budget 2017, Fact Sheet 1.4, First Home Super Saver Scheme, Commonwealth of Australia material 'used as supplied.'
2. Source: Budget 2017, Fact Sheet 1.5, Reducing barriers to downsizing, Commonwealth of Australia material used 'as supplied.'