Summary of key measures Federal Budget 2017 Summary of key measures

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Housing affordability Federal Budget 2017 Key measures Housing affordability Taxation Social Security Super contributions The Federal Budget was handed down on 9th May 2017. Compared to last year, the Budget was not as significant in terms of its overall impact on our clients, strategies and the broader industry. There were however some important announcements that may impact you, or may provide you with new opportunities. It is important to understand that the measures announced in the Budget are proposals only and will not become law until legislation is passed. We will summarise some of these key measures as they were announced.

Taxation

Personal taxation Increase to Medicare levy From 1/7/2019 Increase from 2% to 2.5% Other tax rates based on top MTR will increase Fringe Benefit Tax rate will increase HELP threshold rates and payments From 1/7/2018 Annual income repayment threshold reduces from $55,869 to $42,000 Repayment starts at 1% and increases to 10% HELP thresholds and rates Date of effect: 1 July 2018 The rate at which Higher Education Loan payments are required to be repaid is dependant upon the person’s salary. The rate of repayment increases with salary as a percentage of income that is assessed for this purpose. The annual income threshold at which Higher Education Loan Program (HELP) repayments commence will be reduced to $42,000 (currently $54,869). Also, the repayment rate will start at 1% and increase progressively to 10%. Medicare levy increase Date of effect: 1 July 2019 The Medicare levy will increase from 2% to 2.5% pa to fully fund the National Disability Insurance Scheme. This increase will flow to a range of other taxes such as Fringe Benefits Tax. Low income earners will continue to receive relief under the low-income thresholds, and existing Medicare levy exemptions will remain in place.

Taxation- small business Extended until 30 June 2018 Immediate deductibility of eligible purchases Small business (annual turnover $10m or less) Immediate deduction will be available for eligible assets costing less than $20,000 Date of effect: 1 July 2017 Currently, small businesses with an annual turnover of $10 million or less are able to claim an immediate deduction for eligible assets costing less than $20,000 each. This measure will be extended for a further 12 months, until 30 June 2018.

Superannuation

Contributions from downsizing From 1 July 2018 Unclear if dwelling was vacant or rented for a time No work test No age restriction No $1.6m total super balance limit Any additional proceeds may be contributed under ordinary NCC cap Limit- per person Up to $300,000 sale proceeds from family home Additional limit above normal NCC cap Must have owned home for 10+ years No other restrictions on contribution Date of effect: 1 July 2018 Individuals aged 65 or older will be able to make non-concessional (after tax) super contributions of up to $300,000, using proceeds from the sale of the family home. This limit will: -apply on a per person basis -be in addition to the ordinary non-concessional contribution cap, and -be available where the home has been owned for at least 10 years. Unlike other non-concessional contributions, it will not be necessary to meet a work test or have a ‘total super balance’ under $1.6 million (total super balance includes the total of accumulation accounts, pension balances, and in-transit rollovers). Also, ordinarily once you reach age 75 you are no longer eligible to make any NCCs regardless of whether or not you meet the work test, however this age limit will not apply to contribution of sale proceeds. The amount contributed will not be exempt from the assets test used to assess eligibility for the Age Pension.

First home saver super contributions From 1 July 2017 Voluntary contributions to super to save first home deposit How much? Applies to Tax on withdrawals $15,000 per year $30,000 maximum Contributions from 1/7/2017 Contributions + earnings accessible 1/7/2018 Concessional contributions, any associated earnings Taxed at marginal rate – less 30% tax offset Go to: budget.gov.au/estimator/ to calculate possible benefits First home super saver scheme Date of effect: From 1 July 2017 First home buyers will be able to save for a deposit by making voluntary concessional and non-concessional super contributions. Contributions will be limited to $15,000 per year (up to a total of $30,000) and will count towards the relevant contribution cap. Withdrawals of amounts contributed (plus associated earnings) can be made from 1 July 2018. Concessional contributions plus any assumed earnings withdrawn will be taxed at the person’s marginal tax rate, less a 30% tax offset. The Government has provided an online estimator to help individuals calculate the potential benefit of the scheme.

SMSFs and borrowing Self Managed Super Funds – Limited Recourse Borrowing (LRBA) Will apply to newly established loans LRBA balance Included in ‘total super balance’ (TSB). TSB determines eligibility to: Make NCCs Qualify for Government Co-contribution and Spouse Contribution Tax Offset Make ‘catch up concessional contributions’ from 1/7/2018 Repayments of LRBA using accumulation interests Will count towards ‘transfer balance cap’ if asset with borrowing also supports a pension Transfer balance cap limits total lifetime transfers to retirement pension phase SMSF borrowings Date of effect: From 1 July 2017 (subject to legislation) The loan balance of newly established limited recourse borrowing arrangements (LRBAs) will be included in an individual’s ‘total super balance’. The total super balance is used to determine a person’s ability to: -make non-concessional contributions -qualify for a Government co-contribution or a spouse contribution tax offset, and -make catch-up concessional contributions above the annual caps from 1 July 2018, where certain conditions are met. Also, repayments made from the SMSFs accumulation balance will count towards the member’s transfer balance cap, if the borrowing supports a pension account. The transfer balance cap limits the total lifetime transfers a person can make to retirement phase pensions. Grandfathering will apply to existing LRBAs, meaning that they are exempt from these new rules. The new rules will only apply to new LRBAs established after the passage of legislation (from the first 1 January, 1 April, 1 July, or 1 December after the passage of legislation).  

Social security

Age Pension Reinstatement of Pension Concession Card (PCC) for previous recipients Where pension entitlement lost 1/1/2017 (assets test changes) Previously were provided with CSHC and Low Income Card Pension Concession Card – to be reinstated Pensioner concession card Date of effect: From 1 July 2017 Individuals who lost entitlement to the Pensioner Concession Card as a result of the 1 January 2017 assets test changes will be reissued with the card.

Energy assistance payment One-off payment $75 (single) $125 (couple) To assist with energy costs Payable to those entitled 20/6/2017 Age Pension DSP Service Pension Energy Assistance Payment Date of effect: 20 June 2017 Eligible pensioners will be entitled to a one-off Energy Assistance Payment of $75 for singles and $125 per couple. A number of recipients will be eligible, including Australian residents who qualify for the Age Pension, Disability Support Pension and Service Pension.

Residency requirements- pensioners From 1 July 2018 Qualification for Age Pension or Disability Pension 15 years of continuous Australian residence unless either 10 years of continuous residence - 5 years being during working life (16 to Age Pension age), or 10 years continuous residence – no receipt of activity tested payment for 5 years total (eg. Newstart) Residency requirements for pensioners Date of effect: 1 July 2018 To be eligible for the Age Pension and Disability Support Pension (DSP), claimants will need to have 15 years of continuous Australian residence unless they have either: 10 years continuous Australian residence, with 5 years of this being during their working life, or 10 years continuous Australian residence, without having received an activity tested income support payment for a cumulative period of 5 years. Existing exemptions will continue to apply for DSP applicants who acquire their disability in Australia.

Liquid assets waiting period (LAWP) Applies where liquid assets: Liquid Assets Waiting Period Newstart, Youth Allowance, Austudy and Sickness Allowance 20 September 2018 Liquid assets waiting period (LAWP) LAWP = Period where nil entitlement if ‘liquid assets’ above limits Liquid assets include: - bank accounts - term deposits - shares Applies where liquid assets: - $18,000 singles (no dependents) - $36,000 couples (or singles with dependents) Maximum period currently 13 weeks- increasing to 26 weeks Liquid assets waiting period Date of effect: 20 September 2018 The maximum Liquid Assets Waiting Period (LAWP) will increase from 13 to 26 weeks. The LAWP is a period that an individual is expected to utilise their own savings prior receiving Government income support. The new maximum period will apply to: singles without dependents with liquid assets of more than $18,000, or couples or single with dependents with liquid assets of more than $36,000. Liquid assets are readily available assets such as bank accounts, terms deposits, shares and managed funds.  

Family Tax Benefit Family Tax Benefit – Part A and B From 1/7/2017 Indexation of payment rates- frozen for two years Indexation will resume – 1 July Family Tax Benefit – Part A From 1/7/2017 New single income test taper rate to determine eligibility Taper rate 30 cents for each dollar above $94,316 Family Tax Benefits – Part A Date of effect: 1 July 2018 A single taper rate of 30 cents in the dollar will apply to income that exceeds the Higher Income Free Area ($94,316 in 2016/17). Currently, two tests are applied and the higher payment determines the entitlement. Family Tax Benefit – Part A and B Date of effect: 1 July 2017 Family Tax Benefit payment rates will not be indexed for two years. Indexation will resume on 1 July 2019.

Opportunities

Impacts and Opportunities Superannuation Super continues to be attractive for retirement savings Opportunity to save for home in a tax effective manner via contributions Additional super contributions- downsizing Social security Relatively minor changes for most Primary entitlements not significantly impacted Impact on me? Make an appointment with your financial adviser to understand how these changes may impact you, and how to maximise your opportunities