Donegal Update

 


FEDERAL BUDGET 2017/18

11 May 2017



On 9 May 2017, the Government delivered the 2017/18 Federal Budget. According to the Treasurer, Scott Morrison, this year's Budget is about making the right choices to secure better days ahead. 

From a financial planning and wealth perspective, the good news is the number of changes announced in this year's Budget are minimal compared to previous years. 

For many of you, who have been 'super' planning since last year's budget, this is a very welcomed outcome as it allows a continued focus on the steps required to be in the best possible position come 1 July 2017 - when the most significant changes to superannuation take effect.

As with all Federal Budgets (we all remember how long it took last year), all changes announced on Tuesday night are just proposals at this stage and the final form of the announcements may differ when they ultimately become law.

Let's look at the main points...

CONTRIBUTING THE PROCEEDS OF DOWNSIZING HOME TO SUPER

From 1 July 2018, individuals aged 65 and over can contribute up to $300,000 from the sale of their principal residence (if owned for at least 10 years) to super without the need to satisfy any contribution criteria. If the home is owned jointly by a couple, each person will be able to access the $300,000 threshold.

This is a fantastic change for older Australians who are willing to downsize their home. However, for many Australians who wish to 'age in place' or are concerned about their age pension entitlements this measure is unlikely to change their mind.


REINSTATEMENT OF THE PENSIONER CONCESSION CARD

Due to changes to the Age Pension means test from 1 January 2017, some individuals ceased to qualify for the Age Pension and, as a result, lost access to the Pensioner Concession Card. The Government will reinstate these Concession Cards for these affected (approximately 300,000) individuals.

This will help eligible pensioners access state-based concessions on items such as council rates, vehicle registration and utilities discounts.


BUDGET REPAIR LEVY CEASES

As predicted, there were no changes announced to the personal marginal tax rates for thresholds. However, while not announced in the Budget, the Temporary Budget Repair Levy has not been extended and as such will cease to apply from 1 July 2017, a positive note for higher income earners above $180,000 per annum.


FIRST HOME SUPER SAVER SCHEME

The Government is launching a new First Home Super Saver Scheme from 1 July 2017. The idea is to help first home buyers get 'into the game' by utilising their superannuation. A first homebuyer can contribute up to $30,000 per person in total, at a maximum of $15,000 a year, to an existing super account. They can then access these voluntary contributions, plus the deemed earnings, for a home loan deposit from 1 July 2018.

The Scheme will enable access to the tax advantages of superannuation with pre-tax contributions and earnings taxed at 15%, rather than marginal rates, and on withdrawal taxed at the relevant marginal rate, less a 30% offset.


MEDICARE LEVY RATE


As part of the Government's commitment to the future of Medicare and the National Disability Insurance Scheme, there will be an increase of 0.5% to the Medicare levy from 1 July 2019, raising it to a new level of 2.5% of taxable income from that date.


OTHER MEASURES

Small business owners also gained an extension of 12 months to existing concessions allowing assets purchased for up to $20,000 to be immediately written off for tax purposes. These concessions will now apply for assets purchased up to 30 June 2018.

The Big Four banks and Macquarie will be hit with a new bank levy. The proposed levy will raise $6.2 Billion of funds however there are concerns that this levy will be passed on to consumers.

University students were hit with a double edged sword as the government has proposed decreasing the funding for universities, likely leading to increased fees, and a decrease to the lower threshold for starting repayments on their HECS/HELP loans.

Transport and infrastructure feature strongly in the budget, - "the right choices to secure better days ahead" - the Treasurer said, with $70 billion committed nationally to projects including the inland rail link from Melbourne to Brisbane.

The budget also included details on the funding ($5.3 billion) of the second Sydney airport. This will create 20,000 jobs over the 8-year construction period.


Whilst the changes may be regarded as minimal only, it's still important to understand what have been proposed and how they will impact you; if and when such proposals become law.

We will provide an update on the Budget measures, once legislated.



This material is current as at 11 May 2017 and is provided for general information only and should not be taken as general or personal advice. Whilst all care has been taken in the preparation of this report (using sources believed to be reliable and accurate at the time). This publication has been prepared without taking into account a potential investor's objectives, financial situation or needs. Before making a decision based on this publication, consider its appropriateness based on your objectives, financial situation and needs. Donegal Wealth Pty Ltd holds an Australian Financial Services License (AFSL) No. 230184, granted by the Australian Securities and Investments Commission (ASIC).