04 May The Good The Bad & The Ugly
The Good The Bad & The Ugly
When Johnny Howard came into power in 1996 he said “Read My Lips – No New Taxes”. He then promptly introduced what was called a Superannuation Surcharge intended to hit high income earners on their superannuation contributions made (as we all know a surcharge or levy is not a tax).
In 2015/16 we are not going to make any changes to superannuation or retirees super pension accounts for tax purposes means we will make changes to existing arrangements where we deem it necessary or on the grounds of fairness & equity. In other words as my late father used to say to me & as I have probably mentioned to most of you in meetings “Don’t Believe Anything You Hear & Only Half Of What You See”.
Last Nights Budget outlined changes of which the broad majority of you reading this will be unaffected by. I must state that these changes are not yet law and the legislation must be passed for changes to be enacted. All of the superannuation changes do not become effective until 1st July 2017 (other than the new $500,000 lifetime non-concessional contribution cap which is effective as of 7.30 pm last night).
You Also Need To Be Aware of the Government/Tax Office jargon
Concessional = tax deductible
Non-Concessional = non-tax deductible
I have split my thoughts on The Federal Budget into my favourite 1960’s Spaghetti Western categories below – The Good, The Bad & The Ugly. Transcripts from the movie have been taken from Wikipedia.
The Good – Clint Eastwood
Clint Eastwood as “Blondie” (a.k.a. the Man with No Name): The Good, a subdued, cocksure bounty hunter who teams with Tuco (The Ugly) , and Angel Eyes (The Bad) temporarily, to find the buried gold.
Flexibility for all Australians to make contributions to superannuation as long as they are < Age 75. People < Age 75 no longer need to be employed to make contributions to super & also all Australian can claim tax deductions for personal contributions regardless of their work status. Also people have a 5 year rolling cap where they can use their unused $25,000 annual concessional contributions (tax deductible/salary sacrifice contributions) in any year (as long as total contributions don’t exceed $125,000 – i.e. 5x$25,000) & as long as their personal super account balance is < $500,000.
This helps people who have broken employment or whose personal financial position improves in future years. Far better system than current use your cap or lose it.
Extending the spouse contribution rebate income level. The level is being increased from $10,800 up to $37,000
A bit of extra tax incentive for one partner to contribute to another partner’s account.
Low Income Superannuation Income Tax Offset (Listo). Maximum Tax Refund of $500 to offset contributions tax payable on concessional contributions made to super funds where the person earns < $37,000. Listo replaces Lisc – which to me are one and the same thing, but hey I love new jargon as well as the next person.
Increasing $80,000 income tax threshold to $87,000. Stymies part of bracket creep
Tax Incentives/job subsidies for employer to take on young Australians in work
Expanding the cope of businesses that will qualify as small businesses & reductions in tax rates applicable to these businesses, or increased tax rebates for unincorporated businesses.
Both excellent measures as will give employers incentive to employ younger Australians and expands the net whereby businesses can claim tax benefits for making investment decisions. An ability certainly to grow jobs and the economy.
The Bad – Lee Van Cleef
Lee Van Cleef as Angel Eyes: The Bad, a ruthless, unfeeling, and sociopathic mercenary who always finishes a job he is paid for (which is usually finding—and killing—people).
Reduction in Concessional Contributions Cap to $25,000 for all
This will affect everyone who currently makes contributions at increased levels (either $30,000 or $35,000 depending on your age). It will also impact on Public Sector employees (read SuperSA, ComSuper, etc.) who currently have no cap applied to their contributions
Introduction of Lifetime Non-Concessional Cap (NCC) of $500,000 effective 3/5/16 at 7.30 pm & includes all non-concessional contributions made since 1/7/2007.
Errrr…… you only need to keep your tax records for 5 years, now you need to back track super contributions for effectively 9 years. The current NCC cap is $180,000 in any 1 year or $540,000 averaged over 3 years. If people have already exceeded the $500,000 cap no further contributions can be made (but the good thing is as I understand it you won’t have to withdraw any excess contributions made prior to last night)
Changing The Tax Status on Transition To Retirement (TTR) Pensions
If you are < Age 65 the earnings within the fund will be taxed at 15% (the same as super funds – currently TTR Pensions are not subject to tax on earnings within the fund). There is no change to the tax status of pension that you draw from these accounts (i.e. if you are > Age 60 then the pension that you draw continues to be tax exempt)
Transfer To Tax Exempt Pension Accounts Capped at $1.6m
Won’t affect many Australians & I’m sure that the broad electorate will not cry any crocodile tears here, but it is just more fiddling around
Extending the existing freeze on the Medicare Levy Surcharge and Private Health Insurance Rebate thresholds Till July 2021.
Just over time that bracket creep means some people will either get a lower private health rebate or may pay a higher medicare levy surcharge.
The Ugly – Eli Wallach
Eli Wallach as Tuco Benedicto Pacífico Juan María Ramírez (known as “The Rat” according to Blondie): The Ugly, a comical, oafish (though very dangerous, cagey and resilient), fast-talking Mexican bandit who is wanted by the authorities for a long list of crimes.
Retrospectivity (I May Have Invented A Word Here) – The Time Machine
This Government has shown that it prepared to introduce rules that go back over time to make changes. THIS IS NOT A GOOD THING. We have seen changes made to the Assets Test (effective 1/1/2017), now the Lifetime NCC of $500,000 & $1.6m Super Pension accounts. You may as well think what else they will do in future.
Superannuation
Super continues to be a political football & why would we think this will change at any time in the future. If I went through every super change since 1st July 1983 you heads would keep on spinning.
High Income Earners
Whilst forecasters will base their calculations on higher income earners paying more tax because of changes to super, etc. this group of people will just modify their behavior and look to minimize tax in a different way. Negative gearing is still an allowable tax minimization tool & the family home retains it’s tax exempt status. House prices have already soared in both Sydney & Melbourne & as this is where the majority of the High Income Earners reside you may see more activity in this area. I don’t subscribe to the current irrational theory being pushed by the Lefty Loonies that negative gearing is the sole cause for housing price rises. I will however cover my thoughts over the next couple of weeks in a separate blog, rather than write another 5 pages here on this topic.
The Deficit
Well we just keep spending monies we don’t earn & government’s are relying on expanding the economy so increased tax collections will solve the problem. Now if we could only believe the boffins in Treasury’s forecasts. I concede that in a $2.7 trn economy that there are many moving parts which can change forecasts, but we continue to kick the can down the road for all of us to pay in the future.
As a country we rely on foreign capital to keep the wheels of our economy greased. A reduction in our AAA rating if our debt problem gets worse (and can’t be managed out) will impact on everyone as lending rates will likely increase (as Banks source most of their funding offshore) & government’s will be forced to cut spending or increase taxes whether we like it or not.
Summary
Every talking head on TV & Radio today will have their views on the Budget and all of the vested interest groups will be shouting their position from the tops of mountains.
Hopefully for our sake and for the sake of the future of our nation we get an ending like in The Good, The Bad & The Ugly where Clint Eastwood gets rid of the bad and shares the pot of gold with the ugly.
The trio stare each other down. Everyone draws, and Blondie (The Good) shoots and kills Angel Eyes (The Bad), while Tuco (The Ugly) discovers that his own gun was unloaded by Blondie the night before. Blondie directs him to a grave beside Arch Stanton’s marked “Unknown.” Inside are bags of gold. Tuco is initially elated, until Blondie orders him into a hangman’s noose beneath a tree. Blondie binds Tuco’s hands and forces him atop an unsteady grave marker in the shape of a cross, takes half the gold and rides away. As Tuco screams at him, Blondie rides behind some trees and disappears. As Tuco continues to scream his name, Blondie returns into sight. Initially relieved, Tuco becomes scared when Blondie draws and aims his rifle. Blondie fires, severing the rope and dropping Tuco, alive and angry, onto his share of the gold, before riding off into the horizon.
Adios Amigos