“Economic plan” wins out in Budget bingo

In his Budget speech, Treasurer Scott Morrison said this was "not just another Budget". It was an "economic plan". He then proceeded to mention "economic plan" Eight times, "hardworking Australians" five times and "jobs and growth" five times. So in the 2016 Budget speech bingo "economic plan" won out.

On the whole, it was a balanced and fair budget going into an election, and many of the initiatives – particularly the superannuation changes, the modest tax cuts and the 'Google tax' on multinational companies – are likely to get cross-party support from the ALP. Consequently, unlike recent past Budgets, this 'non-Budget' may actually get some traction.

For financial planners the big ticket items are the super changes. And there are quite a few more changes than we originally expected. Some we knew about - like the drop in the income threshold for division 293 tax to
$250,000 – indeed there were suggestions it could have been reduced to $180,000. Others have long been on the cards, like the removal of the anti-detriment payment for super death benefits. Some changes are restoring tax benefits that should never have been removed in the first place, such as the Low Income Super Contribution (now called the Low Income Super Tax Offset).

Generally, the super changes are quite comprehensive and financial planners will have a lot of work to do with clients over the next year getting financial plans in line with the changes. For a start there will be a cumulative non-concessional cap of $500,000, but the key issue here is that it starts on 3 May 2016 and is retrospective to the extent that it will take into account contributions going back to 2007. The other super change that will cause some concern will be the $1.6m transfer balance cap, which will effectively limit the amount of super held in tax exempt pension phase (however financial planners should note it could have been worse – the Henry tax review recommended getting rid of the tax exempt pension phase altogether). Transition to Retirement (TTR) pensions have been hit as was rumoured, however, the strategy was not removed entirely. The tax exemption on earnings in TTR pensions has been removed, which will effectively turn TTR pensions into accumulation accounts from which a draw down is made.

The changes to concessional contributions are a mixed bag. On the one hand the concessional contributions cap drops to $25,000 (which is a far cry from glory days of $50,000 and $100,000 caps we had nearly 10 years ago). However there is some good news. Unused cap amounts can be carried forward up to five years where account balances are under $500,000. This will go some way to helping people, particularly women, catch up on super contributions.

In another welcome move, some of the weird rules relating to super contributions will finally go. These are the rules that have evolved over time and for reasons best known to the ancient Treasury Mandarin who came up with them in the first place. They include the work test for contributions over age 65 and the age limit of 70 for spouse contributions. Also the employee/self-employed distinction for claiming a tax deduction for personal super contributions will be removed. This means from 1 July 2017 employees will be able to make concessional contributions up to the cap by compulsory super, salary sacrifice and/or personal deductible contributions. About time too.

Kate Anderson, national manager, technical services, IOOF