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September 15, 2019

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How do the Budget proposals help you achieve your financial freedom?

 

  

With the passing down of the budget, it is important to understand how these proposed changes will impact your individual circumstances. Below are some key highlights we believe will impact you.

 

Personal Tax

  • The temporary budget repair levy of 2% tax placed on earnings above $180,000 will not be extended past 1 July 2017

  • There’s an increase in the Medicare levy of 0.5% from 1 July 2019

 

What does this mean for you?

  • Simply put, higher income earners will enjoy the benefit of not extending the budget repair levy of 2%. However, the minor increase in the Medicare levy will apply to all tax payers except for low income earners who will benefit from an increase in the low-income earner threshold to help alleviate the burden.

 

Small Business

  • A proposal for an extension of the $20,000 instant asset write-off for small businesses for a period of 12 months ending June 2018.

 

What does this mean?

  • This extension provides further incentives for small businesses to continue to invest thereby stimulating growth. This will have an overall impact on the economy.

 

Superannuation

  • Individuals will be able to make personal concessional contributions up to $15,000 per year and $30,000 in total and subsequently withdraw that from 1 July 2018 to fund a deposit towards their first home.

  • Individuals aged 65 years and over may make a post-tax contribution up to $300,000 into superannuation from the proceeds of selling their home provided they owned it for at least 10 years.

 

What does this mean for you?

  • On the surface, the first home savings scheme appears to be encouraging, especially for higher income earners as superannuation presents a lower tax bracket (15%) on the contribution and income earned compared to a higher marginal tax rate.  However, this benefit is eroded on incomes in the lower tax bracket.

  • Funds contributed into super under this proposal, only earns a deemed income at the rate of the 90-day bank bill rate (around 4.5%). Individuals saving for a longer period than 3 years miss out from accessing other investment vehicles that may provide returns higher than the 90-day bank bill rate.

  • Under this proposal, the funds can only be used as a deposit towards the individual’s first home and individuals will have to meet a strict compliance test to access these funds.

  • With allowing non-concessional contributions of proceeds from the sale of the main residence up to $300,000, individuals may enjoy a concessional tax environment for investment growth in their retirement years. Couples may contribute up to $600,000.

  • It is worth noting that superannuation remains a political environment and should rules change in the future, it may have implications for funds placed in this structure.

 

Housing Affordability

  • Negative gearing benefits remain untouched with minor changes to deductible expenses relating to travel expenses.

  • The budget proposes a denial of CGT main residence exemptions to foreign and temporary tax residents. 

  • CGT withholding tax rate for foreign tax residents will be increased from 10% to 12.5%. This will apply to Australian real property and related interests valued at $750,000 or more (currently at $2m) from 1 July 2017.

  • An annual vacancy levy of at least $5,000 will be placed on properties owned by foreign owners and left vacant or not genuinely on the rental market for a period of 6 months

  • 50% cap on foreign ownership will be introduced on new developments.

 

What does this mean for you?

  • Negative gearing benefits will allow for investors to continue to offset investment costs against investment income. However, it’s important to note that investing in a growth asset should be aimed at long term growth potential and not short term tax incentives.

  • There’s the assumption that foreign investors have added to price hikes in the property market. If this assumption is true, then these measures may go a long way to reduce the impact of foreign ownership on the property market.

 

 

Conclusion

 

Tax time always create uncertainty, panic and confusion amongst tax payers. It is important to seek professional advice to help navigate the investment labyrinth to ensure you have a stronger chance in creating your future financial freedom.

 

 

 

General Advice Disclaimer

Note: - this article is of a general nature only and does not take into account your objectives, financial situation or needs. Please consult a qualified Financial Adviser, like Wealth Peak Financial Advice, before making any decisions on the basis of this article. Wealth Peak Financial Advice Ltd ABN: 24 615 007 326, is a Corporate Authorised Representative of Total Financial Solutions Ltd. AFSL 224954 and ABN 94 003 771 579

 

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