Grow Magazine

Budget takes big focus on super

May 2016

New limits are in place on what you can contribute to superannuation.

There’s big differences in how the federal budget will hit high and low-income earners, writes Byron Smith.

In a budget for “extraordinary times”, the government has proposed a small tax cut and big changes to superannuation.

The theme behind all the changes is that the government has a “plan for jobs and growth” said Treasurer Scott Morrison in delivering the budget on May 3.

Income tax

The biggest change in income tax is when the 37 per cent marginal tax rate hits. You will now have to earn $87,000 to be taxed at this rate, beginning this July.

The Treasurer says “this will stop around 500,000 taxpayers from facing the 37 per cent second top marginal tax rate”.

He also made it clear the government would not make changes to negative gearing.

Income tax for residents (2016-17)

Taxable income Tax payable
$0 – $18,200 0%
$18,201 – $37,000 19% > $18,200
$37,001 – $87,000 $3,572 + 32.5% > $37,000
$87,001 – $180,000 $19,822 + 37% > $87,000
$180,000+ $54,232 + 47% > $180,000

Source: ANZ 2016/17 Federal Budget Technical Update


But superannuation was perhaps the biggest area of change in this budget. Many of the changes target higher-income earners, which was clearly identified by the Treasurer.

Tax concessions on contributions into super will only apply to the first $25,000 contributed, beginning July 1 next year. Currently it is $30,000 for those aged less than 50, and $35,000 for those aged 50 or older.

For non-concessional contributions there is now a lifetime limit of $500,000, a significant curtailment from the previous level of $180,000 a year (or $540,000 under the bring-forward rule).

And a limit of $1.6 million has been placed on the superannuation savings an individual can move into tax-free retirement phase accounts. More money can be transferred but it will be taxed.

Women, seniors and low-income earners

However, those aged 65 to 74 will no longer be restricted from making super contributions for their retirement. And those under 75 can claim income tax deductions on super contributions.

Those with a super balance less than $500,000 will be able to make additional contributions at a concessional tax rate, if they haven’t reached the $25,000 limit in previous years – a roll-on effect which can continue for up to five years.

Low-income earners will benefit from a superannuation tax offset. Those earning $37,000 or less who make a concessional contribution to their super will receive a tax benefit capped at $500 to offset the tax paid on those contributions.

Similarly, more taxpayers who contribute to a low-income earning spouse’s account will be eligible for the spouse contribution tax offset because of the increase in the income threshold for the low-income spouse from $10,800 to $37,000 The low-income spouse tax offset provides up to $540 each year for the contributing spouse.

Medicare and tobacco

The Medicare levy low-income thresholds for singles increases to $21,335. The threshold for families increases to $36,001 and the additional amount of threshold for each dependent child or student increases to $3,306. For single seniors and pensioners, the threshold increases to $33,738.

The increased thresholds take into account movements in the consumer price index so that taxpayers who were not liable to pay Medicare levy in 2014-15 will continue to be exempt unless their incomes have increased by more than CPI.

Smokers have been hit again in this budget. The tobacco excise will increase by 12.5 per cent each year for the next four years, beginning September 2017.

May 2016