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May 2017

Federal Budget – 2017-18 – Overview

Comprehensive Budget overview : 27 sections covering every aspect of this year's Budget plus 6 Appendix of support information.

           

 

Through this link you'll be able to access a comprehensive breakdown of this years Budget.

There are 27 sections that can be accessed by either a drop down menu in the right panel or a Next button at the bottom of each section.

The main themes of this year's Budget are: 

  •   Stronger growth to deliver more and better jobs
  •   Guaranteeing the essential services that Australians rely on
  •   Tracking cost of living pressures
  •   Ensuring the Government lives within its means
  •   Budget at a glance
  •   Budget aggregates and major economic parameters

 

 

Source:  budget.gov.au

The three core pillars of this year’s budget

The following links give you access to the specific issues and topics addressed in the 2017-18 Budget.

           

 

While there is much information in the other two Budget articles the following three links provide far more detail, via a number of sub pages, on the three core pillars of this year's budget.  

When on the site click on the drop down in the right panel for access to sub-pages or use the Next button at the bottom of each sub-page.

 

 

budget.gov.au 

New tax incentives for early stage investors

On 5 May 2016, the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016, which includes the tax incentives for early stage investors, received Royal Assent.

           

 

Summary:  The tax incentives provide concessional tax treatment for investments made in a range of innovative start-up companies with high growth potential.

The tax incentives provide investors with:

a 20% non-refundable carry-forward tax offset for qualifying investments, capped at $200,000 for each investor and their affiliates (combined) per year, and
an exemption from capital gains tax (CGT) for qualifying investments held between one and ten years (capital losses on investments held for less than ten years must be disregarded).

read more on this topic here.

 

The Australian Taxation Office (ATO)

Essential steps for SMSF clients before 30 June

On 1 July 2017, the biggest changes to the super rules in a decade will come into effect. What are the basic steps to tick off with clients before then?

         

 

At the beginning of July this year, the biggest changes to super rules in ten years will come into effect. They touch on everything from contributions to pension drawdowns.

It’s important to review SMSF strategies with clients now, while there is still a window of opportunity for changes before the new rules go live on 1 July.

There are six steps SMSFs can take to prepare for the changes.

1. Consider concessional (pre-tax) contributions

SMSFs have until 30 June 2017 to make extra concessional (pre-tax) super contributions under the current caps − $30,000 for those who were under 49 years of age at 30 June 2016 and $35,000 for those who are older. From 1 July 2017, everyone’s cap will fall to $25,000.

2. Consider non-concessional (after tax) contributions

There is a window until 30 June 2017 to make use of the current, higher non-concessional (after tax) contributions cap of $180,000 a year, before it’s reduced to $100,000. If eligible, SMSFs can also take advantage of the current bring forward rule and contribute $540,000 prior to 1 July 2017. Once the new rules start, this bring forward cap reduces to $300,000. From 1 July, non-concessional caps will also reduce to zero if the total superannuation balance is $1.6 million or more. The total super balance may also reduce the available cap under the bring forward rule.

3. Check SMSF account balances

If SMSF balances are close to, or more than, $1.6 million, it is a good time to think carefully about strategy, especially if the SMSF client is approaching retirement or already retired.

From 1 July, the $1.6 million transfer balance cap on the amount that can be taken from super to fund a regular income stream in retirement will apply, with tax penalties often applying if the cap is exceeded. Importantly, this cap includes the value of existing retirement income streams at 30 June 2017, so SMSF practitioners will need to make sure that their clients’ total retirement income stream balances don’t exceed $1.6 million by that date.

Moving part of the retirement income stream back to accumulation prior to 1 July 2017, to comply with the introduction of the $1.6 million transfer balance cap, may provide access to transitional CGT to allow relief to reset the cost base of one or more of the fund’s eligible impacted assets.

4. Consider switching from a transitioning to retirement (TTR) pension to an account-based pension (NB: seek advice on this as your circumstances my require more detailed analysis)

From 1 July, earnings on assets supporting transition to retirement pensions will be taxed at up to 15 per cent, instead of being tax-free.

If SMSF investors already have a TTR pension and they now meet a full condition of release, it may be worth considering moving to a normal account-based pension.

With earnings on assets supporting TTR pensions becoming taxable at up to 15 per cent, while earnings on assets supporting account-based pensions remaining tax-free, switching to an account-based pension could help clients to save.

5. Review insurance contributions

With concessional contributions caps cut from 1 July, it may no longer make sense to hold insurance within the fund. Depending on the situation, it may be better to focus on contributions to build a long-term super balance, rather than paying premiums.

6. Review estate plans

Some superannuation funds can currently claim a tax deduction for a portion of the lump sum death benefits they pay to eligible dependants, essentially allowing a larger death benefit to be paid. That deduction will no longer be available either where the deceased member dies on or after 1 July 2017, or for death benefits paid on or after 1 July 2019.

It is a good time to consider the potential effect of the changes on death benefits and making sure death benefit nominations or reversionary pension nominations are up-to-date and in place. If beneficiaries are not considered dependants for tax purposes, a withdrawal and re-contribution strategy (if eligible) may be an option for boost the tax-free component.

 

Marcus Evans, head of SMSF customers, Commonwealth Bank
Friday, 21 April 2017
www.accountantsdaily.com.au

ATO defends approach to SG compliance

Following calls for the ATO to overhaul its approach to the issue of unpaid super, the tax office has pointed to the significant resources dedicated to super guarantee compliance and the billions in entitlements that have been transferred to employer accounts.

           

 

Industry Super Australia hit out at the tax office yesterday, backing a Senate committee’s calls for the ATO to address its reactive and “problematic” approach to unpaid super.

The ATO has since released a statement outlining its work in reining in non-compliance, in particular pointing to the hundreds of millions of recovered funds for Australian workers.

“In 2015-16 we undertook around 21,000 cases that addressed SG non-compliance, raising $670 million in SG, including penalties, from a range of reviews and audits,” said Deputy Commissioner James O’Halloran.

“Since 2010-11, we have transferred almost $2 billion in SG entitlements to employee’s super funds as a result of ATO action,” she said.

Addressing suggestions that the ATO’s approach to non-compliance is reactive, Mr O’Halloran said the ATO undertakes a range of compliance activities to detect issues before they arise.

“This includes analysing our data to detect patterns in non-payment, identifying high-risk industries, and taking firm action with employers who do not cooperate with requests to ensure employee entitlements are paid on time,” Mr O’Halloran said.

“Third-party referrals from intermediaries such as super funds, employee associations, other government agencies and tax professionals are additional sources of information for compliance action.”

 

KATARINA TAURIAN

Thursday, 04 May 2017
www.accountantsdaily.com.au

It’s no secret that Australians have some of the largest houses in the world.

While recent figures show a year on year increase in average floor size of our already large homes, our houses are actually not as big as they used to be.

           

 

When you place these figures in a broader content and consider some current downsizing trends – as well as the rise in single person households – it makes you wonder if Australians are starting to embrace smaller homes.

The stats

Recent research from Commsec showed that in the past year the average floor space of a newly built home has increased 0.7 per cent to 231 square metres.

Second only to the US whose houses are 10 per cent bigger than ours on average, Australian homes are 7 per cent larger than our New Zealand neighbours’ and 10 per cent larger than in Canada.

While our houses are 10 per cent bigger than twenty years ago and 30 per cent larger than what they were in 1867, the current figure is actually down from our record of 247.7 square metres, which was recorded in 2008-2009.

And interestingly, while there has been a slight increase in house size in the past year, our apartments are getting smaller. With an average floor space if 131 square metres, this is almost a 9 per reduction from 2004-2005 when the average size was 140 square metres.

Alongside the common benefits of a reduced mortgage, reduced upkeep and cheaper utilities, people are starting to go smaller for a number of reasons, as we can see from several downsizing trends currently at play in Australia, which we have outlined below.

1. Sustainable property

As our society becomes increasingly environmentally conscious, the demand for sustainable housing is growing. While still modern and comfortable, these houses have a green, thoughtful and efficient design, use recycled or sustainable building materials, aim to eliminate or reduce a carbon footprint during construction, foster a community feel and don’t take up more space than they need to.

An example. The designer takes everything not necessary out of the equation in order to reduce space and improve efficiency. This included, for example, a shared laundry instead of individual laundries and a communal bicycle storage room instead of a garage. With no air conditioning, these apartments rely on the building’s thermal efficiency and simple ceiling fans to keep cool. Extras could include a community vibe with a shared veggie garden on the roof as well other shared facilities.

As sustainable building continues to grow in popularity, we should expect to see a reduction in houses that are big for the sake of being big, as there is no use for unwanted space in sustainable design.

2. Tiny houses

Taking off in the US after proving to be a viable housing option following Hurricane Katrina, the tiny house movement has hit Australian shores and quickly gained a loyal following. Tiny houses are typically around 2.5 x 7 metres in size, can be completely off the grid and maximise every inch of cleverly designed space. They generally consist of a kitchen, bathroom, living area and sleeping loft and in Australia are often mounted on wheels to overcome current council building restrictions.

People have embraced this trend in order to lead a minimalist lifestyle and be mortgage free, with tiny homes costing a fraction of the price of a regular house. In Australia, tiny houses seem to be popular with those entering the market for the first time as well as retirees. They’ve also been marketed as an ‘in between’ home, where people can live while saving for a deposit on a regular house.

The tiny life is certainly not limited to these groups though. Many have simply embraced the trend after realising that perhaps we don’t actually need that much space after all.

3. Granny flats

Changes to legislation in the past ten years has fuelled demand for and construction of granny flats in Australia, with accommodation ranging from modest studios to multi-bedroom mini-homes.

Homeowners in granny flat friendly states – and in Sydney in particular – are taking advantage of the demand for comfortable and affordable rental accommodation in close proximity to the CBD, and benefiting from extra income from leasing one out. 

Those living in granny flats – commonly students, single people, young adults saving for a deposit and, of course, grannies – seem to be willing to compromise on a bit of space to take advantage of affordable accommodation close to the CBD.

All Australian states except for South Australia, Queensland and Victoria now allow homeowners to generate income from a secondary dwelling on their land.

4. Baby boomers downsizing to apartments

While empty nesters downsizing from their family homes into smaller apartments is nothing new, the trend continues. Alongside traditional retirement villages, many baby boomers are opting to move into comfortable apartments, allowing them to be closer to family and facilities in the city.

The demand for apartment living has seen an apartment construction boom in our capital cities in recent times, with concerns that we could have an oversupply in a few short years. In the right areas, apartments continue to be a popular choice for investors because of this demand and other benefits such as the extra depreciation they can claim from common property.

5. Affordability

The rising price of property in our capital cities – Sydney and Melbourne in particular – is something we hear about regularly in the media. Those who can afford to buy in the city as owner occupiers are often compromising by going smaller. This might mean for example purchasing a studio apartment instead of a one bedroom unit or a townhouse instead of a standalone house, due to the lower and more affordable price tag.

As Sydney and Melbourne continue to become global cities it will be interesting to see if this trend grows and if we take the lead from larger cities such as London, New York, Barcelona or Paris, where small living spaces are standard.

 

 

Bradley Beer
bmt-insider.bmtqs.com.au

 

2011 Census – what was the make up of your area?

The following link is a handy ABS tool if you want to see the demographic make-up of the area you lived as recorded in the 2011 Census.  2016 Census information starts becoming available from June 2017.

           

 

Please click here to access this tool and then type the town or suburb you want to investigate further.  Very interesting data.

Warning on trap with trust deed updates

With many SMSF trustees requiring changes to their trust deed following the reforms to super, an industry lawyer has stressed the importance of reviewing the history of trust deeds.

           

 

Cooper Grace Ward Lawyer partner Clinton Jackson says many deed providers update their deeds without reviewing them to make sure they’re actually updating it based on the current valid rules of the fund.

“There are a lot of deeds out there that have a bad history in the sense that there has been an error made along the way in terms of updating the deed or changing the trustees,” Mr Jackson said.

“If you’re replacing the deed, the only way you can make sure that those rules are valid and give you all the flexibility that you are trying to achieve with the new rules is to make sure that history is clean.”

If the history is not clean, any issues will need to be addressed, “otherwise the update to the trust deed is not worth the paper it’s written on”.

MIRANDA BROWNLEE
Friday, 05 May 2017
www.smsfadviser.com

ATO finalises guidance for capped defined income streams

The ATO has released a finalised version of LCG 2017/D1 which outlines how the defined benefit income cap applies to certain superannuation income stream pensions, and contains more expansive examples, according to one technical expert.

         

 

The finalised guidance, titled Law Companion Guideline 2017/1 clarifies how the defined benefit income cap applies to superannuation income stream pensions or annuities that are paid from life expectancy or market linked products that are non-commutable.

Miller Super Solutions founder Tim Miller says the final document contains further examples and is more extensive compared with the draft version.

“They’ve tightened up the wording and they’ve gone further with their examples for certain situations which I suspect will be quite helpful for people who are in the position of having to deal with these sorts of [pensions],” Mr Miller said.

“There is obviously a lot of confusion around these sorts of pensions, but I certainly think as a document it helps people identify how the calculations need to be made.”

Mr Miller said the calculation of the special value is relatively straightforward, but there could still be some complexities around determining what the defined benefit income cap is.

“That’s going to create complexities, not so much for somebody who is already receiving over $100,000, but someone who might start to receive say, a reversionary term pension after 1 July 2017,” he explained.

“I suspect if you’ve got a younger spouse who’s got an older partner who passes away, there are certainly some complexities associated with working out how much is capped or how much of their pension is entitled to taxed concessions in the first year, but I think the guide actually provides a reasonable step by step process of how to calculate it.”

Mr Miller also said the guidance talks about these pensions being non-commutable but noted that capped defined benefit income streams are to an extent still commutable within an SMSF if they're commuted into a new market-linked pension.

“It would also be interesting to get an ATO opinion on how that process [could] actually work from a transfer balance point of view,” he said.

“So if we have this special value, which is identified via this law companion guide, which is the annualised income after the 1st of July, we then have a situation where we have a defined benefit income cap up to $100,000. But if a member chooses to commute a capped defined benefit income stream to a new market-linked pension [with] different terms, what impact will that have on the transfer balance cap?”

 

 

MIRANDA BROWNLEE
Monday, 01 May 2017
www.smsfadviser.com

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