Courtesy of the Barefoot Investor.
How to Make This Budget Work for You
By government insider “Mr X”
Let’s face the facts — if you’re looking for a freebie, then this wasn’t a Budget for you.
The message from the Government was clear: they want to take Australia from a $49.9 billion deficit to a $3 billion deficit over the four-year budget cycle.
The theme for last night included cuts to spending, taxation increases and the limited amount of new spending.
But they didn’t axe everything.
There are still legitimate ways to radically lower your tax - and you’d be a fool not to legally lower your tax as much as possible, and take advantage of loopholes that were too hot for the Government to mess with. Here’s my list:
The best tax dodge is...
Superannuation — it was hardly touched in this budget.
Better still, from 1 July this year the superannuation contribution limits are increasing. Pre-tax contributions will be capped at $30,000 per annum for under 50s and $35,000 per annum for over 50s.
After tax contributions increase to $180,000 per financial year.
So salary sacrifice as much as possible — you will reduce your taxable income (and may avoid the 2% deficit levy), boost your super balance and benefit from the long term compound returns.
Transition to Retirement Just Got Even Better
Anyone currently over 55 and still working you should consider a Transition to Retirement (TTR) strategy. This involves a combination of salary sacrifice and drawing down on your superannuation through a TTR pension. The increase in superannuation contribution limits next financial year make this strategy even more effective.
Younger Spouse, Bigger Benefits
Superannuation is not assessed by Centrelink until you reach your pension age.
A pensioner may look at getting the bulk of their assets put into their spouse’s super (who is younger than pension age) to maximise their age pension.
Structure your assets to minimise your tax
You could investigate investing in a tax structure that is lower than your marginal tax rate.
Remember one of the biggest factors on your returns is the tax you pay. So look at investing in your lower income earning spouse’s name, in a company or trust structure or within an insurance bond.
HECS Debts
The cost of going to university has had a shake up. Universities will be able to increase their fees (and most will). Students will now pay real interest on their loans up to a maximum of 6 per cent (it’s 2.9 per cent currently), rather than having the debt indexed to inflation. Repayments will kick in at $50,638 from 2016.
The government encourages you to pay off your HELP debt quicker by giving you a deduction for voluntary payments over $500 — and if you choose to you should do it before the indexation is applied on the 1st June each year.
Despite the changes, my thinking is that this is the last debt you should think about repaying.
Downsize Your Property
Your principal residence is exempt from capital gains tax. A significant number of people have a huge asset in their own home but a shortfall in financial assets. Once the kids have left home, sell your four-bedroom family home and invest the proceeds.
Finally, Remember This
I’ve been around Government for a long time, and here’s the thing — as far as the budget is concerned — nothing has been legislated as yet. Some of these announcements may not make it through Parliament and will have no impact on us whatsoever.
The Budget Brief
Here’s the run-down on last night’s Federal budget.
Everyone:
Government:
Businesses:
High income earners:
Students & Young People:
Families:
Pensioners:
People with a disability:
The unemployed:
How to Make This Budget Work for You
By government insider “Mr X”
Let’s face the facts — if you’re looking for a freebie, then this wasn’t a Budget for you.
The message from the Government was clear: they want to take Australia from a $49.9 billion deficit to a $3 billion deficit over the four-year budget cycle.
The theme for last night included cuts to spending, taxation increases and the limited amount of new spending.
But they didn’t axe everything.
There are still legitimate ways to radically lower your tax - and you’d be a fool not to legally lower your tax as much as possible, and take advantage of loopholes that were too hot for the Government to mess with. Here’s my list:
The best tax dodge is...
Superannuation — it was hardly touched in this budget.
Better still, from 1 July this year the superannuation contribution limits are increasing. Pre-tax contributions will be capped at $30,000 per annum for under 50s and $35,000 per annum for over 50s.
After tax contributions increase to $180,000 per financial year.
So salary sacrifice as much as possible — you will reduce your taxable income (and may avoid the 2% deficit levy), boost your super balance and benefit from the long term compound returns.
Transition to Retirement Just Got Even Better
Anyone currently over 55 and still working you should consider a Transition to Retirement (TTR) strategy. This involves a combination of salary sacrifice and drawing down on your superannuation through a TTR pension. The increase in superannuation contribution limits next financial year make this strategy even more effective.
Younger Spouse, Bigger Benefits
Superannuation is not assessed by Centrelink until you reach your pension age.
A pensioner may look at getting the bulk of their assets put into their spouse’s super (who is younger than pension age) to maximise their age pension.
Structure your assets to minimise your tax
You could investigate investing in a tax structure that is lower than your marginal tax rate.
Remember one of the biggest factors on your returns is the tax you pay. So look at investing in your lower income earning spouse’s name, in a company or trust structure or within an insurance bond.
HECS Debts
The cost of going to university has had a shake up. Universities will be able to increase their fees (and most will). Students will now pay real interest on their loans up to a maximum of 6 per cent (it’s 2.9 per cent currently), rather than having the debt indexed to inflation. Repayments will kick in at $50,638 from 2016.
The government encourages you to pay off your HELP debt quicker by giving you a deduction for voluntary payments over $500 — and if you choose to you should do it before the indexation is applied on the 1st June each year.
Despite the changes, my thinking is that this is the last debt you should think about repaying.
Downsize Your Property
Your principal residence is exempt from capital gains tax. A significant number of people have a huge asset in their own home but a shortfall in financial assets. Once the kids have left home, sell your four-bedroom family home and invest the proceeds.
Finally, Remember This
I’ve been around Government for a long time, and here’s the thing — as far as the budget is concerned — nothing has been legislated as yet. Some of these announcements may not make it through Parliament and will have no impact on us whatsoever.
The Budget Brief
Here’s the run-down on last night’s Federal budget.
Everyone:
- We’ll have to pay $7 every time we visit the GP.
- Medical scripts to cost up to $5 more.
- Petrol prices to increase, with the fuel excise to rise.
- The First Home Saver Account will be scrapped.
- Low Income Super Contribution scrapped.
- Compulsory employer super contributions to pause at 9.5% for three years.
Government:
- 16,500 public service jobs to go.
- The establishment of a $20 billion Medical Research Future Fund.
- Major spending on infrastructure.
- Defence budget to increase to 2% of GDP.
Businesses:
- Company tax rate to reduce to 28.5%.
- Government incentive to hire over-50s with a potential $10,000 payment available.
High income earners:
- Anyone earning over $180,000 will pay an extra 2% per annum tax for the next three years.
Students & Young People:
- Universities will have the ability to set their own fees.
- Scholarships will be available to disadvantaged students.
- Student loans will be subject to interest instead of CPI indexation.
- From July 2016, students will have to pay their loans back sooner, starting once they earn over $50,638 a year.
- Trade support loans available for apprentices of up to $20,000.
Families:
- Schoolkids Bonus scrapped.
- Current Family Assistance payments frozen for two years.
- From July 2015, Family Tax Benefit part B will not be available to those earning more than $100,000 per annum.
- Paid maternity leave scheme capped at $50,000, as opposed to $75,000.
Pensioners:
- The age pension eligibility age to increase to 70 by the year 2035. This is in addition to the previous government’s decision to increase the age pension age to 67 by 1 July 2023. The preservation age — which is the age at which superannuation can be accessed — has not been increased by the government, yet. The preservation age is around 60-years-old now but no announcements have been made for this to be increased.
- From 2017 the pension will be indexed by inflation instead of wage growth.
- Thresholds for the deeming rate on financial investments are going to reduce — this will increase assessable income for Centrelink purposes which may result in a lower rate of payment.
- Commonwealth Seniors Health Care Card holders will lose the pension supplement — currently worth $1,320.80 per annum for couples and $876.20 per annum for singles.
- Tax-free superannuation pensions will count towards the income test for the Seniors Health Care Card.
People with a disability:
- NDIS remains unaffected.
- Disability support pensioners will be subject to rolling eligibility checks.
- Those under 35 will face a tougher rules to remain on the pension with a focus on capacity to work.
The unemployed:
- Those aged under 25 will need to “earn or learn”.
- People under 30 will need to wait six months to be eligible for Newstart and once on payments will be subject to a work for the dole scheme.
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