What The 2016 Budget Means For SMSFs
Treasurer Scott Morrison’s first-ever budget has sent ripples through the financial community, with a list of changes to the way that SMSFs will be regulated and administered in coming years. Let’s take a look at some of the biggest changes.
No more tax relief for wealthy investors
Simply put, the 2016 budget will see wealthy Australians’ tax benefits from SMSFs substantially reduced. This is a result of the following taxes and restrictions:
• The annual after-tax contribution limit of $180 000 will be replaced by a lifetime cap of $500 000 – this will be retrospectively applied from 2007.
• From next year, retirees aged 65 and older will be permitted to invest $1.6 million in a private pension and their annual pre-tax contribution limit will be set at $25 000.
These regulations mean one thing for high-income earners: the bulk of their investment capital will be taxable from 2017. To understand why this is so, let’s take a closer look at the new SMSF caps in the 2016 budget.
The $500 000 cap – the path to higher taxes for the rich
Half a million dollars may sound like a generous sum, but considering that this limit will include all contributions made since 2007, many high income Australians will find that they have already exceeded the limit.
From next year on, any amount in excess of $500 000 will have to be transferred to an accumulation account. This type of account attracts a tax rate of 15% and is guaranteed to raise the tax bill of higher income earners.
Pre-tax contributions of $25 000 – whether you like it or not
High earners may easily reach or exceed $25 000 a year in mandatory contributions, meaning that their voluntary contributions will all be taxable. Given the prospect of high taxes, it may be wise to explore alternatives like family trusts instead of SMSFs if you fall into the high-income category.
Confused about your tax situation? Consult your financial advisor today
The changes in the 2016 budget – which will have the biggest effect on high-income earners – will have to be approved by parliament before they become binding.
Nonetheless, now is the best time to familiarise yourself with the new regulations and make an appointment with us to discuss the future of your SMSF.
Call Lou on 0414168327 to learn more on how she can assist you with your SMSF needs.
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