Whilst the media are labelling the Federal Budget as a win for high income earners, I believe the exact opposite is true, with superannuation the hardest hit in terms of strategy options. In this article, I will highlight the main issues for Doctors and the 2016 Budget.
Superannuation down and out?
There is no doubt that superannuation is becoming less and less attractive for doctors. Let’s have a look at some of the proposed changes.
1. Lifetime cap for non-concessional superannuation contributions
Proposed effective date: 7.30pm (AEST) 3 May 2016 Currently, the non-concessional contributions cap is $180,000 per person, per financial year. If you are under age 65 at any time in the financial year, you can make a non-concessional contribution of up to $540,000 under the bring-forward provisions. The government proposes to replace the current contributions cap with a $500,000 lifetime non-concessional contributions cap. This lifetime cap is proposed to commence at 7.30pm (AEST) on 3 May 2016. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
Outcome: Doctors will be able to contribute less to super. This may impact strategies whereby commercial property is transferred into your self managed super fund for example.
2. Reduction of the concessional contributions cap
Proposed effective date: 1 July 2017 Currently, the concessional contribution (CC) cap is $30,000 per financial year. A higher concessional contributions cap of $35,000 applies if you are aged 49 years or over on 30 June of the previous financial year. The government is proposing to reduce the annual cap on concessional superannuation contributions to $25,000 for everyone, irrespective of their age.
Outcome: Doctors will be able to contribute less to super, and claim less income tax deductions. For the first time, this also proposed to affect constitutionally protected funds such as GESB West State.
3. Reduction to Division 293 tax threshold
Proposed effective date: 1 July 2017 From 1 July 2017, the government has proposed to lower the Division 293 threshold (the point at which high income earners pay an additional 15 per cent tax on contributions) from $300,000 to $250,000.
Outcome: Even more doctors will pay 30% tax on their super contributions.
4. Introduction of a $1.6 million superannuation transfer balance cap
Proposed effective date: 1 July 2017 From 1 July 2017, the government is proposing to introduce a $1.6 million transfer balance cap. This cap will limit the total amount of accumulated superannuation benefits that an individual will be able to transfer into the retirement income phase. If you have superannuation amounts in excess of $1.6 million, you will be able to maintain this excess amount in a superannuation accumulation account (where earnings will be taxed at the concessional rate of 15 per cent).
Outcome: For many doctors, paying tax on their retirement benefits in super will now become a reality, where this was previously tax-free over age 60.
5. Changes to the taxation of Transition to Retirement (TTR) income streams
Proposed effective date: 1 July 2017 The internal earnings within a superannuation account on the amount used to purchase a pension are currently tax-free. This will no longer apply to transition to retirement income streams from 1 July 2017 should the proposed changes go ahead. This means that earnings on fund assets supporting a transition to retirement income stream after this date would be subject to the same maximum 15 per cent tax rate applicable to an accumulation fund.
Outcome: Doctors with large super balances, who are aged between 60 and 65, will no longer be able to save tax on their earnings in super by starting a pension.
Income Tax changes
There are two small wins for Doctors in terms of income tax cuts:
– there is a small tax cut for those earning over $80,000 p.a. – the Budget Repair Levy should not be extended beyond 30th June 2017, which means the top marginal tax rate will reduce from 49% including Medicare to 47%.
Conclusion – Doctors and the 2016 Budget
Now more than ever will Doctors need to diversify their wealth creation and tax planning strategies, and start planning and seeking advice early in their career.
Options such as using family trusts and investment bonds will become more attractive and should be carefully considered as part of a holistic plan.
Negative gearing is sure to also get much attention from Doctors, given their interest in property investment.
If you would like to discuss your options, please do not hesitate to contact me on 08 6160 5918 or firstname.lastname@example.org
About Yves Schoof
I specialise in managing and coordinating the financial affairs of medical professionals and have been recognised as one of the best financial planners in Australia. I am a Certified Financial Planner and member of the Financial Planning Association of Australia.
As I understand your time is extremely valuable and scarce, I am able to offer flexible meetings times, including outside business hours and during the weekend. I can even come and meet you somewhere convenient, or talk via videoconference on Skype.
My first consultation is free. I allocate up to 90 minutes to discuss your personal circumstances and to establish how I may best assist you. Where you already have an existing adviser, I would be happy to offer a second opinion. I always quote a fixed dollar fee before we start working together.
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Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.
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