For a budget that is being described by many in the media as dull, there are certainly plenty of announcements that will impact on doctors.
The most significant for you professionally is undoubtedly the continued freeze on the Medicare Benefits Schedule fees until 2020, and the confirmation of the public hospital agreement reached with the states and territories in the recent COAG meeting.
Outside of the impact on you professionally, there are a raft of changes that will impact on your financial well-being – some positive, some negative. This paper will provide an overview on the changes that may impact you in the following areas:
- Personal and Corporate tax rates
- Employers looking to hire junior (non-medical professional) staff
- Superannuation, investment and Retirement Planning
Personal Tax Rates
Changes to personal tax rates should be a positive for most doctors. The level at which Marginal Tax Rates increase from 34.5% to 39% (including Medicare) will increase from $80,000 to $87,000 (effective 1/7/2016). This is a modest saving to offset bracket creep, and represents a saving of $315 p.a.
More significant though is the confirmation that the Temporary Budget Repair Levy will expire as planned on 30/06/2017, which will reduce the top Marginal Tax Rate from 49% to 47% (including Medicare). If you earn more than $180,000 per annum, this represents a saving of $20 per $1,000 of income above this level – for instance if your income is $250,000, you will save $1,400 in tax.
Small Business Tax Concessions
If you own a business and are not subject to the Personal Services Income provisions, you may benefit from the further reduction in the small business tax rates (from 28.5% to 27.5%) where you retain profits in the business for reinvestment. The turnover threshold to be classified as a small business is being increased from $2 Million to $10 Million, which will allow more businesses to access these lower tax rates.
Employers – Youth Employment Package
If your business is looking to hire a junior member of staff (non-medical, under 25 years), you may be able to access a 12 week internship program to trial their fit within your business. Employers may be eligible to receive a $1,000 incentive payment, and the job seeker will receive payments from the government.
Where a business takes on a junior employee, the business may be eligible for an incentive payment of between $6,500 and $10,000.
These incentives are restricted to those job seekers who have been in employment services for at least six months.
Superannuation, Investment and Retirement Planning
Firstly, the government has confirmed there will be no changes to Negative Gearing or Capital Gains Tax Concessions. This provides certainty for existing investors and those considering such investment strategies.
There have however, been a number of changes proposed to superannuation.
Concessional (pre-tax) Contributions to super will be restricted to $25,000 p.a. from 1/7/2017. This will limit your ability to accumulate funds in super for your retirement. You may be locked out of opportunities to Salary Sacrifice your income into super as your employer’s Superannuation Guarantee Contributions may see you reach this level.
If your income (including pre-tax super contributions) is above $250,000 from 1/7/2017, you will have to pay an additional 15% Contributions Tax over and above the standard 15% level. This has previously applied to those earning above $300,000, so more will be impacted by this charge.
There may be an opportunity for you if you take sabbatical leave, undertake extended work or training overseas, or stop working for some time to raise a family. The government has announced that from 1/7/2017 the Concessional Contribution Cap ($25,000 p.a.) will apply over a rolling five year period. This means if you don’t reach your contribution cap in one or more years, you will have the opportunity to carry them forward and play catch up within a five year period.
The government has also announced a Lifetime Non-Concessional (after tax) Contributions Cap of $500,000 effective from Budget Night. This will be backdated to take into account all Non-Concessional Contributions since 1/7/2007. This may significantly impact your ability to increase your superannuation balance using the proceeds of an inheritance or a property sale for instance, or just your surplus cashflow.
From 1/7/2017 people aged between 65 and 75 will no longer need to meet a work test in order to contribute to super. If you are retired, and within your contribution limits, you may now be eligible to make additional contributions to super if that is beneficial.
From 1/7/2017 you will be able to claim a tax deduction for personal superannuation contributions (subject to the cap of $25,000p.a.), regardless of your employment status. This may benefit you if you work as an employee and are also self-employed, or if you are employed by multiple employers and find it difficult to implement Salary Sacrifice arrangements to maximise your pre-tax superannuation contributions.
The threshold for the Low Income Spouse Superannuation Tax Offset will increase from $10,800 to $37,000 effective 1/7/2017. If your spouse has an income below this level you may be eligible for a tax rebate of up to $540 if you make a superannuation contribution to their fund of at least $3,000. In these circumstance, this will help build their superannuation account (which will be increasingly important given the contribution limits) while also reducing your personal tax liability.
Impact and Planning Considerations
Given the reduction in the contribution limits, it may be wise to review any insurance policies you have within super, as the cost of this cover may significantly reduce the amount you can accumulate for retirement.
If you have worked in the UK for a period of time and have accumulated pension benefits there, you may be impacted if you move these monies into an Australian Super fund or have previously done so. This is because these contributions have been counted as Non-Concessional Contributions, and so may impact on your ability to contribute other monies in future.
Recontribution Strategies that have been used to change the tax components of your superannuation benefits in order to reduce the potential tax liability faced by your non-dependent beneficiaries will need to be reconsidered in future. Given these contributions will count towards the $500,000 Lifetime Cap, implementing such a strategy will limit your ability to contribute further funds into super.
From 1/7/2017 the earnings on Transition to Retirement Pensions will no longer be tax free. If you are not in need of income from your super fund to supplement your earnings from employment, there no longer appears to be an incentive to implement this strategy. If you are planning to realise an asset with a significant capital gain over the next 14 months, or if your fund has significant income, this strategy may still be of benefit while it is available.
The other notable change that may have a significant impact on you is the introduction of a Pension Balance Transfer Cap from 1/7/2017. This will limit the amount you can transfer from your accumulation account in super into a pension account to $1.6 Million. This is important as the earnings on investments in the pension phase are not subject to tax, while earnings in the accumulation phase pay tax at 15% on income, and 10% on eligible capital gains. The other point with this is that if you already have funds in the pension phase that exceeds this amount, you will be required to move the excess back into the accumulation phase or withdraw it from super completely by 1/7/2017.
This cap means that it will be more important than ever to plan your contribution strategy, and to distribute your superannuation savings between yourself and your spouse where possible to maximise the potential benefits available to you.
Should you like any more information on these changes, or if you would like a Second Opinion on how they may impact your current plans, please contact me on 02 9959 0550 or Click Here.
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This information is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.