As many of you are no doubt aware, Treasurer Scott Morrison released the 2016 Budget last night and as usual, there were some winners, some losers and many others who are neither.
Here's a list of the winners…
- Many Australians earning under $87,000 of taxable income a year will benefit, with the tax bracket for 32.5 cents in the dollar moved up from $80,000 to $87,000. That will stop 500,000 Australians falling over into the 37% tax bracket.
- Businesses will start paying lower tax rates than the current 30% rate from July 1 this year. Companies with turnover of less than $10 million will start to pay tax at 27.5%, and the tax rate will progressively be lowered for all businesses to 25% by 2026-27. (There is a small sting in the tail for dividends – but more on that below).
- Australians with superannuation balances under $500,000 will be allowed to top up their super where they didn't reach the $25,000 contribution cap in previous years. That's particularly useful for people who drop out of the workforce for a number of years, such as women leaving to have children.
- Families with children should see more benefits from a more flexible child care system, with the government committed to investing $40 billion in child care support over the next four years. That's good news for the likes of G8 Education Ltd (ASX: GEM)and Think Childcare Ltd (ASX: TNK).
- Infrastructure companies should also be winners with the government committed to spending $50 billion on infrastructure projects between 2013-14 and 2019-20 (Obviously some of that has already been spent).
- Hospitals should receive an additional $2.9 billion – but come with links to reforms to reduce avoidable hospital admissions. Continued good news for hospital operators Ramsay Health Care Limited (ASX: RHC), Healthscope Ltd (ASX: HSO) and Pulse Health Limited (ASX: PHG).
And the losers…
- Multinationals that have been accused of diverting their profits offshore to avoid paying Australian tax will face a diverted profits tax – which will be taxed at 40% and apply to corporations generating more than $1 billion in revenues annually.
- A retrospective cap on the transfer of superannuation balances into the retirement phase set at $1.6 million. Existing tax-free retirement phase superannuation balances beyond $1.6 million will have to be transferred into accumulation phase accounts and will be subject to a concessional tax rate of 15%. Will start from July 1, 2017.
- The income threshold for when the 30% tax rate kicks in will be $250,000, down from $300,000.
- The annual cap on concessional contributions to super will drop to $25,000 for everyone. It's currently $30,000 for those under 50, and $35,000 for those 50 and over and will come into effect from July 1, 2017.
- Non-concessional contributions will be capped at $500,000 in total, rather than the current $180,000 annual limit.
- Australia's 2.5 million smokers have more incentive to quit, with four annual price rises of 12.5% in tobacco excise.
- As mentioned above – the reduction in the company tax rate means franking credits will be lower – but should only have a small effect.
Foolish takeaway
It's clear that Australians with large superannuation account balances are the biggest losers from the budget and we can no longer stuff all our investments into super to take advantage of the tax-free income in retirement. That does mean having two investment portfolios – one in super and one outside – and perhaps adds even more incentive for dividend-paying shares outside of super.
