Budget opportunities… How to take advantage of doors that may close.

AJ Financial PlanningretirementBudget opportunities… How to take advantage of doors that may close.

As most people in Australia know, the Federal Budget was announced last week and as usual, the media has been all over the proposed changes. One of the most contentious issues concerns superannuation and the impact some of the proposed changes will have on retirees.

It’s important to remember that before any of these changes come into place, the Liberals must be re-elected. Assuming that happens, the next step is to get the legislation through parliament before any of this comes into play. So in essence, there’s a good while for this to play out before it finally becomes law… and things can change between now and when it takes place.

However, assuming both these events occur, what doors are closing off potential opportunities?

What steps must you consider taking to ensure you take advantage of these changes before 1 July 2017?

At AJ Financial Planning, there are a number of areas we have identified, but if I had to pick just one, it would have to be unrealised capital gains positions within super. Let me explain this a little more — I promise not to drown you in facts and figures!

From 1 July 2017, there are two potential changes that come into play:

  1. $1.6 million cap on individual super balances in pension phase. Any balances over this limit may be taxed at 15% on earnings within the super fund.
  2. For people making the transition to retirement—earnings within super may be taxed at 15%.

You might think this is great, but which door is now closing and where should you jump?

It all centres around unrealised capital gains tax.

Let’s say the value of shares or a property within your super portfolio has increased considerably. Normally if you are retired or in transition to retirement phase, there would be no tax payable on this income, as you are in a 0% tax environment.

BUT: If you fall into either of the two buckets above, this is all about to change and you may in fact be taxed on this gain if you sell it in the future!

So you might want to think of either selling this asset before 1 July 2017. If it’s a shareholding, you might consider resetting it by selling it and then buying it back at a later date, which is a fairly simple task of resetting the cost base. Property, of course, is a lot harder to sell off and re-acquire.

Of course, there are many complexities that accompany these types of numbers, but it’s important to think about the ticking time bomb: capital gains tax within super. Previously, it has never been an issue, with a 0% tax rate on earnings within super for pensioners or those in transitional retirement phase. However, this could all start to change from 1 July 2017.

Please also remember that before embarking on any investment or strategic financial planning decisions, you should always seek professional guidance from a licensed financial planner. Of course, I recommend AJ Financial Planning.