Whether you’re young and struggling, or much older and well-established, the Australia Federal Budget this year will have a strong impact on all demographics and their finances. The media has had no shortage of covering the news of the Federal Budget - there have been detailed breakdowns given by analysts, opinions shared by journalists, and almost an hour-by-hour commentary on every news station following the reaction, coverage, and predictions on how this will all impact Australian households.

So, what does the 2016 Australian Federal Budget mean for you?

Much has been already said on what the Federal Budget might mean for the Australian economy. But getting down to brass tacks, it’s important to know how YOU as an individual might be affected by the proposed changes. There are groups of clear winners and losers as a result of the budget – read on below to see which category you might be in: Income Tax Business GST Saving For Retirement Property

Income Tax

Tax Cut for Those Earning $80,000 Annually

Good news for those of you earning over $80,000. There are about half a million Australians in this pay bracket, and they are all in line for an income tax cut. The threshold at which you begin to pay 37 cents per dollar has been increased from $80,000 to $87,000. What does this mean? It means that more of your income will be taxed at a lower rate of 32.5%. If you earn over $87,000, you will be now $315 better off on your next tax bill. This tax cut will cost $4 billion over the next four years.

If you are a low income earner, the government will relinquish up to $280 million in revenue over the next four years, by raising the thresholds at which low-income earners have to start paying the Medicare levy.

  • For single: Threshold will be increased to $21,335
  • For couples (no children): Threshold will be increased to $36,001
  • For seniors/pensioners (no children): Threshold will be increased to $46,966
  • For couples with children, the additional amount of threshold for each dependent child or student will increase to $3,306.

Business GST

Big Businesses

For the first time in 15 years, big business companies will be getting a tax rate cut. Currently the rate sits at 30%, and over the next ten years it will be cut down to 25%. The government will do this using an incremental process, by increasing the size of businesses that can access the lower tax rate. First year, it will be businesses than have a turnover of less than $25 million, and the next year it will be businesses taking in less than $50 million to get the tax cut. By 2024-25 all companies will go down to 27%, then once percentage point per year until it reaches 25%. This will mean that by 2020, an estimated amount of 4.9 million people working at companies will be paying the lower tax rate of 27.5%.

  • 2017-2018: Threshold increase from $10 million to $25 million
  • 2018-2019: Threshold increase to $50 million
  • 2019-2020: Threshold increase to $100 million

Small Businesses

Small businesses are getting another tax cut! Last year the government reduced the rate down to 28.5% (down from 30%). This year, the tax rate was further decreased to 27.5%.

The turnover threshold which defines small businesses from a tax perspective will be changed. The threshold will increase from $2 million to $10 million, thereby giving almost 100,000 businesses access to tax concessions. This accounts for around 870,000 businesses employing 3.4 million Australians getting their tax rate reduced.

Retirement and Superannuation

What about Your Super Fund?

There hasn’t been a huge change on superannuation rules, unless you are very wealthy (earning over $250,000 a year).

The government has put a cap on the total amount of extra money Australians can put into their super fund (not including money from salary sacrifice). This cap stands at $500,000, and is seen as an effort to stop people from building up multi-million dollar super funds in order to save $550 million.

A clear definition of superannuation has been provided by the government, which focuses on the necessity of income in retirement to substitute or supplement the Age pension. This dispels the belief some people hold that super could be used for other financial activities, such as to put down a house deposit or pay off loans.

There will also be a change in the transition from work to retirement – people who are aged under 65 can only access $1.6 million tax free before they retire. This will apply to everyone including current retirees.

The government will also halt Australians from holding more than $1.6 million in tax-free super accounts. People will either need to withdraw the money from their accounts or transfer it into a separate accumulation account, where the earnings will be taxed at 15%.

  • The average super balance for a 60-year-old Aussie is $285,000.
  • Only 4% of Australians would be affected by the changes in superannuation concessions.


Do You Own Property?

You may have heard the term ‘negative gearing’ coming up a lot in the last couple of days. Gearing means borrowing money to buy an asset. Negative gearing is the process where an investor borrows money to acquire an investment property, and the interest they are paying on the loan is more than the income received from renting the property out (therefore making a loss).

The budget confirmed that negative gearing would not be removed or even limited, and capital gains tax will remain unchanged. The school of thought from this is that the government doesn’t want to increase the tax burden on Australians who are trying to invest in property.

There is a concern amongst the industry that the changes in superannuation concessions could leave people with huge super accounts to direct their investment towards property. However, this is unlikely to be the case, as the budget growth in building new properties will decrease significantly due to the shortage being eased and prices stabilising in the market.

Federal Budget - How Are YOU Affected?

So, what does the Federal Budget mean for your job, for your work, for your superannuation, and for your home? Tell us in the comments field below and see if you’re on the same boat as everyone else!