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Five things to do to prepare for the budget

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Budget day is less than a week away, and many people are wondering what the treasurer, Scott Morrison, has in store.

With a general election looming, the expectation is that many of the anticipated "nasties" (such as a rise in the rate of GST or the removal of negative gearing concessions) won't happen.

But with government books to balance, either revenue needs to be increased or spending reduced, so what might be on the hit list? And is there anything you can do now to pre-empt any changes?

budget-2016

Superannuation

The government has spent several months talking about the importance of tax reform but along the way it has ruled out many of the most obvious reforms, including the ones with the potential to raise the most revenue. But one area where it hasn't ruled out changes is superannuation. Because of that, I think it's a near certainty that there will be changes to the current generous tax reliefs.

The government will be keen to deflect accusations that changes are being made that are retrospective in nature and for that reason it is likely to avoid any changes to the way funds are taxed inside the super environment or to the way funds currently held in super can be extracted. That means the likely focus will be on the generous tax breaks available to funds paid into super.

In practice, that could mean the current concessional or non-concessional contribution limits are reduced or, alternatively, the current concessional rate of tax paid on funds put into super (15%) is increased. Any changes are likely to be pitched particularly at higher income earners and are unlikely to affect lower and middle income earners.

While the exact nature and timing of any changes are not known, if you are considering making an additional contribution into super this tax year, it may be worth considering accelerating that payment so that it happens before budget day. That way, the contribution will be "locked into" the current tax rules.

Deductions

There has been much talk of a tightening of the rules around the deductibility of work-related expenses. Some commentators have highlighted a perceived increase in the rate of claims in recent years to justify either abolishing the ability of employees to claim work-related deductions or at least putting a cap on the amount that can be claimed.

Despite speculation that the government may have backed away from these changes, I don't believe that the door is entirely closed, so if you have significant items of work-related expenditure coming up, it might be worth accelerating that spend so that it happens before the budget. That could include paying for a work-related course, purchasing a new item of furniture or technology for your home office, paying a professional subscription or buying new work-related clothing, such as a uniform or safety wear.

Pay dividends

The government has been talking for some time about reducing the rate of corporate tax levied on Australian-based companies, which currently sits at 30% for large companies and 28.5% for small ones.

The impact of such a change on Australian resident investors will be to increase the tax burden on any dividends received, since the "top-up tax" on dividends paid will need to increase to match the widening gap between the corporate rate of tax paid by the company and the personal rate of tax paid by its shareholders on dividends. So if you run a company, it might be worth considering accelerating any imminent dividend payments so that they are paid pre-budget. If there are changes to the corporate tax rates, your Australian shareholders are likely to be grateful!

Personal taxes

The treasurer tells us that the coffers are empty and there is no money to fund personal tax cuts. But with an election looming, I don't believe he will be able to resist pulling a tax "rabbit out of the hat" in the form of some kind of reduction in the personal tax burden, most likely in the form of an upwards revision of the tax-free threshold (currently $18,200) or changes to the thresholds for the other, higher tax rates.

If that happens, receiving income after budget day may be more tax effective than receiving it before - though bear in mind that personal tax rates often change at the start of the new tax year (July 1) rather than from budget day, so there's no guarantee that deferring a receipt of taxable income until May 4 will be any more tax effective than a receipt on May 2.

Smokers beware!

There aren't many smokers left these days but for those who remain it looks as if life is about to get a whole lot more expensive. The treasurer has flagged increases in the tax on tobacco products and any such changes are likely to take effect from budget day. That makes it worthwhile stocking up on your supplies before then.

Finally ...

A word of warning! Nobody knows what's really going to be in the budget. The ideas in this article are my predictions, which may or may not be accurate, so you'd be unwise to act on my advice without taking your own expert advice first.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is the author of Life and Taxes: A Look at Life Through Tax.
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