BRM Holdich E-News

4 May 2016

2016/2017 Federal Budget

Summary

The following sections summarise announcements made by the Federal Government in releasing the 2016/2017 Federal Budget on 3 May 2016.

In particular, the announcements include significant superannuation tax measures, including:

  • Reducing the concessional contributions cap to $25,000;
  • Introducing a $500,000 lifetime cap on non-concessional contributions;
  • Allowing employees to claim a tax deduction for personal superannuation contributions;
  • Applying Division 293 tax when income is greater than $250,000;
  • Introducing a cap of $1.6 million on the total amount of accumulated superannuation that can be used to commence a pension; and
  • Taxing Transition to Retirement Pension balances.

Other announcements were made in relation to small business tax measures, with a further 1% decrease in the small business company tax rate and an increase in the small business concessions turnover test to $10 million.

It is the Federal Government’s intention to reduce the company tax rate for all companies to 25% by 1 July 2026.

To mitigate the impacts of bracket creep, the 32.5% tax rate threshold will increase from $80,000 to $87,000 from 1 July 2016.

The Wine Equalisation Tax Producers’ Rebate cap will be reduced to $350,000 on 1 July 2017, and then further reduced to $290,000 on 1 July 2018, with tightened eligibility criteria to apply from 1 July 2019.

We also note that today the Reserve Bank of Australia reduced the cash rate from 2% to 1.75%.

Please contact us should you require further information or would like to discuss any of these items.

Superannuation Measures

Changes to concessional and non-concessional contributions caps

From 1 July 2017 the concessional contributions cap will reduce to $25,000 for all taxpayers.  This is a reduction from the existing cap of $30,000, or $35,000 for those aged 50 and over.

However, from 1 July 2017 taxpayers with superannuation balances less than $500,000 can carry forward unused amounts of their concessional contributions cap for up to 5 years and make additional concessional contributions in those years.

Effective immediately there is a $500,000 lifetime cap on non-concessional contributions, this replaces the existing annual caps and related bring forward.  Note that this cap includes all non-concessional contributions since 1 July 2007, although contributions made prior to commencement cannot result in an excess.

Making contributions

Presently taxpayers must pass a ‘work test’ in order to make superannuation contributions once they turn age 65.  From 1 July 2017 no work test will need to be satisfied for taxpayers aged 65 to 74.

The ability for taxpayers to claim an income tax deduction for personal superannuation contributions is presently effectively limited to those who are self employed.  Employees presently cannot claim such a deduction, and instead can only access the ultimate tax benefit through salary sacrificing into superannuation.  From 1 July 2017 all individuals up to age 75 will be entitled to claim an income tax deduction for personal superannuation contributions.

Division 293 tax

Division 293 tax applies to increase the superannuation contributions tax on concessional superannuation contributions from 15% to 30% where the member’s income for this purpose is greater than $300,000.  From 1 July 2017 this tax applies where the member’s income for this purpose is greater than $250,000.

Low income

The current low income government contribution expires on 30 June 2017.  This will be replaced from 1 July 2017 with a Low Income Superannuation Tax Offset of up to $500 for those earning less than $37,000.  The purpose of this measure is to avoid the situation where the tax payable on superannuation contributions is greater than that payable on the equivalent wages.

The income threshold for accessing the low income spouse tax offset will be increased to $37,000 from 1 July 2017.

Pensions and withdrawals

From 1 July 2017 a cap of $1.6 million will apply to the total amount of accumulated superannuation that can be used to commence a pension.  This effectively limits the amount of the superannuation fund’s earnings that are tax free.

From 1 July 2017 the earnings on Transition to Retirement Pension balances will be taxed, these earnings in the superannuation fund will no longer be tax free such as is the case for traditional account based pension balances.  Therefore, Transition to Retirement strategies may not be as tax effective.  Consequently, the outcomes from these arrangements may need to be reconsidered.

The anti-detriment provision in respect of death benefits will be removed from 1 July 2017.

Small Business Tax Measures

Further 1% reduction in small business company tax rate

From 1 July 2015 small business companies are taxed at a rate of 28.5%, from 1 July 2016 this tax rate will reduce by 1% to 27.5%.  There are then further decreases in the small business company tax rate ultimately to 25% by 1 July 2026.

Further, from 1 July 2016 the turnover threshold to access this measure will be increased from the existing $2 million to $10 million.

Increase in unincorporated entity tax offset

Unincorporated small businesses (such as trusts, partnerships and sole traders) can instead access a tax discount in the form of a tax offset to the individual ultimately declaring the business income.  From 1 July 2016 this tax offset will increase from 5% to 8%.  There are then further increases in the tax offset ultimately to 16% by 1 July 2026. However, the tax offset will continue to be capped at $1,000 per individual.

From 1 July 2016 the turnover threshold to access this measure will also be increased from the existing $2 million level, but in this case to $5 million.

Increase in the small business concessions turnover test

There are a range of small business concessions that are available to eligible small businesses.  Small businesses are those with an aggregated annual turnover of less than $2 million.  From 1 July 2016, the threshold for this test will be increased from $2 million to $10 million.

This new $10 million threshold will apply for eligibility to access the following small business concessions:

  • Simplified depreciation rules, including the less than $20,000 immediate asset write off which continues to apply to 30 June 2017 as planned;
  • Accounting for GST on a cash basis and paying by instalments;
  • Simplified trading stock;
  • Deductibility of prepayments;
  • Deductibility of start-up costs;
  • Paying PAYG income tax amounts by ATO calculated quarterly instalments; and
  • Accessing the multiple work related personal electronic devices FBT concession.  Note that eligibility to the FBT car parking exemption was already based on a $10 million turnover test.

However, note that this increased threshold will not apply to accessing the existing small business CGT concessions.  Access to these concessions will continue to be assessed under the $2 million threshold or the $6 million net assets value test.

Personal Tax Rates

To mitigate the impacts of bracket creep, the 32.5% tax rate threshold will increase from $80,000 to $87,000 from 1 July 2016.  This means that the 37% marginal tax rate will not apply until taxable income exceeds $87,000.

The following table summarises these rates (excluding Medicare levy but including the 2% budget deficit levy which applies to income over $180,000 until 30 June 2017):

2015 - 2016

2016 - 2017

Threshold

Rate

Threshold

Rate

$18,201

19.00%

$18,201

19.00%

$37,001

32.50%

$37,001

32.50%

$80,001

37.00%

$87,001

37.00%

$180,001

47.00%

$180,001

47.00%

There are also increases in the low-income thresholds for medicare levy and the surcharge from 1 July 2016.

However, the freezing of indexation of the income thresholds for the medicare levy surcharge and private health insurance rebate will continue for a further three years from 1 July 2018.

Other Business Measures

Reduction in company tax rate

It is planned to reduce the company tax rate for all companies to 25% by 1 July 2026.  This will be achieved through staged reductions based on turnover.

Multinationals

From 1 July 2017, a diverted profits tax at a rate of 40% will apply where Multinationals attempt to divert profits artificially from Australia.  This rate of tax will apply to the diverted profits, and is higher than the tax that would have otherwise been payable.

Other measures

GST will apply to all goods imported by consumers from 1 July 2017, regardless of value.  Overseas businesses will be required to register for GST if they have an Australian turnover of $75,000 or more.

The Wine Equalisation Tax Producers’ Rebate cap will be reduced from the existing $500,000 to $350,000 on 1 July 2017, and then further reduced to $290,000 on 1 July 2018.  Note that it is also intended to tighten the eligibility criteria from 1 July 2019, including that a wine producer must own a winery or have a long-term lease over a winery and sell packaged, branded wine in Australia.

 

Important: This is not advice.  Clients should not act solely on the basis of the material contained in this Bulletin.  Items herein are general comments only and do not constitute or convey advice per se.  Also changes in legislation may occur quickly.  We therefore recommend that our formal advice be sought before acting in any of the areas.  The Bulletin is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

 

BRM Holdich
Level 8, 420 King William Street
Adelaide SA 5000

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