Budget 2016 Announcements
Big changes to Super, long term incentives for business…
This information is general and law is not yet passed, so please obtain further advise before making financial decisions.
There has been some big changes to the Superannuation laws aimed at enhancing integrity and equity of the entire system. The overhaul is probably the biggest Super has seen for ten years.
- A $500000 life time non concessional (you get no tax deductions for) cap which is effective immediately. This will consider previous non concessional contributions made since 1/7/07. If you have already exceeded this cap before budget night, that is ok but effectively no further non concessional contributions are allowable for them. But you cannot exceed this cap from now on. This replaces the old much more generous year non concessional annual caps $180k per year or $540k over three years. It is unclear whether additional amounts for personal injury claims or small business capital gains contribute to this limit.
- Transfer balance cap introduced of $1.6m. If an individual accumulates more than $1.6 million, they will be able to maintain the excess in the accumulation phase (where earnings will be taxed at 15%). Those already in the pension phase on 1 July 2017 and whose balances exceed $1.6 million will need to either withdraw the excess or transfer it back into the accumulation phase. If you are already in retirement phase and exceed the $1.6m limit you will need to reduce the balance by 1/7/17.
- Division 293 tax — an additional 15% contributions tax payable by high income earners with earnings over $300,000 — will also apply to those with incomes above $250,000 from 1 July 2017.
- Low income superannuation offset introduced
A Low Income Superannuation Tax Offset (LISTO) will be introduced to reduce the tax on contributions for low income earners. The LISTO will replace the Low Income Superannuation Contribution (LISC) scheme when it is abolished on 1 July 2017.
- Deductions for personal contributions extended
As of 1 July 2017, Australians under 75 will be able to claim an income tax deduction for any personal contributions made to a complying super fund up to their concessional cap. This effectively allows anyone, regardless of their employment circumstances, to claim a deduction for their personal contributions up to the value of the cap.
- Anti-detriment payments removed
Anti-detriment provisions will be abolished from 1 July 2017, effectively removing the ability of super funds to increase lump sum death benefits when paid to eligible beneficiaries.
- Contribution caps reduced
From 1 July 2017, the cap on concessional contributions will reduce to $25,000 a year for everyone, regardless of age. Currently the concessional contributions cap is $30,000 under age 50 and $35,000 for ages 50 and over.
- Tax exemption on TTR pensions removed
The tax exempt status of income from assets supporting transition to retirement (TTR) income streams will be removed from 1 July 2017, with earnings to be taxed at 15%. This change will apply regardless of when the TTR income stream commenced.
- Contribution eligibility requirements updated
The current work test that applies for people making voluntary contributions between age 65 and 74 will be removed as of 1 July 2017. This will make it easier for older Australians to contribute to super.
- Individuals will also be able to make contributions for a spouse aged under 75 without requiring the spouse to satisfy a work test.
Personal income tax reduced
From 1 July 2016, the 32.5% personal income tax threshold will increase from $80,000 to $87,000.
This measure will reduce the marginal rate of tax on income between $80,000 and $87,000 from 37% to 32.5%. For example, a taxpayer earning $87,000 will save only $315 per year as a result.
This will ensure the average full-time wage earner will not move into the second highest tax bracket in the next three years.
Proposed tax rates 2016–17
Taxable Income Tax Payable*
$0 – $18,200 0%
$18,201 – $37,000 19% over $18,200
$37,001 – $87,000 $3,572 + 32.5% over $37,000
$87,000 – $180,000 $19,822 + 37% over $80,000
$180,000+ $54,232 + 45% over $180,000
*Excludes Medicare Levy and Temporary Budget Repair Levy
No extension to Budget deficit repair levy – still finishes 30/6/17
Ten year enterprise plan – business tax cuts
Company tax rate reduced
Starting from 1 July 2016, the company tax rate will be reduced to 25% over 10 years. Currently, small companies with aggregated turnover less than $2 million pay tax at a rate of 28.5%. Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution.
Small business turnover threshold increased
The small business entity turnover threshold will be increased from $2 million to $10 million so that more businesses can access certain existing income tax concessions. These include:
• simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017 and then less than $1,000
• simplified trading stock rules, giving businesses the option to avoid an end-of-year stocktake if the value of the stock has changed by less than $5,000
• a simplified method of paying PAYG instalments calculated by the ATO, which removes the risk of under- or over-estimating PAYG instalments and the resulting penalties that may be applied
• the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO
• other tax concessions currently available to small businesses, such as the Fringe Benefits Tax concessions (from 1 April 2017, the beginning of the next fringe benefit tax year).
Small business tax discount increased
The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%. The following table indicates when the discount rates will apply.
Youth Jobs Path
A new initiative to encourage young workers to enter the workforce and being up-skilled.
This involves payments to youth for doing internship additional to normal government payments.
Business are paid $1k for providing internship
Business are paid $6k to $10k if the internship youth is ultimately employed.
No change to GST
The GST rate of 10% will continue.
Target Multi National Corps
Although we have heard this before, there is renewed focus on targeting Multi National corporations who are diverting profits from Australia. Taxing them their fair burden seems equitable.
Higher Education loan reforms
While no immediate reforms the government has announced idea reforms from 2018.
GST on all imported goods
including those for less than $1000.
You can still buy your investment property as no changes to the tax effectiveness of negative gearing and the deductions of investment or rental property to remain
We hope you have enjoyed our Budget 2016 round up. Will it influence your vote in the upcoming election, note that a change in government could see these new changes thrown out the window.
We would love to hear your views.