We have summarised the key points coming out of the May 2016 federal budget that we feel relate most to our client base. If you require any further clarification or have any questions please contact us.
SMALL BUSINESS
Increased turnover threshold for small business income tax concessions
The small business turnover threshold will be increased from $2M to $10M from 1 July 2016 meaning that entities with turnover of less than $10M can access
lower company tax rate ie reduced to 27.5% from 1 July 2016
Instant asset write off up to $20,000 from 1 July 2016 to 30 June 2017
Simplified trading stock rules
Can account for GST on a cash basis and pay GST/PAYG nstalments calculated by ATO
The above does not grant access to the small business CGT concessions which are still only available for entities with turnover less than $2M that satisfy the $6M net assets test.
Unincorporated small business tax discount
The discount will be increased in phases over the next 10 years from the current 5% to 16%. From 1 July 2016 it will increase to 8% with the $1,000 cap per individual being retained.
GST reporting requirements simplified for small business
A trial of the new simpler reporting arrangements will commence on 1 July 2016 and be in place by 1 July 2017 for all business with turnover less than $10M making it easier to prepare and lodge the BAS.
OTHER ENTERPRISES
Reduced company tax rates
The company tax rate will be progressively reduced to 25% over 10 years.
From 1 July 2016 the company tax rate will reduce to 27.5% for all entities with turnover less than $10M.
INDIVIDUALS AND FAMILIES
Marginal tax rate changes
The threshold at which the 37% marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016. This means the marginal income tax rate on taxable incomes between $80,000 and $87,000 will reduce from 37% to 32.5%.
Medicare levy
The increases take into account movements in the consumer price index (CPI) so that low-income earners generally continue to be exempted from the Medicare levy. This change sees the threshold for singles increase to $21,335 and for couples with no children, the threshold will increase to $36,001. For single seniors and pensioners, the threshold will be increased to $33,738 and for senior and pensioner couples with no children, the threshold will be increased to $46,966.
Medicare levy surcharge
The surcharge payable on taxable income for a person who is married to $21,335.
SUPERANNUATION
Div 293 tax income threshold reduced
The Div 293 threshold (the point at which high income earners pay addition contributions tax) will be lowered from $300,000 to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).
Tax exemption on earnings supporting income streams removed
The tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRISs) will be removed from 1 July 2017 (ie income streams of individuals over preservation age but not retired).
A rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.
These changes will ensure that TRISs remain fit for purpose, are not accessed primarily for their tax advantage, and still meet the objective of supporting people who want to remain in the workforce.
Lifetime cap for non-concessional superannuation contributions
A lifetime non-concessional contributions cap of $500,000 will be introduced. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, from which time the ATO has reliable contributions records, and will commence at 7.30 pm (AEST) on 3 May 2016.
The lifetime non-concessional cap will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).
Contributions made before commencement cannot result in an excess. However, excess contributions made after commencement will need to be removed or be subject to penalty tax.
The measure which will be available to all Australians up to age 74 will provide support for the majority of Australians who make non-concessional contributions well below $500,000 and flexibility around when they choose to contribute to their superannuation.
Harmonising contribution rules for people aged 65 to 74
The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. People under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.
Currently, there are minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions. Restrictions also apply to the bring-forward of non-concessional contributions. In addition, spouses aged over 70 cannot receive contributions.
The government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75 from 1 July 2017. The measure will allow people aged 65 to 74 to increase their retirement savings, especially from sources that may not have been available to them before retirement, including from downsizing their home.
Catch-up concessional superannuation contributions
Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
The measure will allow people with lower contributions, interrupted work patterns or irregular capacity to make contributions, eg women or carers, to make “catch-up” payments to boost their superannuation savings. It will also apply to members of defined benefit schemes, with consultation undertaken to minimise additional compliance impact for these schemes.
Restrictions on personal superannuation contribution deductions eased
From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes.
Prescribed funds will include all untaxed funds, all commonwealth defined benefits schemes, and any state, territory or corporate defined benefits schemes that choose to be prescribed.
Low income superannuation tax offset introduced
A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017.
The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
The measure will effectively avoid the situation in which low income earners would pay more tax on savings placed into superannuation than on income earned outside of superannuation.
Superannuation transfer balance cap introduced
A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. Subsequent earnings on these balances will not be restricted. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.
Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). Members already in the retirement phase with balances above $1.6m will be required to reduce their retirement balance to $1.6m by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.
A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.
Anti-detriment death benefit provision removed
The anti-detriment provision in respect of death benefits from superannuation will be removed from 1 July 2017.
The anti-detriment provision can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is the dependant of the member (spouse, former spouse or child). Currently, this provision is inconsistently applied by superannuation funds.
Removing the anti-detriment provision will better align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation. Lump sum death benefits to dependants will remain tax free.
GST
GST extended to low value goods imported by consumers
GST will be extended to low value goods imported by consumers from 1 July 2017.
The intent of this measure is that low value goods imported by consumers will face the same tax regime as goods that are sourced domestically.
Tobacco excise to increase
Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 2017 until 2020.