Federal Budget Summary 2016 / 2017 Overview Federal Treasurer Scott Morrison s first Federal Budget is an unusual election year Budget, focussing on superannuation changes rather than the usual election strategy of spending money and forgoing revenue. The Budget has made large and significant changes to superannuation contributions and tax on income within the fund when paying pensions. These changes predominantly target higher income earners in a bid to minimise the electoral effect. The new rules are underpinned by a legislated objective of superannuation to provide income in retirement to substitute or supplement the Age Pension. This is expected to enhance stability in the superannuation system. The Federal Budget 2016-17 also increases the turnover thresholds at which businesses can access small business tax incentives. As with all Federal Budget announcements, the proposed measures are contingent on legislation being passed by both houses of parliament. DISCLAIMER: Information contained in this article is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your personal situation. We recommend that you obtain investment and taxation advice specific to your objectives, financial situation and specific needs before making any investment decisions or acting on any of the information contained in this article. The information in this document has been derived from sources we believed to be reliable and accurate. Subject to law, neither Hood Sweeney Securities ABN 40081 455 165, AFS License No. 220897, nor their directors, employees, agents or representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this article. ACCOUNTING & BUSINESS ADVISORY CONSULTING & PERFORMANCE COACHING FINANCIAL PLANNING TECHNOLOGY SERVICES FINANCE
Superannuation Lifetime cap for non-concessional superannuation contributions A $500,000 lifetime cap on non-concessional contributions has been introduced from 7:30pm (AEST) on 3 May 2016. The cap will take into consideration all non-concessional contributions made since 1 July 2007. The lifetime non-concessional cap will replace the existing non-concessional contributions cap which allows an individual to contribute up to $180,000 per year (or $540,000 under the bring-forward provision for those aged under 65). The cap will apply to individuals aged up to 75, and will be indexed in $50,000 increments in line with average weekly ordinary time earnings. Where an individual exceeded the cap prior to the new rules commencing, they will not be required to take the excess out of superannuation. Where an individual exceeds the cap after the new rules commence, they will be notified by the Australian Taxation Office (ATO) to withdraw the excess from their superannuation account, or face a penalty. Non-concessional contributions made into defined benefit and constitutionally protected funds will also be included in an individual s lifetime non-concessional cap. If the member of a defined benefit fund exceeds their lifetime cap, contributions going into the defined benefit account can continue. However they will be required to remove an equivalent amount (including earnings) annually, from any accumulation interest they hold where it contains non-concessional contributions made after 1 July 2007. Where no post-1 July 2007 non-concessional contributions exist, the Government will consult to determine the appropriate treatment. Contributions will not be required to be removed from the defined benefit account. Superannuation retirement phase transfer limit A $1.6 million cap will apply from 1 July 2017 on the amount that can be transferred into the superannuation pension phase and used to commence a pension. There will be no restriction on earnings on the cap amount. Earnings on this amount will continue to be received tax free by the fund. Amounts greater than the $1.6 million cap transferred (including earnings on the excess) will attract the same tax treatment as excess non-concessional contributions. Excess un-refunded non-concessional contributions are currently taxed at 49 per cent. Accumulated super in excess of $1.6 million will be able to be retained in a member s accumulation account within superannuation and earnings will be taxed at 15 per cent. There are no grandfathering provisions applied to this measure. Members already in pension phase with balances in excess of the $1.6 million cap will need to roll back the excess to accumulation by 1 July 2017. Decrease to income threshold for additional contributions tax for high income earners From 1 July 2017, the Adjusted Taxable Income 1 threshold, which applies an additional 15 per cent contributions tax on concessional contributions made by high income earners, will reduce from $300,000 to $250,000 per year. Therefore individuals earning over $250,000 (including concessional contributions) will have to pay an additional 15 per cent tax on concessional contributions. In practice this measure will continue to apply as it currently does as the following examples show: If Adjusted Taxable Income is $240,000 and concessional contributions (CCs) of $25,000 are made; a 30 per cent contributions tax will apply on $15,000 of CCs and 15 per cent will apply on the remaining $10,000 CCs If Adjusted Taxable Income is over $250,000 without CCs, all CCs will be taxed at 30 per cent. Reduction in concessional contribution limits The concessional contributions cap will reduce to $25,000 per year from 1 July 2017. The current concessional contribution caps of $30,000 per year if under age 50 and $35,000 per year if aged 50 and over will remain until 30 June 2017. From 1 July 2017 notional (estimated) and actual employer contributions for members of unfunded defined benefit schemes and constitutionally protected funds, such as Super SA, will be included in the concessional contributions cap. 1 Taxable income + reportable fringe benefits + total net investment losses + reportable super contributions less the taxed element of a super lump sum within the low-rate cap.
Changes to how concessional contributions can be made From 1 July 2017 all individuals will, regardless of their employment circumstances, will be able to claim an income tax deduction for personal superannuation contributions. Currently individuals who generate more than 10 per cent of their income from employment are required to make additional concessional contributions via a salary sacrifice arrangement. From 1 July 2017 all individuals up to age 75 will be able to make concessional contributions up to the $25,000 limit regardless of their employment status. Superannuation guarantee contributions will continue to count towards the concessional contribution limits. Contribution rules for those aged 65 to 74 From 1 July 2017 the Government will make the superannuation system more flexible by removing the current restrictions on people aged 65 to 74 which prevent them from making superannuation contributions for their retirement. 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. Change to tax on earnings during transition to retirement From 1 July 2017 the tax exemption on earnings on assets supporting transition to retirement income streams will be removed. Transition to retirement pensions allow individuals to access their superannuation whilst still working between preservation age (currently 56) and age 65. Under the new rules, people can continue existing TTR pensions and start new ones; however, the earnings on these assets will be taxed at 15 per cent in line with accumulation assets. There are no grandfathering provisions applied to this measure. Members already receiving transition to retirement pensions can continue to draw the pension from 1 July 2017 however the earnings received by the fund will be taxed at 15 per cent. The ability to treat certain superannuation income stream payments as lump sums for tax purposes allowing taxfree withdrawals for the under 60s up to the low rate cap (currently $195,000) will also be removed. Catch-up concessional superannuation contributions Individuals with superannuation balances of $500,000 or less will be able to accrue unused concessional contributions cap amounts from 1 July 2017. Unused concessional contribution amounts can be carried forward on a rolling basis for a period of five years. Any amounts carried forward will expire after five years if they have not been used. Low income spouse superannuation contribution tax offset The 18 per cent tax offset of up to $540 will be available for any individual contributing to a recipient spouse s superannuation whose income is up to $37,000 from 1 July 2017. This offset is currently only available where the recipient spouse s income is up to $10,800. The tax offset will be calculated as 18 per cent of the lesser of: $3,000 reduced by every dollar over $37,000 or The amount of spouse contributions. Low income superannuation tax offset A Low Income Superannuation Tax Offset will be introduced to replace the Low Income Superannuation Contribution from 1 July 2017. The Low Income Superannuation Tax Offset 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 Low Income Superannuation Tax Offset will apply to members with Adjusted Taxable Income (Taxable income + reportable fringe benefits + total net investment losses + reportable super contributions less the taxed element of a super lump sum within the low-rate cap) up to $37,000 where concessional contributions have been made on their behalf.
SME Company tax cut A company tax rate reduction will be phased in over 10 years from 1 July 2016 to reduce the tax rate for all companies to 25 per cent by 2026-27. The reduction will apply incrementally based on aggregated turnover as shown in the table. Financial year Aggregated turnover less than 2016-2017 $10 million 2017-2018 $25 million 2018-2019 $50 million 2019-2020 $100 million 2020-2021 $250 million 2021-2022 $500 million 2022-2023 $1 billion 2023-2024 Proposed company tax rate 27.5% 2024-2025 27% All companies 2025-2026 26% 2026-2027 25% Small business tax discount increase and extension The current tax discount for unincorporated small businesses (sole traders and partnerships) will be increased over 10 years from 5 per cent to 16 per cent. The discount will apply to individuals with business income from an unincorporated business whose aggregated annual turnover is less than $5 million as shown in the table. Small business entity turnover threshold increase The small business entity turnover threshold will be increased from $2 million to $10 million from 1 July 2016. This will allow access to small business tax concessions including: Simplified depreciation rules Simplified trading stock rules The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO A simplified method of paying PAYG instalments. The small business entity turnover threshold will not be increased to allow access to the small business capital gains tax concessions. Small business $20,000 instant asset tax write-off extended Small businesses (with turnover of less than $2 million) currently get an immediate tax deduction for every asset they buy for their business costing less than $20,000. The increased small business turnover threshold of $10 million will apply to the instant asset write-off from 1 July 2016. Small businesses with turnover less than $10 million will be able to immediately deduct assets costing less than $20,000 each, between 1 July 2016 and 30 June 2017. The $20,000 immediate deduction threshold will revert back to $1,000 from 1 July 2017 for all small businesses. Simpler Business Activity Statements (BAS) Business activity statements (BAS) will be simplified for small businesses (with turnover of less than $10 million) from 1 July 2017. A trial of the new simpler reporting arrangements will commence on 1 July 2016 and continue over the first two quarters of the 2016-17 financial year. Financial year Proposed tax discount 1 July 2016-30 June 2024 8% 2024-2025 10% 2025-2026 13% 2026-2027 16%
Personal tax Increase to marginal tax rate thresholds From 1 July 2016 the current $80,000 threshold above which the 37c tax rate is applied will be increased to $87,000. The higher income cut-in means tax payable by on income between $80,001 and $87,000 will be reduced from 37c to 32.5c. This equates to a tax saving of around $315 a year (ignoring Medicare levy) for those on incomes between $80,000 and $180,000. Increased Medicare low income thresholds From the 2015-16 financial year the Medicare levy lowincome thresholds for singles, families and single seniors and pensioners will be increased, to take account of movements in the Consumer Price Index (CPI) so that lowincome taxpayers generally continue to be exempted from paying the Medicare levy. The 2015-16 financial year Medicare levy low-income thresholds are shown in the table below. Family situation No Medicare levy payable in 2015-2016 if taxable income is below Individuals $21,335 Couples (no children) $36,001 Single seniors & pensioners $33,738 Senior & pensioner couples (no children) Additional amount for each dependent child or student $46,966 $3,306 For the period of 1 July 2015 to 30 June 2021, the Adjusted Taxable Income 2 tiers will be paused at the 2014-15 threshold levels as follows. Singles Families Up to $90,000 Up to $180,000 Tier 1 Tier 2 Tier 3 $90,001 - $105,000 $180,001 - $210,000 $105,001 - $140,000 $140,001 + $210,001 - $280,000 $280,001 + Surcharge 0% 1% 1.25% 1.5% The family thresholds increase by $1,500 for each dependent child after the first. Budget repair levy From 1 July 2017 the three year Temporary Budget Repair Levy on high income individuals will cease. This will mean that the top marginal tax rate applied on individuals taxable income in excess of $180,000 will reduce from 49 per cent to 47 per cent from 1 July 2017. Negative gearing The Government has confirmed officially that it will not remove or limit negative gearing because it would increase the tax burden on Australians trying to invest for their future. 2 (Taxable income + reportable fringe benefits + total net investment losses + reportable super contributions less the taxed element of a super lump sum within the low-rate cap) Medicare levy income threshold and rebate pause extended The pause on 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.
Child Care Child care subsidy delayed The implementation of the proposed child care subsidies (contingent on the passage of family tax benefit reforms) will be delayed by one year to now commence from 1 July 2018. It is proposed that the following three payments will be combined into a single means-tested child care subsidy (CCS), paid directly to providers, from 1 July 2018. Child Care Benefit (CCB) Child Care Rebate (CCR) Jobs, education and training child care fee assistance (for parents who qualify for the maximum rate of CCB). Other taxation changes Targeted amendments to Division 7A Targeted amendments will be made from 1 July 2018 to improve the operation and administration of integrity rules for closely-held groups contained in Division 7A (loans by private companies). The amendments (drawn from Board of Taxation review) will include: A self-correction mechanism for inadvertent breaches of Division 7A Appropriate safe-harbour rules to provide certainty Simplified Div 7A loan arrangements A number of technical adjustments to improve the operation of Div 7A and provide greater certainty. Increase tax on multinational diverted profits A new tax aimed at multinationals that attempt to divert profits from Australia to minimise their taxation will be introduced from 1 July 2017. A 40 per cent tax will be applied on the profits of multinational corporations that are artificially diverted from Australia. The 40 per cent tax will apply to global companies with global revenue of $1 billion or more. Companies with Australian revenue of less than $25 million will be exempt, unless they are artificially booking revenue offshore. GST extended to imported goods GST will be extended to low value goods imported by consumers from 1 July 2017. Increase excise on tobacco Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5 per cent from 1 September 2017. Update:FederalBudget2016 ACCOUNTING & BUSINESS ADVISORY CONSULTING & PERFORMANCE COACHING FINANCIAL PLANNING TECHNOLOGY SERVICES FINANCE