2016-17 Federal Budget | A national plan for jobs and growth
4 May 2016
Last night the Federal Treasurer, the Hon. Scott Morrison MP, delivered his first and the Coalition Government’s third budget and in contrast to the last budget there weren’t too many surprises this year. From a superannuation point of view, the budget contained some significant changes. However, despite there being some complexity to the proposed changes there is a large element of fairness being applied. The announcements also include measures that impact individual income tax, small business and corporate taxation.
The estimate is for a $37 billion deficit in 2016-17 with further reductions each year over the forward estimates with a $6 billion deficit in 2019-20.
Following is a summary of the main taxation related announcements that if enacted are likely to impact on individual or small and medium enterprise taxpayers.
Superannuation was front and center in this year’s budget with the Government announcing numerous tax reforms to improve the sustainability, flexibility and integrity of the superannuation system.
It is really important that you seek advice from your accountant prior to making a pension withdrawal and/or a superannuation contribution.
The changes announced are forecast to add $2.9 billion to the budget's bottom line over four years. These changes include:
Lifetime cap on non-concessional contributions
A $500,000 lifetime cap will be introduced on non-concessional contributions. This cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7:30pm on 3 May 2016. Contributions made before commencement cannot result in an excess but excess contributions after commencement will need to be removed or subject to penalty tax. This cap will be indexed to average weekly ordinary times’ earnings. This cap will replace the current $180,000 cap and $540,000 bring forward cap.
From 1 July 2017 the annual cap on concessional superannuation contributions will be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over). Further, the Division 293 threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017.
Catch-up concessional contributions
From 1 July 2017, individuals will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000. 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.
10 per cent rule
From 1 July 2017 the 10 per cent rule will be removed. This means all individuals up to age 75 will be able to claim a tax deduction for personal superannuation contributions regardless of their employment circumstances.
Currently, those aged 65 to 74 must be gainfully employed for at least 40 hours in 30 consecutive days within a financial year to make any contributions to their superannuation fund. From 1 July 2017, it is proposed to remove this work test. This means, anyone under the age of 75 will be able to make a superannuation contribution subject to the relevant contribution limits.
$1.6 million cap on tax free pension accounts
From 1 July 2017 a $1.6 million cap is proposed to apply to the amount of accumulated superannuation benefits that can be transferred to the pension phase. Subsequent earnings on the amount transferred to a pension will not be restricted. It is also proposed that existing pension accounts that have a balance above the cap will need to be reduced to $1.6 million by 1 July 2017. For example, by moving funds back to the accumulation phase. Amounts transferred in excess of the cap will be subject to tax, similar to that which applies to excess non-concessional contributions.
Earnings from income supporting a TRIS
From 1 July 2017 the tax exemption on earnings of assets supporting Transition to Retirement Income will be removed meaning the general 15 per cent superannuation rate on earnings will be applied. It will also remove a rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes.
Low income spouse tax offset
The current spouse superannuation tax offset will be available to more people when the spouse income threshold changes on 1 July 2017. The threshold will increase from $10,800 to $37,000.
Low income superannuation tax offset
A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017.
From 1 July 2017 the anti-detriment provisions in respect of death benefits from superannuation will be removed.
Small business tax related measures
Following on from last year’s budget the Treasurer announced from 1 July 2016 the small business entity turnover threshold will be increased from $2 million to $10 million.
Please note the current $2 million threshold will continue to apply in determining access to the small business capital gains tax concessions (the $6 million net asset test will also be retained for this purpose). In addition, access to the unincorporated small business tax discount will be limited to entities with a turnover less than $5 million.
In effect, the new $10 million threshold will apply to tax measures including:
- Small business corporate tax rate
- Simplified depreciation rules including the instant asset write off threshold of $20,000 available until 30 June 2017
- Simplified trading stock rules
- Option to account for GST on a cash basis and pay GST instalments as calculated by the ATO
- Simplified method of paying PAYG instalments calculated by the ATO
Increasing the unincorporated small business tax discount
There will be an increase to the rate of the tax discount for unincorporated small businesses incrementally over 10 years from five per cent to 16 per cent. The tax discount will increase to eight per cent on 1 July 2016, remain constant at eight per cent for eight years, then increase to 10 per cent in 2024-25, 13 per cent in 2025-26 and reach a new permanent discount of 16 per cent in 2026-27. This will coincide with staggered cuts in the corporate tax rate to 25 per cent.
SBE simplified GST reporting requirements
From 1 July 2017, all small businesses with less than $10 million turnover will more easily be able to classify transactions and prepare and lodge their business activity statements. A trial of the new simpler reporting arrangements will commence on 1 July 2016.
Personal income tax
Personal income tax thresholds
Very few changes relating to personal income tax were announced, with the main item of note being the increase in one of the personal income tax thresholds. The Government has proposed to increase the 32.5 per cent personal income tax threshold from $80,000 to $87,000 from 1 July 2016. This measure will result in a tax saving of $315 for Australian tax residents with a taxable income in excess of $87,000.
The Medicare levy low-income threshold for the 2015/16 financial year for singles will increase to $21,355, for couples with no children to $36,001 and the additional amount for each dependent child increased to $3,306. For single seniors and pensioners the threshold will be increased to $33,738, senior and pensioner couples with no children to $46,966 and the additional amount for each dependent child or student to $3,306.
Medicare levy surcharge
The surcharge payable on taxable income for a person who is married or a beneficiary of a trust will be increased to $21,335 (up from $20,896 for the 2014/15 year), and the surcharge on reportable fringe benefits increased to $21,335 (up from $20,896 in the 2014/15 year).
Pausing of Medicare levy surcharge and private health insurance rebate thresholds
The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years.
Reducing the company tax rate to 25 per cent
There will be a reduction in the company tax rate to 25 per cent over 10 years.
The tax rate for businesses with an annual aggregated turnover of less than $10 million will be 27.5 per cent from the 2016-17 income year. The threshold will then be progressively increased to ultimately have all companies at 27.5 per cent in the 2023-24 income year. The annual aggregated turnover thresholds for companies facing a tax rate of 27.5 per cent will be:
- $25.0 million in the 2017-18 income year;
- $50.0 million in the 2018-19 income year;
- $100.0 million in the 2019-20 income year;
- $250.0 million in the 2020-21 income year;
- $500.0 million in the 2021-22 income year; and
- $1 billion in the 2022-23 income year.
In the 2024-25 income year the company tax rate will be reduced to 27 per cent and then be reduced progressively by one percentage point per year until it reaches 25 per cent in the 2026-27 income year. Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution.
Other tax measures
Amendments to Division 7A
Changes will be made to Division 7A to provide clearer rules for taxpayers and assist in easing their compliance burden while maintaining the overall integrity and policy intent of Division 7A. It includes a self-correction mechanism for inadvertent breaches of Division 7A, appropriate safe-harbour rules to provide certainty, simplified Division 7A loan arrangements and a number of technical adjustments to improve the operation of Division 7A and provide increased certainty for taxpayers.
Goods and services tax (GST) and importations
The 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.
Overseas suppliers that have an Australian turnover of $75,000 or more will be required to register for, collect and remit GST for low value goods supplied to consumers in Australia, using a vendor registration model.
Tax Avoidance Taskforce
$678.9m will be spent to establish a Tax Avoidance Taskforce. This will enable the ATO to undertake enhanced compliance activities targeting multinationals, large public and private groups and high wealth individuals.
Asset backed financing arrangements
From 1 July 2018 barriers will be removed to the use of asset backed financing arrangements (such as deferred payment arrangements and hire purchase arrangements). The Government will clarify the tax treatment of these arrangements and ensure they are treated in the same way as financing arrangements based on interest bearing loan or investments.
Expanding tax incentives for early-stage investors
The holding period will be reduced from three years to 12 months for investors to access the 10 year capital gains tax exemption, the definition for eligible start-ups will include a time limit on incorporation and whether a start-up is an innovation company, require that the investor an innovation company are non-affiliates and limit the investment amount for non-sophisticated investors to $50,000 or less per income year in order to receive a tax offset.
Brewery refund scheme
From 1 July 2017 the current brewery refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages (but not to alcopops producers).
Wine equalisation tax (WET)
The Government will reduce the WET rebate cap from $500,000 to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018 and introduce tightened eligibility criteria which will apply from 1 July 2019.
From 1 July 2016 the transfer pricing laws will be updated to align with the 2015 OECD recommendations (currently Australia’s TP laws were last updated in line with the OECD 2010 recommendations).
Collective investment vehicles
A new tax and regulatory framework will be introduced for two new types of collective investment vehicles (CIV’s). A corporate CIV will be introduced from 1 July 2017 followed by a limited partnership CIV from 1 July 2018 (this is designed to make the Australian managed funds industry more competitive internationally).
Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5 per cent from 2017 until 2020. The increases will take place on 1 September each year and will be in addition to existing indexation to average weekly ordinary time earnings.
If you have specific questions about how the 2016-17 budget may impact you or your business, please speak with your local Boyce accountant.