What You Need To Know
Last night, Federal Treasurer Scott Morrison handed down the Federal Budget for the 2016-17 financial year. As Australia transitions from the mining boom the budget measures are designed to lead the economy to a more diverse and sustainable future. We believe the budget will please low to mid income earners and small business operators although the budget will have a somewhat negative impact on those working towards their retirement and retirees. Finally it is important to note the budget announcements are only proposals at this stage and must first be legislated which will largely depend on the upcoming election.
Budget Reforms – Effective Budget Night (7.30pm AEST 3 May 2016)
$500,000 Lifetime Cap for Non-Concessional Superannuation Contributions
The $500,000 lifetime cap replaces the existing non-concessional contribution cap which allows individuals to contribute up to $180,000 per year with no lifetime limit.
Under the proposed reforms an individual may make a non-concessional contribution(s) up to the $500,000 lifetime cap, any contributions in excess of this cap will need to be removed or be subject to penalty tax arrangements.
The lifetime cap takes into account all non-concessional contributions made on or after 1 July 2007, for those who have exceed the cap prior to budget night are deemed to have used up their lifetime cap but will not be required to remove the excess.
Budget Reforms – Effective 2017 Financial Year (i.e. from 1 July 2016)
Personal Income Tax Reduced
The Marginal rate of tax on earnings between $80,000 and $87,000 will be reduced from 37% to 32.5%. Below is a summary of current and proposed tax rates on individuals.
|Current tax rates 2015–16||Proposed tax rates 2016–17|
|Taxable Income||Tax Payable *||Taxable Income||Tax Payable*|
|$0 – $18,200||0%||$0 – $18,200||0%|
|$18,201 – $37,000||19% over $18,200||$18,201 – $37,000||19% over $18,200|
|$37,001 – $80,000||$3,572 + 32.5% over $37,000||$37,001 – $87,000||$3,572 + 32.5% over $37,000|
|$80,000 – $180,000||$17,547 + 37% over $80,000||$87,000 – $180,000||$19,822 + 37% over $80,000|
|$180,000+||$54,547 + 45% over $180,000||$180,000+||$54,232 + 45% over $180,000|
* Excludes Medicare Levy and Temporary Budget Repair Levy
Company Tax Rate to be Reduced Over 10 Years
Starting 1 July 2016 the government will reduce the company tax rate to 25% over 10 years. Below is a table that summarises these changes and when they come into effect.
|Financial year||Companies with turnover below||Applicable tax rate|
Small Business Income Tax Offset to Increase Over 10 Years
Currently an individual receiving income from their small business entities are eligible for a 5% tax discount up to $1,000. From 1 July 2016 this will increase to 8% and continue to increase over 10 years to 16%. Below is a table that summarises these changes and when they come into effect.
|Financial year||Discount rate|
|2017-18 to 2024-25||10%|
Small Business Entity (SBE) Turnover Threshold Increased to $10 Million
From 1 July 2016 the government will increase the SBE threshold from $2 million to $10 million. Businesses with turnovers between $2 million and $10 million will have access to the same SBE concessions currently available. The current $2 million threshold will be retained for the small business CGT concessions and only entities with turnovers of less than 5 million will be eligible for the Small Business Income tax Offset.
Private Health Rebate Indexation Paused for a Further Three Years
Indexation or increases in the governments private health rebate has been paused for a further three years.
Budget Reforms – Effective 2018 Financial Year (i.e. from 1 July 2017)
GST on Low Value Imports
From 1 July 2017 GST will apply to low value imports, any overseas supplier which has an Australian turnover of $75,000 will have to remit GST to the Australian Taxation Office.
Concessional Superannuation Contribution Caps Reduced to $25,000
The concessional contribution cap will be reduced to $25,000 regardless of a person’s age.
Currently the concessional contribution cap is $30,000 and $35,000 for those over 50.
Personal Super Contributions will be Deductible for Everyone
All individuals under the age of 75 from 1 July 2017 will have the opportunity to claim a deduction for personal superannuation contributions, whether they are self-employed or wage earners.
Work Test for Those Aged 65 to 74 No Longer Required
Currently people making voluntary contributions between the ages of 65 and 74 are required to work 40 hours within a 30 day period in the financial year they make the contribution. The proposed reforms aim to remove this requirement allowing non-working people to make non-concessional contributions to super.
Catch-up Concessional Contributions
From 01 July 2017 unused concessional contribution cap amounts will be carried forward for a period of five years allowing individuals with super balances of less than $500,000 to make additional deductible contributions and catch-up when they have the capacity to do so.
Low Income Superannuation Offset Introduced
Low income earners with an adjusted taxable income less than $37,000, will be eligible for a $500 non-refundable tax offset within their super fund. This measure circumvents the situation in which low income earners pay more tax on their superannuation savings than on their other sources of income.
Threshold Reduced for High Income Earners in Regards to the Additional Superannuation Contributions Tax (Division 293 Tax)
An additional 15 percent superannuation contributions tax is currently payable for higher income earners with incomes exceeding $300,000. From 1 July 2017 this tax will apply to those whose incomes exceed $250,000.
1.6 Million Superannuation Transfer Balance Cap
Currently individuals have no limit on superannuation amounts they may transfer into pension phase, from this point any earnings on assets supporting this pension are tax free. From 1 July 2017 the maximum a person may transfer or hold pension phase will be capped at $1.6 million. Any amounts above this will be maintained in accumulation phase and be taxed at 15 percent. For those who currently have a balance in pension phase above this cap will be required to reduce this balance to $1.6 Million by 1 July 2017.
Transition to Retirement Earnings to be Taxed at 15%
From 1 July 2017 the tax exempt status of earnings from assets supporting a Transition to Retirement Income Stream (TRIS) will be removed and be taxed at 15%, this change will apply to all TRIS irrespective of when they commenced.
Retirement Income Products – Tax Exempt
From 1 July 2017 the earnings on products such as deferred lifetime annuities will be tax exempt.
To see the budget papers in their entirety please click here. If you have any questions or wish to discuss one of the proposed changes in detail please don’t hesitate to contact our office.