Federal Budget 2016

Last night the federal Budget was announced by Australia’s Treasurer Scott Morrison. The theme of the budget is job and growth it contains a number of tax measures, superannuation changes, small business and innovation changes.

Overall the budget is very good for small business and those on incomes of $80,000 or above. Ok for those wanting to use superannuation to meet their retirement goals. Bad for smokers and multi international companies.

This article will focus on Personal Tax, Small Business and Superannuation.

Personal Tax

• For those on a salary of over $80,000 their marginal tax rate was 37%, now with the proposed changes the threshold has been lifted to $87,000. Which means your Marginal tax rate will stay at 32.5% until you reach $87,001.
• This provides great opportunity for those on $80,000 or above seeking to reduce the about of tax they pay.

Small Business (With a turnover of under $10M)

• From the 1st of July 2016 the company tax rate will reduce to 27.5% (This is now 2.5% in the last 2 years) with future plans to have it reduce to 25% by 2027.
• An immediate tax deduction for assets purchased costing less than $20,000 until 30th June 2017 remains.
• The current tax discount for Sole Traders and Partnerships will increase to 8% with the view of reaching 16% by 2026-2027. Which means individual taxpayers will still calculate their business and personal income in the same way but get a discount on the tax payable on their business income.

Superannuation

• From July 1 2017 the concessional contribution (pre-tax also known as salary sacrifice) limit will be reduced to $25,000 for everyone.
• This reduced amount is concerning but there is a new feature to assist this restriction called the ‘Catch-up concessional contributions’ which will be introduced from 1st July 2017. This will apply to those who have a superannuation balance of less than $500,000 and allows the individual to accrue unused amounts of any unused amount up to the $25,000 per annum over a rolling 5 year period.
  • Example – if you only contribute $10,000 to your superannuation out of your $25,000 limit in the 2018 financial year, you will be able to roll-forward your unused $15,000 to the next financial year. In 2019 you could then contribute $40,000 (being $15,000 unused + $25,000 limit). This is great for people who are temporarily out of the workforce and have a superannuation balance of less than $500,000 it will also assist those have a large capital gain and wish to claim a tax deduction for personal contributions
• The low income spouse super tax offset threshold has been increased to $37,000 with a maximum threshold of $540 continues to apply.

• The introduction of the low income superannuation tax offset (replacing the low income super contribution) which is a non refundable tax offset provided to superannuation funds of up to $500. Available to individuals whose income is less than $37,000 pa. (the former scheme was recorded as a contribution).

• Anyone up to the age of 75 will be able to claim a tax deduction for a personal contribution to their superfund. (The removal of the 10% test). Provides the opportunity for those who are unable to access salary sacrifice contributions the ability to claim a tax deduction for personal contributions –
  • Contractors,
  • Those who are partially self-employed,
  • Those who change employment part way through the year (transition from employed to self-employed)
• Anyone older than age 65 will also be able to contribute to super without satisfying the “work test”. The work test has been removed. (i.e. working 40 hours in a 30 day period). This will provide the opportunity to contribute more individuals to contribute to superannuation. (if the can afford it).
• From 1 July 2017 an addition tax of 15% will apply to people with an income threshold over $250,000 therefore they will be paying an entry tax of 30%. The threshold was previously $300,000.
• Non-Concessional Contributions have been capped to a lifetime limit of $500,000 effective immediately. Any non-concessional contributions after 3 May 2017 in excess of the lifetime limit will be subject to penalties.
• Transition to Retirement Income Streams applies to employed people under age 65 who withdrawn money from super. From 1 July 2017 these Income Streams will be taxed at 15% within Superannuation, rather than be tax-free as they currently are.
• From 1 July 2017 a $1,600,000 limit will be placed the amount that an individual may transfer to retirement phase (tax free pension). If you exceed this amount you will be required to reduce your balance by withdrawing the funds or rolling back into superannuation. (Where your funds will be taxed at 15% instead of 0%).
• Anti-detriment payments will no longer be available from 1^st July 2017.

For any further questions on how you can benefit from this year’s budget please contact Elliot Watson.