Last Thursday the Government passed down the 2016/17 federal budget. In the week which has been we, at Oracle, have perused, mulled over and considered what this budget means for the Australian people and more specifically our Oracle clients. The below paragraphs dissect the salient points arising from Tuesday’s presentation and provide some insight on how the proposed measures will affect businesses and individuals.
Business tax amendments
The idea of reducing the company tax rate has been bandied about for a number of years now, surviving the governmental turmoil that has now become our norm. The 2017 budget proposes to cut the company tax rate for all companies to 25% by 2026. This will start on 1 July 2016 with a reduction of the rate to 27.5% for all companies with a turnover of up to $10 million. The reductions will then continue as follows:
|Companies applied to|
|Turnover up to $2m|
|turnover up to $10m|
|turnover up to $25m|
|turnover up to $50m|
|turnover up to $100m|
|turnover up to $250m|
|turnover up to $500m|
|turnover up to $1b|
The small business entity turnover threshold is to be increased from $2 million to $10 million from 1 July 2016. This will give more businesses access to the small business concessions such as accelerated and simplified depreciation, immediate write off of assets < $20,000, simplified trading stock rules, and the ability to report GST on a cash basis.
It should be noted however this increase in thresholds does not extend to the small business CGT concessions. Access to the CGT concessions will remain capped to those businesses with a turnover of up to $2m.
The government acknowledges not all businesses are incorporated entities and will introduce a small business tax discount, starting at 5% from 1 July 2016, for businesses with up to $5 million turnover. This discount will increase in phases over the next ten years to 16%, capped at $1,000 per individual. The discount is to be calculated on an individual’s business income (or trust or partnership distribution of business income).
From 1 July 2017 GST will be extended to low value goods imported by consumers. Overseas suppliers with an Australian turnover of more than $75,000 will be required to be registered for GST (and collect and remit GST on their supplies).
Individuals and families
In an effort to prevent full time wage earners moving into the second top bracket, the middle tax bracket (32.5% tax rate) threshold has increased from $80,000 to $87,000, from 1 July 2016. Implementation of this will result in the following tax scales for resident individuals:
|0 – $18,200||Nil|
|$18,201 – $37,000||Nil + 19% of excess over $18,200|
|$37,001 – $87,000||$3,572 + 32.5% of excess over $37,000|
|$87,001 – $180,000||$19,822 + 37% of excess over $87,0009|
|$180,001 +||$54,232 + 47% of excess over $180,000|
Furthermore, from 1 July 2016, the medicare levy low-income threshold will be increased as follows:
- Singles – $21,335
- Couples – $36,001 + $3,306 for each independent child or student
- Single seniors and pensioners – $33,738
- Seniors and pensioners in couple – $46,966 + $3,306 for each independent child.
One final initiative introduced was a two prong proposal which focusses on youth employment. The first prong, the ‘Youth Employment Package’ provides for 30,000, 12 week, intern placements per year. The job seekers will receive a fortnightly ‘incentive’ payment of $200 and businesses will receive $1,000, upfront, to host an intern. This incentive commences from 1 April 2017.
The second prong is the ‘Youth Bonus Hire’ subsidy and provides employers with a wage subsidy of up to $10,000 for employing job seekers under 25 years old with barriers to employment. Employers will continue to receive up to $6,500 for most job-relay seekers.
It is fair to say the issues surrounding the superannuation regime received the most attention in this budget and as such we feel it requires a more detailed discussion. According to the Government “superannuation is one of the three pillars of Australia’s retirement income system. Together with the age pension and savings outside of superannuation, it supports Australians in their retirement years”. The desired outcome with the new superannuation rules is to ensure the system is being used to provide income in retirement, as opposed to being used primarily to gain a tax advantage. Outlined below are the main super measures announced in the budget.
There has been a disappointing decrease in the concessional contributions cap to $25,000. This cap amount will now apply to all individuals regardless of age. The Government argues this still enables individuals to make sufficient contributions during their work life to be a self funded retiree.
Whilst the cap has been decreased there has also been the introduction of a rolling concessional cap for those members with a balance of $500,000 or less. What this means is, if an individual does not utilise their concessional cap in a given year the shortfall can be added to the following year. This rolls over every five years and will have a positive impact on those with interrupted or changing work patterns.
Another welcome measure is the introduction of the ability for individuals, regardless of employment status, to make tax deductible personal concessional contributions. This removes the current restriction of 10% or less of income must be from employment income, to be able to claim a deduction for personal concessional contributions.
Furthermore there has been a removal of the restrictions on people aged 65 to 74 making contributions for retirement. This is an acknowledgement of the fact individuals are remaining in the workforce for longer.
$1.6 million pension account cap
From 1 July 2017 there will be a $1.6 million cap on the total amount of super an individual can transfer into retirement phase accounts. However, subsequent earnings on this account won’t be restricted. What does this mean in practice? If a member has a pension account balance of more than $1.6 million, they must reduce this balance to $1.6 million by 1 July 2017. This can be achieved by transferring the excess back to an accumulations phase (taxed at 15%). If the pension balance is still greater than $1.6 million at 1 July 2017, the excess will be taxed in a similar way to the taxing of excess non-concessional contributions.
Transition to retirement income stream
The tax exempt status of a transition to retirement income stream (TRIS) will be removed from 1 July 2017. This means if you are currently drawing a pension, but still working, the earnings on your account balance will now be subject to tax. The change to the taxation status of a TRIS is to ensure TRIS’ are being used for the correct purpose (i.e. to provide for retirement and not as a tax minimisation strategy).
$500,000 lifetime cap for non-concessional contributions
Beginning 3 May 2016, a lifetime cap of $500,000 will be imposed on non-concessional contributions. This replaces the current cap of $180,000 per year (or $540,000 under the 3 year bring-forward provisions).
This cap will take into account all non-concessional contributions made on or after 1 July 2007. Any contributions made before the commencement date of 3 May 2016 cannot result in an excess. However, if you have contributed in excess of $500,000 prior to 3 May 2016, you will not be able to make any further non-concessional contributions to super.
Any excess contributions made after the commencement date will need to be withdrawn or will be subject to penalty tax.
Division 293 notices
From 1 July 2017, individuals with earnings of more than $250,000 (currently $300,000) are required to pay an additional 15% on their concessional contributions. The additional tax is imposed on the individual taxpayer by way of a Division 293 notice. Individuals can choose to pay this additional tax from the superannuation fund member balance.
Low income superannuation tax offset
This replaces the ‘low income superannuation contribution’ which expires in 1 July 2017. The tax offset allows individuals with taxable income of $37,000 or less to receive an offset (or effective tax refund) of the tax paid on their concessional contributions, up to a cap of $500.
For example, a part-time worker earns $20,000 I the 2017-18 income year and their employer makes the compulsory 9.5% super contributions ($1,900). The contributions are taxed at 15% in the superfund ($285). At the end of the financial year, the worker will be eligible for the Low Income Superannuation Tax Offset, at the full amount for $285 and now effectively pays zero tax on their super contributions.
Anti detriment payments
This is a lesser known superannuation provision, which is not as commonly discussed as it only applies upon the death of a member. From 1 July 2017 the anti-detriment provisions will be removed. Doing so will align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of super. Currently the anti-detriment provisions can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is the dependent of the member.
It should be remembered these measures are not final until the relevant legislation has been passed by the Government. Therefore, it is imperative you use caution if acting on these proposals until they have become law.
Oracle Business Accountants will keep you up-to-date on the progress of the implementation of these announcements.
Please do not hesitate to contact us if you have any questions regarding this Oracle Insight.
Brendan Hay Miriam Harris
5607 0820 5607 0820
0409 894 488