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2016/17 Federal Budget Highlights:

Changes To Superannuation:

 

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Issue 106 - May 2016 (Budget Special Edition)

2016/17 Federal Budget Highlights

The Federal Budget for the 2016/17 year was handed down by the Treasurer on 3 May 2016.  We will be considering how these affect each client's individual circumstances and have summarised below the main taxation and superannuation highlights. These announcements are not yet legislated.

Small Business Turnover Test

From 1 July 2016, the small business entity turnover threshold will increase from $2 million to $10 million. This will enable more businesses to access the income tax concessions which include:
  • simplified depreciation rules and the immediate deduction for asset purchases less than $20,000 until 30 June 2017;
  • a lower small business corporate tax rate (detailed below); and 
  • simplified rules for trading stock, GST reporting, PAYG instalments and FBT on work related devices. 
  • The changes will not affect the ability to access the small business Capital Gains Tax (CGT) concessions, the thresholds for these will remain as $2 million turnover or $6 million net asset value.

    Individual Tax Rates

    The threshold which the 37% marginal rate applies will be increased from $80,000 to $87,000 from 1 July 2016.

    Small Business Income Tax Offset

    The Small Business Income Tax Offset currently applies to individual tax payers operating small business through a trust, partnership or as a sole trader. The offset for the 2016 financial year is a 5% discount on the tax on small business income capped at a maximum of $1,000 per individual.

    The discount rate is to be increased as shown below although the maximum offset will remain at $1,000. 

    2017 financial year

    8%

    2025 financial year

    10%

    2026 financial year

    13%

    2027 financial year

    16%

    Medicare Levy

    The threshold for Medicare Levy will be increased to ensure low income earners are exempt from the levy.

    For 2015/16, the Medicare Levy low income thresholds will be as follows:

     

    Previously

    Announced

    Individuals

    $20,896

    $21,335

    Families

    $35,261

    $36,001

    The family income threshold of $36,001 will be increased by $3,306 (previously $3,238) for each dependent child or student.

    For single seniors and pensioners with no dependents who are eligible for the seniors and pensioners tax offset, the threshold will be increased to $33,738 (previously $33,044).

    Corporate Tax Rates

    The company tax rate in the 2016 financial year is 30% or 28.5% for small business companies (grouped turnover of under $2 million). From 1 July 2016, the Government will reduce the small business company tax rate to 27.5% and increase the grouped turnover threshold to $10 million. 

    The turnover threshold for companies eligible for this measure will increase each year as shown in the table below:

    $25 million

    2017/18 income year

    $50 million

    2018/19 income year

    $100 million

    2019/20 income year

    $250 million

    2020/21 income year

    $500 million

    2021/22 income year

    $1 billion

    2022/23 income year

    No limit

    2023/24 income year

    In the 2025 financial year, the rate will be reduced to 27% and then a further 1% each year until it reaches 25% in the 2027 financial year.

    Franking credits available to shareholders on dividend payments will be reduced in line with the reduction in the corporate tax rates.

    GST Reporting

    The Government has announced that they will simplify GST reporting on Business Activity Statements (BAS) for small businesses from 1 July 2017. A trial will commence from 1 July 2016 to simplify the classification of transactions required for the BAS.

    GST On Imports

    Currently, where a consumer purchases goods valued at less than $1,000 from overseas (e.g. online) they pay no GST. From 1 July 2017, this threshold will be abolished so GST will apply on all sales if the seller exceeds the Australian turnover threshold of $75,000 per annum. This will apply the same rules to overseas sellers as to domestic businesses.

    WET Rebate Cap

    The Wine Equalisation Tax (WET) rebate cap will be reduced from $500,000 to $350,000 from 1 July 2017 and again to $290,000 from 1 July 2018. 

    The Government has also announced that from 1 July 2019, the eligibility criteria will be tightened to limit the rebate to producers who own a winery or have a long-term lease over a winery and sell packaged, branded wine in the domestic market. The exact criteria will be finalised after further consultation. 

    Changes to Superannuation

    Lifetime Non-Concession Contributions Cap

    The Government will introduce a $500,000 lifetime cap on non-concessional contributions into superannuation funds. This will replace the existing annual caps for non-concessional contributions.

    Contributions made on or after 1 July 2007 will be counted against this $500,000 lifetime limit. If you have exceeded the $500,000 cap at Budget night (i.e. at 7.30pm on 3 May 2016), you will be taken to have used up your lifetime cap but will not be required to take the excess out of the superannuation system.

    Excess contributions that are made after the commencement of this measure will need to be removed from the superannuation fund or they will be subject to penalty rates of tax.

    Reduction in Concession Contributions Cap

    The concessional contribution cap will reduce to $25,000 from 1 July 2017 (previously $30,000 for those under 50 and $35,000 for those over 50).

    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. The measure is limited to individuals with a superannuation balance of less than $500,000.

    Only unused amounts accrued from 1 July 2017 can be carried forward, and can only be carried forward on a rolling basis for a period of five consecutive years. 

    Tax Deduction for Concessional Contributions

    All individuals up to age 75 will be able to claim a tax deduction for personal superannuation contributions irrespective of their employment circumstances from 1 July 2017.

    Contribution Rules For Individuals Aged 65 to 74

    From 1 July 2017, changes have been introduced so that those individuals aged between 65-74, no longer need to meet a work test in order to contribute into superannuation.

    Contributions Tax For High Income Earners

    The adjusted taxable income threshold on which increased tax will be charged on contributions will reduce from $300,000 to $250,000 from 1 July 2017.

    Individuals with adjusted taxable income greater than the $250,000 will be charged 30% on concessional contributions made, rather than the standard 15%.

    $1.6 Million Balance Transfer Cap

    The Government will introduce a $1.6 million transfer balance cap on the total amount of accumulated superannuation that an individual can transfer into the retirement phase. The earnings on balances in the retirement phase do not incur tax.

    Superannuation balances in excess of $1.6 million can be retained in the superannuation system, but will have to be held as an accumulation balance where the 15% tax rate will apply to the applicable earnings. This change will be effective from 1 July 2017.

    Tax On Superannuation Earnings When Using A Transition To Retirement (TTR) Income Stream

    Currently if an individual is withdrawing money from their balance using a Transition to Retirement Income Stream, the earnings on their  balance are tax-free. 

    From 1 July 2017, this will not be the case and the earnings will incur 15% tax in the superannuation fund. This change will apply to both new and existing income streams. 

    TTR income streams will still be allowed, and will still be beneficial for middle to high income earners. 

    Low Income Superannuation Tax Offset

    A new Low Income Superannuation Tax Offset will reduce the tax on superannuation contributions for low income earners from 1 July 2017. It will provide a non-refundable tax offset, capped at $500, to superannuation funds that receive concessional contributions on behalf of low income members, being those with adjusted taxable income of less than $37,000.

    Low Income Spouse Balances

    The low income spouse superannuation tax offset threshold will be raised from $10,800 to $37,000 from 1 July 2017. The offset is gradually reduced for incomes above this level and will completely phase out at income above $40,000. At its maximum, it provides a $540 tax offset to the contributing spouse.


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    The information provided in this newsletter does not constitute advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances. Brentnalls is not a partnership or a joint venture. Instead, the business of Brentnalls SA is independently owned and operated and it is an independent member of the Brentnalls Affiliation of Accounting Firms. Individual member firms do not accept responsibility or liability for the actions or inactions of any other individual member firm.
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