2016 Federal Budget Highlights

Unlike many election year budgets, this years’ budget is fairly light on “sweeteners”, which given the nation’s debt position, is a good thing. Longer term more needs to be done to bring government spending under control, but that will have to wait for another time and a non-election year.

The major changes are in the areas of Superannuation and Small Business

A word of caution; recent experience tells us that at least some of the Budget measures will not be passed by the parliament, and of course we have a federal election in coming months.

To summarise, the main features of Budget are:

Individuals and families

  Personal income tax relief

The threshold at which the 37% marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.

• This measure reduces the marginal income tax rate on taxable incomes between $80,000 and $87,000 from 37% to 32.5% from the 2016/17 income year.

Medicare levy and surcharge – low-income thresholds to increase

• The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year accordingly;

• Individuals $21,235 (up from $20,896) and families $36,001 (up from $35,261) with an additional $3,306 for each dependent child

• Single seniors / pensioners $33,738 (up from $33,044) and senior / pensioner couples $46,966 (up from $46,000).

Superannuation

Division 293 tax income threshold reduced

• The threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017.

Superannuation caps

• The annual cap on concessional (before tax) superannuation contributions will also be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).
• A lifetime non-concessional (after tax) contributions cap of $500,000 will be introduced. To ensure maximum effectiveness, the lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, from which time the ATO has reliable contributions records, and will commence at 7.30 pm (AEST) on 3 May 2016.

• Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional (before tax) contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.

Other superannuation changes

• A balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017.

• The tax exemption on earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017.

• The current restrictions (work test for contributions) on people aged 65 to 74 making superannuation contributions for their retirement will be removed from 1 July 2017.

• From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions (currently subject to 10% rule for deductible personal contributions).

• A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017.

• The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased to $37,000 from 1 July 2017.

Small business

Increased turnover threshold for small business concessions

• The small business entity turnover threshold will be increased from $2 million to $10 million from 1 July 2016. The increased threshold means businesses with an annual turnover of less than $10 million will be able to access existing small business income tax concessions including the:

• lower small business corporate tax rate of 28.5% (which will be reduced to 27.5% from the 2016/17 income year)

• 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 simplified method of paying PAYG instalments and FBT concessions for work related portable electronic devices

• the immediate deduction of professional expenses such as start-up and formation costs

• The increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions.

Unincorporated small business tax discount increased

The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016 (capped at $1,000 per individual for each income year).

• The unincorporated small business tax discount (which will be increased to 8% from 1 July 2016) will however be accessible to small businesses with a turnover of less than $5 million.

Other enterprises

Staggered cuts to the company tax rate

• The company tax rate will be progressively reduced to 25% over 10 years (currently 28.5% for small businesses and 30% for all others)

• From the 2016/17 income year, the company tax rate for businesses with an annual aggregated turnover of less than $10 million will be reduced to 27.5%.

• This threshold to access the 27.5% tax rate will be progressively increased to ultimately have all companies at that rate in the 2023/24 income year. The thresholds for the 27.5% rate will be as follows:

• The company tax rate will be further reduced progressively from the 2024/25 income year as follows: