Small Business
- The company tax rate for businesses with annual turnover of less than $10 million will be reduced to 27.5% for the 2016-17 financial year. It is proposed that by 2027, the company tax rate will have reduced to 25% for all companies.
- The small business entity turnover threshold will increase from $2 million to $10 million from 1 July 2016 so more can access the reduced company tax rate and other income tax concessions, including the $20,000 instant asset write off. Note that the turnover threshold has not increased for access to the small business capital gains tax concessions.
Individuals and Families
- The threshold at which the 37% marginal tax rate commences will increase from $80,000 to $87,000 from 1 July 2016. The maximum tax saving is $315 per year.
- The low-income thresholds for Medicare levy and surcharge have been increased for the 2016 financial year. If you would like more details on these thresholds, please contact our office.
- The Private Health Insurance rebate will not be indexed for the next 3 years.
GST and Other Taxes
- Tobacco excise will be increased by 12.5% annually for the next 4 years, taking the excise on a cigarette to almost 69% of its average price.
- GST will be applied to low value goods that are imported by consumers from 1 July 2017. Overseas suppliers that have Australian turnover of $75,000 or more will be required to register for, collect and remit GST for goods supplied to Australians.
Superannuation
- Concessional contributions cap has been reduced to $25,000 for all taxpayers from 1 July 2017.
- Individuals with a super balance of less than $500,000 will be allowed to make additional concessional contributions over the cap, where they have not reached their cap in previous years effective from 1 July 2017. The amounts are carried forward on a rolling basis for 5 consecutive years but only unused amounts accrued from 1 July 2017 can be carried forward.
- The current restrictions for people aged 65 to 74 from making super contributions will be removed from 1 July 2017. People under 75 will no longer have to pass the work test to contribute.
- From 1 July 2017, the ‘10% rule’ will be abolished and all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
- A lifetime non-concessional contributions cap of $500,000 has been introduced, effective from 7.30pm on 3 May 2016 (immediately). The lifetime cap takes into account all non-concessional contributions made on or after 1 July 2007. This replaces the existing annual cap of $180,000 per year. Contributions made before commencement cannot result in an excess, but contributions after commencement will need to be removed or they will be subject to penalty tax.
- From 1 July 2017, a balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into tax-free retirement phase will be introduced. If an individual has more than $1.6 million, they can maintain the excess in an accumulation phase account where earnings are taxed at 15%. Members already in pension phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017 by converting excess into accumulation phase accounts. Amounts over the balance cap will have a tax levied, in a similar method to excess non-concessional contributions.
- Super funds will no longer be able to claim a tax exemption for earnings of assets supporting a Transition to Retirement Pension as of 1 July 2017.
- The ability to treat superannuation income stream payments as lump sums will be removed from 1 July 2017.
- The Div 293 tax income threshold (when high income earners pay additional contributions tax) has been reduced from $300,000 to $250,000 from 1 July 2017.
Superannuation Changes – What Do They Mean for You?
Whilst we have sympathy with the intention to limit the largesse of the super system for the truly well off, some elements of the measures proposed change the ground rules quite considerably and will have an immediate adverse impact on many retirees and near retirees in particular.
There is some element of retrospectivity also with the changes to the tax treatment of in particular transition to retirement pensions and the immediate restriction on after tax (non-concessional) contributions to $500,000 per person over their lifetime. This cap also seems low in today’s world where many Australians have assets in excess of that but would not see themselves as “rich”.
There are also some equity issues. For example a couple with $2.5m combined pension assets split 50/50 will pay no tax on the earnings of their pension accounts. Another couple with $2.5m split $2m and $500,000 will pay tax of $3,750 and now with the changes to the contribution caps are most unlikely to be able to adjust the account balances to rectify the situation.
The ability of the self-employed who have not had the benefit of compulsory employer contributions to catch up as they near retirement is impacted by the changes to both contribution caps also. Some offset to that is the very sensible rule change removing the token work test for the over 65’s and allowing contributions to be made until 75.
We also foresee a number of administrative issues arising, for example, with the tracking of non-concessional contributions from the start date of 1 July 2007. Records will not be easily obtained from fund managers and the like who held super investments that were later closed upon rollover to a new scheme. Innocent mistakes are likely to be made where contributions were overlooked and then penalties may be imposed.
All of the changes have some way to run, of course, with an election and having to be passed into law so the outcome may be many months away. This means something of a hiatus in terms of planning for many people as we await the outcome. We will be monitoring developments and when the outcome is clearer we will be able to advise on what strategies to employ for the future within the new legal framework.