Federal Budget 2016/17 Explained Our core purpose is “HELPING CLIENTS ACHIEVE FINANCIAL SECURITY’ MULCAHY & CO | P 03 5330 7200 | INFO@MULCAHY.COM.AU | 300B GILLIES ST NTH, BALLARAT
Key Points Explained Income Tax
REDUCTION OF THE COMPANY TAX RATE
Superannuation
TARGETED PERSONAL INCOME TAX RELIEF
From the 1st July 2016 the government will commence reducing the company tax rate from 30% to 25% over the next ten years. This measure will commence with a reduction of the small business company tax rate being reduced to 27.5% and make this tax rate available to small companies with an annual turnover of less than $10 million.
LIFETIME CAP FOR NON-CONCESSIONAL SUPERANNUATION CONTRIBUTIONS
From the 1st July 2016 the government will increase the 32.5% income tax bracket upper threshold from $80,000 to $87,000. Effectively this will stop individuals falling into the 37% tax bracket and will result in possible tax savings of $315 for anyone exceeding taxable income of $37,000.
INCREASE OF THE SMALL BUSINESS INCOME TAX OFFSET From the 1st July, 2016 the government will increase the current 5% tax discount to 8% for the following 8 years at which point it will then increase to: •
10% in 2024/25;
•
13% in 2025/26; and
•
16% from 2026/27
This discount is available to an individual in receipt of income from an unincorporated small business entity, anyone deriving income as a sole trader, from a partnership or trust. The business must have an aggregated turnover of less than $2,000,000 and applies to the income tax payable on the business income received from such an entity. The current offset is capped at $1,000 per individual and this will continue for the foreseeable future.
In the 2024/25 income year, the company tax rate will be reduced to 27% and then be reduced progressively by 1 percentage point until it reaches 25% in the 2026/27 income year.
INCREASING THE SMALL BUSINESS ENTITY (SBE) TURNOVER THRESHOLD From the 1st July 2016 the government will increase the SBE turnover threshold from $2 million to $10 million. The current $2 million turnover threshold for capital gains tax (CGT) concessions and access to the small business tax offset will remain. Increasing the turnover threshold to $10 million will allow small businesses to access the small business reduced company tax rate, as mentioned above. Simplified depreciation rules including immediate write-off for assets costing less than $20,000 and pooling of assets.
Effective immediately the government will introduce a $500,000 lifetime nonconcessional contributions cap. The lifetime cap will take into account all nonconcessional contributions made on or after 1st July 2007. If the an individual has exceeded the cap prior to commencement date then they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. Non-concessional contributions are any voluntary contributions, which are made to your superannuation fund for which no tax deduction has been claimed by yourself or your employer. It is important to be aware that the new lifetime concessional superannuation contributions cap will replace the current non-concessional contributions cap, which allows for contributions of $180,000 per year.
IMPORTANT DISCLAIMER: This document does not constitute advice. Clients should not act solely on the basis of the material contained in this document. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and we therefore recommend that our formal advice be sought before acting in any of these areas. This document is issued as a helpful guide to clients and for their private information.
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TAXATION OF EARNINGS ON ASSETS SUPPORTING TRANSITION TO RETIREMENT INCOME STREAMS (TRIS) From the 1st July 2017 the government will remove the tax exemption on earnings derived from assets supporting TRIS of individuals over preservation age but not retired. Earning from these assets will be taxed at 15%. It is important to note that this change is proposed to apply irrespective of when the TRIS commenced. Introduction of a $1.6 million superannuation transfer balance cap – The government will introduce a $1.6 million ‘superannuation transfer balance cap’ on the total amount of accumulated superannuation an individual can transfer into pension phase. By way of background, under current law, if a fund member moves from accumulation phase into ‘pension phase’, earnings on assets supporting the pension (income tax and capital gains) are tax free in the fund. Furthermore, there is no limit on the amount of accumulated superannuation that an individual can transfer into pension phase. Under the proposed changes if an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in accumulation phase, which the earnings on will be taxed at 15%.
CHANGES TO THE CONCESSIONAL CONTRIBUTIONS CAP & PERSONAL SUPERANNUATION CONTRIBUTIONS From 1st July 2017 the government will lower the annual cap on concessional superannuation contributions to $25,000. Until this time the existing concessional contributions caps of $30,000 and for those aged under 50 and $35,000 to those 50 years and over will apply. Concessional Contributions are contributions made to a superannuation fund for which a tax deduction is being claimed either by yourself, or your employer, examples include superannuation guarantee, voluntary taxdeductible contributions and salary sacrifice arrangements. From the 1st July 2017 personal contributions will be able to be claimed as a tax deduction to allows all individuals under 75 to claim an income tax deduction for personal superannuation contributions. This will benefit employees and partially self-employed, partially wage earners as the current rules only let self-employed individuals claim income tax deductions.
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IMPORTANT DISCLAIMER: This document does not constitute advice. Clients should not act solely on the basis of the material contained in this document. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and we therefore recommend that our formal advice be sought before acting in any of these areas. This document is issued as a helpful guide to clients and for their private information.
ACCOUNTING | FINANCIAL PLANNING | LENDING | LEGAL | INFORMATION TECHNOLOGY MULCAHY.COM.AU
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