What the 2016 Federal Budget means for you

Treasurer Morrison brought down his budget last night. We are pleased to present you with some highlights that will impact you, our valued clients. High income earners will be negatively impacted by many of the superannuation changes, although there are some glimmers of good news in those changes. Good news for small businesses with a further income tax rate reduction and an increase in the threshold to $10m turnaround. A number of measures to assist low and middle income earners round out a moderately conservative budget. The vast majority of these measures won’t take effect until 1 July 2017.

Small business

• The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016 for the purposes of accessing certain existing income tax concessions. The increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions.
• 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. The current cap of $1,000 per individual for each income year will be retained.
• GST reporting requirements for small businesses will be simplified from 1 July 2017.

Other enterprises

• The company tax rate will be progressively reduced to 25% over 10 years.
• Targeted amendments will be made to improve the operation and administration of integrity rules for closely-held, private groups (in Div 7A of the Income Tax Assessment Act 1936) from 1 July 2018.

Individuals and families

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

Superannuation

• The threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000.
• Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.
• The tax exemption on earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017.
• A lifetime non-concessional contributions cap of $500,000 will be introduced.
• The current restrictions 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.
• 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.
• A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017.

GST and other indirect taxes

• GST will be extended to low value goods imported by consumers from 1 July 2017.
• The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018.
• The excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider from 1 July 2017.

We will be discussing these changes with many of our clients as part of year-end tax planning. If you would like further information or to book an appointment to discuss the impact on your personal situation please contact us.