2016 Federal Budget Update

May 10, 2016

On Tuesday, 3 May 2016, the Federal Treasurer, Scott Morrison, revealed his first Federal Budget. The Budget announcements include some major superannuation tax changes, and other measures which impact individual income tax, small businesses, and corporate taxation.

We at Preda partner with our clients to achieve their business and life goals.  One way we do that is through careful tax planning! If you haven’t met with us yet, NOW is the time to contact us to arrange a tax planning meeting, so we can to help you limit your tax payments, and grow your wealth.

Below is a summary of some of the key Federal Budget features in relation to tax and superannuation.

Business

Small business entity threshold – increase from $2M to $10MTax Matters- PDF

Currently, small businesses can access the small business tax concessions if their aggregated annual turnover is less than $2 million. From 1 July 2016, the small business turnover threshold will increase from $2 million to $10 million!  However, the $2 million thresholds will continue to apply to small business Capital Gains Tax (CGT) concessions.

Examples of small business tax concessions include:

  • simpler depreciation rules, including immediate tax deductions for the purchase of assets costing less than $20,000)
  • simpler trading stock rules, including the option to avoid a year-end stocktake if certain conditions are met
  • the option to account for GST on a cash basis
  • simpler Pay-As-You-Go (PAYG) instalment payment calculations
  • 12-month prepayment deduction rules
  • various Fringe Benefit Tax (FBT) exemptions for portable electronic devices (e.g. smartphones, laptops and tablets)

Reduction in tax rate for small business companies

From 1 July 2016, the company tax rate for small business companies (aggregated turnover less than $10 million) will be reduced to 27.5%.

Superannuation

Lifetime cap for non-concessional contributions

The Government has proposed the introduction of a lifetime non-concessional contributions cap of $500,000, effective from the Budget, i.e. 7:30pm AEST 3 May 2016. This new cap would replace the existing non-concessional cap of $180,000 per year (or $540,000 every 3 years under the ‘bring-forward’ rule for individuals aged under 65).  It would also include all non-concessional contributions made on or after 1 July 2007.

Concessional contribimagesCAK30VKKutions cap reduced to $25,000

Currently, the concessional contributions cap is $30,000 per year for individuals aged under 50, and $35,000 for those aged 50 or over. From 1 July 2017, this threshold will be reduced to $25,000 for all individuals, regardless of their age.

Tax deductions for personal superannuation contributions

From 1 July 2017, all individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions. Individuals who are partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements, will also benefit from these changed arrangements.

Lowering of the cut-in income threshold for 30% tax on concessional contributions

From 1 July 2017, the income threshold at which high income earners pay additional contributions tax will decrease from $300,000 to $250,000. Generally, an additional 15% tax will be payable on concessional contributions, to the extent that the threshold is exceeded.

Individuals

Few changes relating to personal income tax were announced.  The main item of note is the increase in one of the personal income tax thresholds.

From 1 July 2016, the upper taxable income threshold for the middle tax bracket (32.5%) will increase from $80,000 to $87,000.This proposal would mean a tax saving of $315 for individuals with a taxable income of at least $87,000.

To make sure you are receiving the maximum tax savings available to you, act today and contact us to book a tax planning session.