On Tuesday 3 May 2016 the New Treasurer Scott Morrison released his 1st Federal Budget. The Treasurer stated the budget was “not just another budget but in fact was an economic plan to head into a diverse new world economy for Australia”.
The Treasurer split his budget speech into 3 areas:
- Jobs and Growth
- Fixing the tax system
- Balance the budget and reduce debt
The treasurer called the budget “practical, targeted and a responsible budget”. His headline was Jobs and Growth. Commentators called this “an election budget” which is “mostly harmless”. Others commentated “it does nothing to fix the budget deficit” and there were “huge expectations which were not satisfied”. In fact, one of the main discussion points on budget night was not actually the budget but the reduction in the RBA cash rate from 2% to 1.75%.
Its clear to say that the budget was always going to mundane with an election exactly 2 months away even though the Government mooted at significant tax reform and tax changes in the budget. We certainly didn’t see any major tax reforms apart from a change in the company tax rate over a 10 year period and some technical changes to Division 7a loans from company’s to shareholders.
The major loser out of the budget is superannuation. The Government seems to have its short sighted blinkers on in relation how people will be able to fund for their retirements with some ridiculous changes in relation to lifetime limits on non concessional contributions and reducing the concessional contribution caps each year which goes totally against the Government’s Retirement income policy and their 3 pillar approach to this. What the Government is doing is to force less money into super and have just reinforced taxpayers unease and lack of confidence in the superannuation system.
The opposition stated that they will support certain parts of the budget but don’t think it helps Australia’s lower paid workers as 75% of workers, miss out on any tax relief. Shadow Treasurer Chris Bowen believes the budget in not affordable, unfunded and uncosted and they will not support the changes in the stage increase in thresholds for small business definitions and will be reinstating the 2% budget deficit levy asap. He did say however they would support the reduction in the corporate tax rates for real small businesses with turnover less than $2m and tax bracket creep changes from $80,000 to $87,000. The Greens and Independants called the budget a “huge let down” and a “treading water budget”.
Note the below announcements may or may not be passed by the Government, as we saw last year and they also need to get back into power following the election in 2 months time. Our recommendation is that we currently have law and we should follow this subject to any potential changes in the budget.
The major parts of the budget include:
- 10 Year enterprise tax plan – reduction of company tax rate for small business from 28.5% to 27.5% from 1 July 2016. The threshold of small business will also increase from $2mill turnover to $10mill turnover at the same time. The threshold will then increase on a year basis from $10m to $25m, $50m, $100m, $250m, $500m to $1bill by 1 July 2022. Then the tax rate will reduce year to 27%, 26% and finally finish up at 25% from 1 July 2026.
- As part of the 10 year tax plan we will also see an increase in the unincorporated tax discount over a 10 year period from 5% to 8% and then gradually to 16% from 1 July 2026. The threshold level will also increase from $2m turnover to $5m turnover from 1 July 2016.
- Through the increase in the definition of small business will also allow access to more businesses the rules in relation to accelerated depreciation and depreciation pooling provisions, simplified trading stock rules, simplified PAYG instalment rules and immediate deductions for prepaid expenses and professional expenses.
- Small tax break for those earning around $80,000 by increasing the 32.5% threshold from $80,000 to $87,000 – this equates to around $6 per week tax saving!
- Massive crackdown on Multinationals avoiding tax through the introduction of a new Diverted Profits Tax from 1 July 2017 of 40% on profits, implementing the OECD’s transfer pricing recommendations and establishing the Tax Avoidance Taskforce which will employ around 1300 ATO officers.
- Simplification of Division 7a which have been based on the Board of Taxation recommendations from November 2014. The exact details are currently unknown however this may have implications for all unpaid loans from company’s to trusts and shareholders and will probably affect all loans regardless of when they first arose. We anticipate these new loans to be on 10 year terms. We understand these will apply form 1 July 2018.
- No changes on negative gearing
- No changes on GST
- From 1 July 2017 the annual concessional contribution cap of $30,000 or $35,000 depending on your age will reduce to $25,000 for all taxpayers.
- From 1 July 2017 taxpayers will be allowed to catch up on missed concessional contributions in a prior year subject to a 5 year rolling cap if their superannuation balance is less than $500,000. If the carried forward amounts are unused after 5 years they will expire.
- From Budget night the Government has introduced a lifetime non-concessional superannuation contributions cap of $500,000 which will be indexed with AWOTE. This limit is immediate and will take into account all non concessional contributions from 1 July 2007. For those taxpayers who have already contributed more than $500,000 in their lifetime, they do not need to withdraw money out of super and will not be taxed on the excess. They will just be precluded from making further non concessional contributions for their lifetime.
- From 1 July 2017 the Government will impose a cap on the amount that a person can have in their pension account. The cap will be $1.6million per person which will have a 0% tax rate attached to its investment earnings. The balance of a person’s superannuation monies will need to be in accumulation phase with the investments earnings on these taxed at 15%. If your current pension account currently sits above this $1.6m limit, you will need to roll part of it back to accumulation phase by 1 July 2017. The cap will indexed in $100,000 increments in line with CPI.
- From 1 July 2017 the Government will allow anyone under the age of 75 years to make super contributions subject to their caps. They will remove the need for those aged greater than 65 years to satisfy a work test. Also from this date anyone under 75 years can claim a tax deduction for super contributions regardless of their employment arrangements.
- From 1 July 2017 the Government will remove the tax exemption on investment earnings from transition to retirement pensions and not allow lump sum commutation to be classified as pension withdrawals.
- From 1 July 2017 the Government will reduce the threshold for the Division 293 tax (the old super surcharge additional 15% tax on contributions) from $300,000 pa to $250,000pa.
- From 1 July 2017 the Government will increase the access to spouse contribution rebates and tax offsets for low income earners.
- From 1 July 2017 the Government will remove the ability for all super funds to make anti-detriment payments on the death of members.
- From 1 July 2016 the Government will establish a Youth Jobs Path program for young job seekers under 25 years of age. This will be split into Prepare, Trial and Hire elements. From 1 April 2017 industry endorsed pre employment training will be provided. Internship placements of up to 12 weeks will also be trialled and from 1 January 2017 Youth Bonus wage subsidies will be available for those who hire under this Jobs pathway.
- From 1 December 2016 the Government will expand the NEIS and support self employment opportunities for young people.
- As previously announced the Government will expand tax incentives for early start up investors (legislation is currently in the Senate)
- Provide jobs through naval ship building and a $50bill inland rail infrastructure program between Brisbane and Melbourne and $2bill for water infrastructure.
- Introduction of a NDIS savings fund
- $2.9bill to hospitals over 3 years
- $1.2bill to schools between 2018-2020.
We recommend that you obtain further information on any of these items if they are of interest to you, as the above is only a brief summary.