When it comes to running a business in Australia, changes to the company tax rate, personal marginal tax rates and superannuation, are just some of the subjects that impact on your day-to-day business.
So how will the 2016–17 Federal Budget affect your business and your employees? Here’s a brief round-up of what the budget means for employers.
But don’t forget – the proposals may change or be withdrawn as the legislation passes through parliament.
Increase in small business entity turnover thresholds
Starting from 1 July 2016, the Government proposes to increase the small business annual aggregated turnover threshold from $2 million to $10 million for certain small business concessions.
From 1 July 2016 these small business concessions include:
− the lowering of the small business corporate tax rate (see below),
− for all businesses with annual aggregated turnover of less than $10 million simplified asset depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017, and
− other tax concessions such as the extension of the FBT exemption for work-related portable electronic devices and the immediate deduction of professional expenses.
Lowering the company tax rate to 25%
The government proposes to reduce the company tax rate to 25% by 2026-27.
Initially, the tax rate for companies with an annual aggregated turnover of less than $10 million will be reduced to 27.5% from 1 July 2016.
Unincorporated small business tax discount
For small businesses, that are not companies, the government proposes to extend the unincorporated small business tax discount.
− From 2016-17, the discount will be available to businesses with aggregated annual turnover of less than $5 million, up from the current threshold of $2 million.
− The discount on tax payable on business income will be increased to 8%, up from the current 5%, but the maximum discount available will remain at $1,000 per annum.
Over the next decade it is proposed to further expand the discount in phases to a final discount of 16%, with the existing $1,000 maximum discount per individual for each income year to remain.
Lifetime cap for non-concessional contributions
The government has proposed that from 3 May 2016 the cap on non-concessional (after-tax) super contributions—which is currently $180,000 per person, per financial year—be replaced with a $500,000 lifetime cap.
The lifetime cap, if introduced, would take into account all non-concessional contributions made on or after 1 July 2007.
Those who have exceeded the $500,000 limit prior to budget night will not be penalised or required to remove any contributions, however, future non-concessional contributions will be classed as excessive. Any excessive contributions will need to be removed from the super system or be subject to additional tax.
Reduced cap on concessional super contributions
The government has proposed that from 1 July 2017 the concessional (before-tax) contributions cap be cut from $30,000 (or $35,000 for people over the age of 49), to $25,000 per year for everyone.
Ability to catch up on concessional super contributions
The government has proposed from 1 July 2017 that individuals with a super balance of less than $500,000 be allowed to make additional ‘catch up’ concessional (before-tax) contributions where they have not reached their concessional contributions cap in previous years.
Making spouse contributions more attractive
Currently, an individual making a contribution into their spouse’s account is entitled to a maximum tax offset of $540 if certain requirements are met, one of which is the receiving spouse if aged over 65 must meet the work test. The government proposes to remove the work-test restrictions be removed from 1 July 2017 for those up to age 75.
Secondly, the government proposes to increase access to the spouse super tax offset by raising the lower income threshold for the receiving spouse from $10,800 to $37,000.
Removal of the maximum earnings test
Currently, where a person is engaged in employment activities during a financial year, a tax deduction for personal super contributions can only be claimed where money earned from employment activities doesn’t exceed 10% of a person’s total income.
The government is proposing to abolish this test from 1 July 2017, allowing all individuals up to age 75 to claim an income tax deduction for personal super contributions up to the concessional cap.
Workers nearing retirement
Removal of the work test
The government has proposed that from 1 July 2017 individuals under the age of 75 will no longer need to meet the work test. Under current requirements for those aged between 65 and 75 you must have worked for a set period of time in the financial year, to be able to make voluntary super contributions.
Changes to transition to retirement strategies
Investment earnings within a superannuation account on the amount used to purchase a pension product are currently tax free. The government has announced that this will no longer apply to transition to retirement income streams from 1 July 2017.
This means that investment earnings on fund assets supporting a transition to retirement income stream after this date would be subject to the same maximum 15% tax rate applicable to an accumulation fund.
Further, for tax purposes you can also currently elect for certain super income stream payments to be taxed as lump sums for tax benefits. The government is proposing to also remove this option.
Introduction of a $1.6 million super transfer balance cap
The government is proposing to introduce a transfer balance cap of $1.6 million from 1 July 2017, which will limit how much you can transfer into pension phase.
This cap will limit the total amount of accumulated super benefits that an individual will be able to transfer into the retirement income phase. Subsequent earnings will not form part of this cap.
Where an individual has super amounts in excess of $1.6 million or are already in the retirement income phase with a balance above $1.6 million, they’ll be able to maintain the excess amount in a super accumulation account where earnings will be taxed at the concessional rate of 15%.
Higher income earners
Reduction to threshold for high-income earners
The government has proposed that from 1 July 2017, the high-income concessional contributions tax rate of 30%, which is double the 15% paid by most workers, will apply to those earning an annual income of $250,000. Currently the annual income threshold is $300,000.
Lower income earners
Introduction of the Low Income Super Tax Offset (LISTO)
From 1 July 2012, individuals with an income of up to $37,000 automatically received a government contribution of up to $500 paid directly into their super. However, this Low Income Superannuation Contribution (LISC) will not be available in respect of concessional contributions made after 1 July 2017.
From 1 July 2017, the government is proposing to introduce a replacement – the Low Income Superannuation Tax Offset (LISTO). The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to an annual cap of $500.
The LISTO will apply to members with adjusted taxable income up to $37,000 who have had a concessional contribution made on their behalf.
Changes to marginal tax rates
A tax cut has been proposed at the current $80,000 taxable income threshold. As a result, marginal tax rates for resident taxpayers are proposed to change as follows:
|Income ($)||Marginal tax rate (%)||Income ($)||Marginal tax rate (%)|
|0 – 18,200||0||0 – 18,200||0|
|18,201 – 37,000||19||18,201 – 37,000||19|
|37,001 – 80,000||32.5||37,001 – 87,000||32.5|
|80,001 – 180,000||37||87,001 - 180,000||37|
|> 180,000||47||> 180,000||47|
Want to know more?
Read the AMP employer briefing. To find out more about how the Federal Budget could affect you, go to www.budget.gov.au. Alternatively speak with your financial adviser or we can help you find an adviser.
And remember, the proposals may change as legislation passes through parliament.