2016 Federal Budget update

The Federal Government handed down the 2016-2017 Budget on 3 May 2016.

It is important to remember that these announcements are only proposals at this stage.  Each proposal will need to pass through both the House of Representatives and the Senate before they become law.  This process may take weeks or even months, and some of the below proposals may be rejected in part or whole.

The following changes are proposed to apply from Budget night (7.30pm on 3 May 2016):

  • A lifetime non-concessional superannuation cap of $500,000 will apply to all members.  All non-concessional superannuation contributions from 1 July 2007 will be counted for purposes of the $500,000 lifetime cap.  Pre 3 May 2016 contributions in excess of $500,000 won’t trigger an excess contribution assessment.

The following changes are proposed to apply from 1 July 2016:

  • The upper threshold for the 32.5% individual marginal tax rate will be increased from $80,000 to $87,000.
  • The small business entity (SBE) turnover threshold will increase from $2 million per annum to $10 million per annum.  This will enable a much wider range of entities to access a range of concessions including:
    • simplified depreciation rules,
    • immediate write off of assets costing $20,000 and less (until 30 June 2017),
    • simplified trading stock rules,
    • immediate deductibility for various start up costs,
    • the 12 month prepayment rule,
    • more generous FBT exemptions for work related portable electronic devices, and
    • be able to account for GST using the cash basis.

Please note that eligibility to the small business CGT concessions (active asset discount, retirement exemption etc) will remain unchanged – therefore these provisions will only be available to small business entities with a turnover of less than $2 million or those that satisfy the  maximum net asset value test of $6 million.

  • The company tax rate to be reduced to 27.5% for all businesses with a turnover of up to $10 million per annum.  To be eligible for the reduced company tax rate, the company will need to be carrying on a business.  Therefore companies only holding investments will continue to be subject to a 30% company tax rate.  Further reductions to the company tax rate are proposed for future years for those companies carrying on a business.
  • Small business entities operating as sole traders, partnerships or through a trust structure will also be eligible for a tax discount (up to a maximum of $1,000 per individual per annum).  This entitlement will become more available on a progressive basis over the next 10 years.

The following changes are proposed to apply from 1 July 2017:

  • Most working holiday makers in Australia will be considered non-residents for tax purposes, regardless of how long they are in Australia.  This will mean paying 32.5% tax from the first dollar that they earn.
  • GST is to be imposed on imported goods (particularly relevant to online purchases) regardless of value.  Currently a $1,000 threshold exemption applies, however this will be removed from 1 July 2017.  This will ensure that Australian based retailers remain competitive because their overseas competitors will be subject to the same GST registration requirements.
  • Low Income Superannuation Tax Offset (LISTO) will replace the current Low Income Superannuation Contributions (LISC).  This will provide a non-refundable tax offset to super funds based on the tax paid on concessional contributions made on behalf of low income earners (those with an adjusted taxable income of $37,000 or less).  The offset will be limited to a maximum of $500 per annum.
  • The threshold for the low income spouse superannuation tax offset will be raised from $10,800 to $37,000.  The maximum offset remains at $540 per annum. This will help boost savings in superannuation for low income spouses.
  • Members of superannuation funds with account based pension streams must reduce their pension accounts to $1.6 million before this date.  This can be achieved by withdrawing the excess or transferring the excess to an accumulation account.  A 15% tax will then be applicable for the earnings resulting on the assets supporting the accumulation account.  Fluctuations of the pension account following commencement (depletions from pension drawdowns and increases from income and market value movements) will be ignored for the purposes of the $1.6 million cap and likewise eligibility for the tax exemption on the resulting income and capital gains.
  • The concessional superannuation cap will be reduced to $25,000 for all members per annum.  Members may need to reconsider salary sacrifice arrangements in light of the reduced annual cap.
  • For those members with an account balance of less than $500,000 in superannuation, members may use ‘unused concessional cap amounts’ in the prior 4 years to contribute in excess of the standard $25,000 annual concessional cap.
  • The work test for members aged between 65 and 74 for superannuation contribution purposes will be abolished.
  • The 10% superannuation condition for concessional contribution purposes will be abolished.  This will increase the number of people eligible to make concessional contributions to superannuation.
  • Transition to retirement income streams within superannuation funds will lose their income tax exemption on the assets supporting these pensions.
  • The Division 293 contribution tax threshold relating to high income earners will be reduced to $250,000.  This will result in an extra 15% tax that will be payable on behalf of members that have an adjusted taxable income in excess of $250,000.  Currently the threshold is $300,000.

If you would like to discuss these proposals further and how they may impact on you personally, please contact our office on 07 5474 0711.

Noosa Superannuation Accountants & Financial Advisors Sunshine Coast QLD

Stratogen Accounting consists of a team of expert accountants and highly qualified financial advisors who assist with all aspects wealth creation including self managed super fund (SMSF).  Our accounting firm’s head office is located at Noosa on the QLD Sunshine Coast. Our expertise is unparalleled and thus we work with clients living interstate around Australia and internationally.

We offer the full range of services expected of a leading edge accounting firm. Our personal services for individuals include accounting, tax returns, superannuation funds and financial planning, estate planning, insolvency services and asset protection. Our approach to both our clients is practical, open and honest.

Call (07) 5474 0711  Email Us  Make an Enquiry

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