2016 Budget Summary

The budget deficit is forecast to reduce to 0.3% of GDP in the 2019/20 fiscal year from 2.2% of GDP in the 2016/17 fiscal year thanks to the new proposals introduced in this year’s budget. So how does the 2016 budget affect you? The winners are small business owners and low and middle-income earners. The wealthy on the other hand don’t have much to smile about it. Here is a summary of the key proposals handed out in the 2016 budget pending legislation:-

Small Business Tax

As from 1 July 2016, small businesses will be required to pay tax at a rate of 27.5% instead of 26.5%. It is estimated that over 800,000 businesses employing more than 3.4 million Australians will benefit from this. Moreover, the budget proposes that small businesses will be able to write-off equipment purchases of up to $20,000 in their books in the 2016/2017 financial year and beyond thereby benefitting from tax savings on new asset additions meeting this criteria. Other tax incentives targeting small businesses in this year’s budget include the introduction of simplified trading stock rules, depreciation pooling provisions and instalment payments option for Pay-As-You-Go tax.

Definition of Small Businesses

Small businesses will refer to those businesses with a gross turnover of $10 million in the 2016/2017 fiscal year and not those with a gross turnover of $2 million as it was in the 2015/2016 fiscal year. The definition of small businesses will continue changing in the subsequent financial years as show below:-

Fiscal Year

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

Turnover ($)

10m

25m

50m

100m

250m

500m

1bn

Corporate Tax Rates

The 2016 budget seeks to progressively reduce the overall corporate tax rates of all companies from 27% in the 2024/2025 fiscal year to 25% in the 2026/2027 fiscal year. This is summarised in the table below:-

Fiscal Year

2024/25

2025/26

2026/27

Corporate tax rate for all companies

27%

26%

25%

 

Middle Income Tax Earners Taxes

With effect from 1 July 2016, the income tax threshold at which 37% personal income tax rate applies will increase from the current $80,001 per annum (pa) to $87,001 pa. It is estimated that about half a million middle income tax earners will benefit from a tax saving of up to $315 pa from this proposal. Although this proposal will reduce the income tax collected by about $3.95bn over the next four years, the Treasurer asserts that this money will be recouped by other measures. The following table highlights the previous and current thresholds of personal income tax:-

Previous thresholds (2015/16)

Tax rate

$0-$18,200

0%

$18,201-$37,000

19%

$37,001-$80,000

32.5%

$80,001-$180,000

37%

$18,001+

45%

 

New thresholds (2016/17)

Tax rate

$0-$18,200

0%

$18,201-$37,000

19%

$37,001-$87,000

32.5%

$87,001-$180,000

37%

$18,001+

45%

 

 

 

 

 

 

 

 

 

 

Superannuation (Super) Matters

Here is where the wealthy have been targeted in this year’s budget. As from 1 July 2017, an additional tax of 15% (in addition to the standard 15% tax) will be charged on all concessional (before-tax) super contributions made by those earning more than $250,000 pa. Previously, only those earning more than $300,000 pa were levied this additional tax. Concessional super contributions include super guarantee and salary sacrifice, personal contributions claimed as tax deductions.

Tax rate on concessional super contributions

Annual income including concessional contributions

2015/16 and 2016/17

2017/18

<$250,000

15%

15%

$250,000-$300,000

15%

30%

$300,000+

30%

30%

 

The wealthy will also have to bite another bullet; this time on pensions. With effect from 1 July 2017, a lifetime limit of $1.6m (dubbed ‘a transfer balance cap’) will be placed on the amount of superannuation that can be transferred to start pensions. Therefore, the people with pensions having balances that exceed the transfer balance cap will have to reduce this balance before 1 July 2017 or face stiff penalties. Moreover, earnings on investments held in ‘transition to retirement’ pensions will attract a 15% tax in the 2017/18 fiscal year and beyond. Currently, these earnings are not taxed. Earnings derived from pensions other than ‘transition to retirement’ pensions will however remain untaxed.

Older folks will not enjoy making relatively higher concessional super contributions in the 2017/2018 tax year. As from 1 July 2017, the annual concessional super contributions will be capped at $25,000 regardless of the age of the people making the contributions. Previously, the cap for those aged 49 and above was $35,000 while for those aged 48 and below was $30,000 as shown below:-

 

Annual cap amount

 

Age

2015/16 and 2016/17

2017/18

48 and under

$30,000

$25,000

49 and over

$35,000

$25,000

 

A lifetime cap on non-concessional (after-tax) super contributions now applies from 3 May 2016 onwards. From 1 July 2017, concessional (before-tax) super contributions will be allowed to exceed the annual cap if the super balance is less than $500,000 and if the annual cap in the previous financial years was not fully utilised. These amounts not fully utilised will however be carried forward for a maximum of 5 years. In the 2017/2018 tax year and beyond, anyone making personal super contributions can claim.

 

Get advice about superannuation

 LearnMoreBlue.jpg

Tags: 
2016 budgetAustralian economy