The recent announcement of the 2016 Federal Budget may raise questions about the impact on you in the areas of tax and super. Here we provide a summary of what we consider to be the major issues.
Of course, like all Commonwealth budgets, it will be inevitably chopped and changed every year from now onwards…
The main changes
The $80,000 personal income tax threshold (at which 37% tax kicks in) has been increased to $87,000. This is projected to benefit the top 25% income earners in Australia.
The “temporary budget repair levy” has been removed. This levy came in in 2014-15 and represented an extra 2% of personal income tax for those earning over $180,000 (which increased their marginal rate from 45% to 47%, not including the Medicare levy). The result is that high income earners have effectively received a 2% tax cut – though the levy was always expressed in terms of being temporary. One can only assume that the budget is now all “repaired”.
Small business will get a tax cut down to 27.5% (being a further cut down from the 30% to 28.5% cut in July 2015). Significantly, the threshold for which companies are considered “small businesses” will be increased from $2 million turnover per year to $10 million per year.
Businesses with an annual turnover up to $10 million will receive a $20,000 instant asset write-off (which expires in June 2017).
By 2020 it is planned that business with turnover up to $100 million will pay 27.5% as well.
Unincorporated small businesses with less than a $5 million turnover will get a 8% tax discount.
People who earn $37,000 or less will get a $500 rebate on the tax they have paid on their super. In other words, if someone on less than $37,000 has paid any tax on their super up to $500, they will get all of this back (i.e. rebated).
There is now a retrospective cap of $1.6 million on the transfer of super balances into pension phase. This effectively limits retirees from obtaining tax-free income by rolling it into a pension, by saying that only up to $1.6 million can be rolled in. The remaining super balances will be subject to the 15% concessional tax rate.
Existing tax-free super balances already in retirement phase over $1.6 million will have to be transferred into accumulation phase accounts and will also be subject to the concessional 15% tax rate. In other words, any roll over to a pension will be reversed. This is the retrospective part.
Non-concessional contributions are now subject to a lifetime cap of $500,000 from budget night (i.e. not retrospective). This is a reduction from the previous cap of $180,000 per year limit. This effectively means that any non-concessional contribution made to a super fund over $500,000 will be stuck at a tax rate 47% (being excess contributions tax payable by the fund) for the rest of your life.
The income threshold at which the 30% super tax rate applies (as opposed to 15%) has been reduced from $300,000 to $250,000. In other words, people earning between $250,000 and $300,000 personal income will now pay double tax on their super contributions (from 15% to 30%).
The annual cap for concessional contributions has changed from $30,000 to $25,000 for folks under 50, and from $35,000 to $30,000 for folks over 50.
Beating up on the big guys
Multinational companies with over $1 billion turnover will have to pay a “diverted profits tax” of 40% if they try to shift their operations off-shore. 1,000 new folks at the ATO are being banded into a “taskforce” to handle this one.
Banks will sacrifice $121 million to fund ASIC (under the “user pays” system – whatever that means).
The ATO wins again
The ATO has once again done its job of the lobbying the Government for more powers and funding. The ATO has received an increase in funding of $700 million (or so) mainly to chase high income earners. This has been a bit of reaction to the Mossack Fonseca papers which came out of Panama which showed global tax creativity by folks such as David Cameron’s father, Margaret Thatcher’s son and Jackie Chan (you can read more about the Panama Papers here https://en.wikipedia.org/wiki/Panama_Papers).
There were a few other changes in the budget (for example increased infrastructure spending in VIC and NSW, prioritised defence spending in SA and WA, and a few funding changes in relation to health and education) which we have not explored in this article.