Federal Budget tax alert 2016-2017

The Federal Treasurer handed down his first Budget (the government’s third) at 7.30 pm on 3 May 2016.

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The company and business tax changes announced in the Budget include:

• The small business entity turnover increasing from $2m to $10m from 1 July 2016 which will widen the access to existing income tax concessions such as depreciation write-offs. The increased turnover will not apply for the purposes of the small business capital gains tax concessions
• The reduction in the company tax rate to 27.5 per cent in 2016-17 for companies with a turnover of less than $10 million. The threshold will be progressively increased to ultimately have all companies at 27.5 per cent in the 2023-24 income year
• In the 2024-25 income year the company tax rate will be reduced to 27 per cent and reduce progressively by 1 percentage point per year until it reaches 25 per cent in 2026-27
• Franking credits to shareholders in the companies will fall in line with the reduction in company tax.

The superannuation changes announced in the Budget include:

• Introducing a $1.6 million cap on the total amount of superannuation that can be transferred into tax free retirement phase accounts
• Requiring those with incomes (including superannuation) greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent
• Lowering the concessional contribution caps so that individuals can contribute up to $25,000 per annum pre-tax to superannuation
• Introducing a lifetime cap of $500,000 on the non-concessional contributions that can be made to superannuation.

For small to medium enterprises the increased turnover threshold for small business income tax concessions, the further cuts to the company tax rate and targeted amendments to Division 7A (deemed dividends from private companies) are welcome.

For large businesses there is no immediate tax cut, though there is a plan to lower the rate over time until it equalises with the small business tax rate. The focus is instead on further measures dealing with multinational profit shifting and tax avoidance.

For investors the absence of any changes to negative gearing and the capital gains tax discount is a relief as such changes were viewed as counter to growth. The introduction of two new types of collective investment vehicles is an excellent initiative.

For innovation, there is an expansion of the previously announced incentives for early-stage innovative companies and expanded funding arrangements for venture capital investment.

For super fund members there is a plethora of changes, many of which provide commendable flexibility including the ability to catch up contributions, contribute without the work test restrictions from age 65 to 74 and obtain personal super contribution deductions even if not substantially self-employed. For the higher earners there is the expected tightening of various rules which will limit the concessional and non-concessional contributions to super funds, limit the amount in tax-free retirement phase and lower the income level at which the 30% contributions tax will apply to higher income earners. The surprise is that those with balances already in tax-free retirement phase above 1.6 million must reduce it to that amount by 1 July 2017; the excess can go back into accumulation phase taxed at 15%. Hopefully it will be clarified that it can also stay in retirement phase as a pension but with earnings taxed at 15%.

On the GST front the government intends to extend GST to low value goods (under $1000) imported by consumers from 1 July 2017 where the overseas suppliers have an Australian turnover of $75,000 or more. This is subject to the unanimous agreement of the States and Territories.

To read all the detail of this year’s budget, download our full tax alert publication (PDF)