There was a lot to digest in the Budget that was handed down last night. We have simplified it down to the areas that will affect your tax affairs. Please note that these are proposed measures and have not been put to Parliament yet.
Individual Income Tax
1. The Income Tax threshold for the 32.5% tax bracket has increased from $80,000 to $87,000 for the 2017 Financial Year.
2. The Budget Repair levy of 2% on incomes over $180,000 will not be extended and end on 30 June 2017.
3. The Small Business Entity (SBE) threshold will increase from $2 million to $10 million from 1 July 2016. Becoming a SBE gives access to the following:
- Simplified depreciation rules, allowing for immediate deductions for asset purchases costing less than $20,000 until 30 June 2017 and then less than $1,000 thereafter.
- The options to account for GST on a cash basis and pay GST instalments as calculated by the ATO
- Simplified trading stock rules, which allows businesses to avoid an end of year stocktake if the value of the stock has changed by less than $5,000
- Simplified method of paying PAYG instalments calculated by the ATO
- Immediate deductibility on start-up costs such as Accounting fees
- 12 month prepayment rule
- FBT exemption for work-related portable electronic devices
Please note that small business CGT concessions will only remain for businesses with annual turnover of less than $2 million or satisfies the maximum net asset value test.
Business Tax Rates
4. The company tax rate for SBEs will reduce to 27.5% from 28.5% for the 2017 Financial Year.
5. The company tax rate reduction to 27.5% will be phased in for other business entities depending on the company’s size over the coming years.
The big changes in the Budget relate to Superannuation.
6. There will be a $1.6 million cap on the amount in pension phase. Any earnings generated by this account will not be restricted to the cap. Members that already hold a balance of more than $1.6 million from 1 July 2017 in pension phase will be required to either transfer the excess back into an accumulation account or withdraw the excess amount from their superannuation.
- Strategies include placing high growth assets into the pension account and cash assets into the accumulation account
7. Transition to Retirement Income Stream will now be taxed at 15% instead of 0%.
8. $500,000 lifetime cap on non-concessional contributions. This applies to all contributions made on or after 1 July 2007. The contributions made between 1 July 2007 to 3 May 2016 will not breach the lifetime cap.
9. Concessional contribution cut has reduced to $25,000 from 1 July 2017.
10. Concessional contributions catch-up for account balances less than $500,000. This allows individuals with unused concessional contribution caps from 1 July 2017 onwards to make additional concessional contributions.
11. Change to Division 293 tax, reducing the income threshold from $300,000 to $250,000 from 1 July 2017.
12. Tax deductions for personal super contributions have been broadened to apply to all individuals up to age 75. This allows individuals to claim a contribution to their superfund (up to their concessional cap) as a tax deduction in their income tax return.
13. The work test for making superannuation contributions for people aged 65 to 74 will be removed from 1 July 2017.
14. Low Income Super Tax Offset to be introduced. This is a non-refundable tax offset to super funds that will offset the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. This will apply to members with adjusted taxable income of up to #37,000. This will replace the current Low Income Superannuation Contributions.