The Turnbull led Government delivered its first budget with a number of new initiatives and changes to the current tax policy. The focus is on helping businesses grow and job growth. We have summarised a number of key announcements below:
BUSINESS TAXES
To facilitate jobs and growth the Government announced a 10 year plan to reduce the company tax rate to 25% for all companies by 2026-27. The 10 year plan involves progressively raising the turnover threshold for companies so more companies can access the lower company rate, whilst also reducing the company tax rate over time.
The small company tax rate is available to those companies under the small company threshold and those companies conducting a business. The tax rate of all other companies remains at 30% until 2023-2024 when the company tax rate for all companies’ steps down to 27.5% and lowers progressively to 25% in 2026 – 27.
| Company tax rates | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 |
| Small company rate (%) | 28.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 |
| Small company threshold | $2m | $10m | $25m | $50m | $100m | $250m |
| All other companies (%) | 30.0 | 30.0 | 30.0 | 30.0 | 30.0 | 30.0 |
| Company tax rates | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 | 2026-27 |
| Small company rate (%) | 27.5 | 27.5 | ||||
| Small company threshold | $500m | $1.0b | ||||
| All other companies (%) | 27.50 | 27.00 | 26.00 | 25.00 |
The budget announcement suggests that franking credits can be distributed at the tax rate they were paid, meaning if a company had paid tax at 30% previously they will be able to continue to distribute at the 30% rate until those tax credits have been fully utilised. Further announcements will be made in due course.
SMALL BUSINESS MEASURES
From 1 July 2016 the Government will extend the unincorporated tax discount for unincorporated businesses with annual turnover of less than $5 million and increase the discount to 8%, up to a maximum of $1,000. The discount will be increased progressively up to 16% in 2026-27.
From 1 July 2016 all businesses with turnover of less than $10 million will be able to access the following concessions:
- Simplified depreciation rules, including the instant asset write-off for assets purchased for less than $20,000 until 30 June 2017 then reverting to $1,000 for subsequent years.
- Simplified trading stock rules, allowing businesses to use the same stock value as the prior year if the change in value is less than $5,000.
- Simplified method of paying PAYG instalments calculated by the ATO.
- The option to allow business to account for GST on a cash basis.
- Immediate deductibility of professional expenses.
- FBT concessions currently available to small businesses.
SUPERANNUATION
The budget contained a lot of changes to superannuation, much more than anticipated. While indications are the changes will only affect 4% of Australia’s population, for those who are affected, the changes will have significant impact to the tax treatment of their superannuation.
From 1 July 2017, the current Division 293 tax which taxes an additional 15% of superannuation contributions made by high income earners has been extended and the threshold dropping to $250,000 from $300,000. This means superannuation contributions will be effectively taxed at 30% for individuals receiving more than $250,000 in income and superannuation contributions.
The concessional contribution cap has been lowered to $25,000 from 1 July 2017.
The non-concessional contributions cap has been replaced with a lifetime limit of $500,000. This lifetime cap applies from 3 May 2016, however takes into account non concessional contributions commencing from 1 July 2007. Where the lifetime cap has been breached between 1 July 2007 and 3 May 2016 no penalties will apply, this simply means no further non concessional contributions can be made.
From 1 July 2017, any transition to retirement income streams (TRIS), will no longer receive a tax exemption on the earnings in the fund. The Government will also remove the rule to treat certain TRIS payments as lump sums which received favourable tax treatment.
People under 75 and with less than $500,000 in super are able to make a personal deductible superannuation contribution without having to meet the work test or 10% rule meaning those who have superannuation paid by an employer can make additional contributions outside a salary sacrifice arrangement and receive a deduction for contributions in their personal tax return.
An additional measure will allow those under 75 and with less than $500,000 in superannuation to carry forward and use unused concessional cap contributions from prior years.
The tax free status of superannuation accounts in pension phase will be limited to the first $1.6m an individual has in pension phase. Any pension accounts with balances above this amount will be required to be commuted back to accumulation phase from 1 July 2017, meaning the earnings will be subject to the 15% tax rate.
INDIVIDUALS
A small change to the tax bracket was announced which raises the second highest tax bracket from $80,000 to $87,000. It was announced the temporary budget repair levy of 2% will cease from 30 June 2017. The personal tax rate table for 1 July 2016 to 30 June 2017 is shown below:
| Personal tax rates | ||
| Current rates | Rate | New threholds – 1 July 2016 |
| 0 – $18,200 | nil | 0 – $18,200 |
| $18,201 – $37,000 | 19% | $18,201 – $37,000 |
| $37,001 – $80,000 | 32.5% | $37,001 – $87,000 |
| $80,001 – $180,000 | 37% | $87,001 – $180,000 |
| $180,001 + | 45% | $180,001 + |
| The rates above do not include medicare levy at 2% or the temporary budget relief levy of 2%. | ||
If you would like any further information about the budget changes and how they may affect you please contact your advisor or one of our North Sydney accountants.
