With the government in unofficial election mode, you could be forgiven for thinking the 2016 budget would be uncontroversial.
In fact, significant tax and superannuation measures were introduced, with a strong focus on small business and superannuation which has seen some of the biggest changes in over a decade.
Below is a brief summary of significant changes to the tax and super system as a result of the budget.
Small Business Entity Turnover Test
The small business entity threshold will increase on 1 July 2016 from $2M to $10M. This will allow businesses with an aggregated turnover of up to $10M to access the following measures:
• Simplified depreciation including the $20,000 instant asset write-off;
• Simplified trading stock rules;
• Accounting for GST on a cash basis;
• Access to the 28.5% corporate tax rate (to be further reduced – see below).
Unfortunately, the increased turnover test does not apply to the Division 152 CGT concessions. The threshold will remain at $2M turnover or $6M net asset value.
Staggered Reduction to the Corporate Tax Rate
From 1 July 2016, the tax rate for small business entities will be 27.5%,down 1 percent from 28.5%.
The tax rate will remain at 27.5% until the end of the 2023/24 financial year. However, the aggregated turnover test will increase each year over that period, allowing more and more companies to access the reduced tax rate. After 2023/24, turnover will be irrelevant and the reduced tax rates will be available to all companies. These changes are illustrated in the table below:
Aggregated Turnover Threshold
Corporate Tax Rate
|2023/2024||No threshold test||27.5%|
|2024/2025||No threshold test||27%|
|2025/2026||No threshold test||26%|
|2026/2027||No threshold test||25%|
Amendments to Division 7A
While details remain scarce at this stage, the Government has announced that it will make ‘targeted amendments’ to Division 7A.
These measures include a self correction mechanism for inadvertent breaches of Division 7A, appropriate safe harbour rules to provide certainty, simplified Division 7A loan arrangements and a number of technical adjustments to improve the operation of Division 7A and provide increased certainty for taxpayers.
Tax advisors will no doubt welcome simplified amendments to Division 7A. We will send out a further release when these measures are released in greater detail.
Personal Tax Thresholds
The threshold for the 37% marginal tax rate for individual taxpayers will increase from $80,000 to $87,000 from 1 July 2016.
As we previously mentioned, this budget brings some of the biggest changes to superannuation for some time. These changes are briefly discussed below.
Income Threshold under Division 293 ITAA97
Division 293 will be amended so that the current $300,000 threshold for 30% will be lowered to $250,000.
Concessional contributions threshold
This will be lowered to $25,000, regardless of age. The current rules allow for contributions up to $30,000 for those under 50 and$35,000 for people aged 50 and over.
Non–concessional contribution – lifetime cap introduced
A $500,000 lifetime cap on superannuation contributions has been introduced and will replace the annual $180,000 cap and the 3 year bring-forward rule.
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, from which time the Australian Taxation Office has reliable contributions records, and began at 7.30 pm (AEST) on 3 May 2016. Contributions which were made before commencement cannot result in an excess. However, excess contributions made after commencement will need to be removed or they will be subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings.
Retirement Balance Cap
From 1 July 2017, the Government will introduce a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the retirement phase. Subsequent earnings on these balances will not be restricted.
Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account where earnings will be taxed at the concessional rate of 15%. Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts. A tax on amounts that are transferred in excess of the $1.6 million cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.
Concessional Contribution ‘Catch-Up’
This measure will allow individuals to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
Contributions and the work test – abolished for those 65 to 74.
The Government has removed the current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement. People under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.
Restrictions on Deductions for Personal Contributions Removed
All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions. This allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Individuals who are partially self-employed and partially wage/salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
How Mellor Olsson can help
Mellor Olsson has a specialist team of tax and superannuation lawyers. Please contact us if you have questions on how the 2016 budget will affect you.