This year’s budget by the Liberal party, the first by Scott Morrison, has a lot of interesting components. There is a lot more contained in the budget, but we have tree topped a few we think are important.
There is a small change to income tax brackets, shifting the step into a 37% tax rate from $80,000 to $87,000 - Average income is increasing and the ATO doesn’t want average income earners to be pushed into a higher tax bracket (isn’t that lovely of them?) - This means up to an extra $315 in your pocket on an annual basis; The “10% income Test” for concessional Super Contributions has been removed; - This means that anybody can make additional tax deductible super contributions regardless of their employment situation (provided they have taxable income to claim against that is!).
Small Business Companies
The small business entity annual aggregated turnover threshold will increase from $2 million to $10 million from 1 July 2016. This means that if you have a business trading with under $10m you could get access to some great concessions including: - The lower small business corporate tax rate (see below); - Accelerated depreciation; Depreciation pooling provisions. However, the current $2 million turnover threshold will remain for accessing the small business CGT concessions.
From 1 July 2016, all companies with turnover under $10million will be taxed at 27.5%. By the 2026/27 year all companies will be paying tax at a flat rate of 25%. Tip - Whilst the reduction in the tax rate is great, it is only a deferral of the true tax you end up paying – this amount occurs when you report the distribution of profit on your personal tax return (generally via dividend distribution).
Superannuation • A new lifetime Cap of non-concessional contributions (money you put into super that you don’t claim as a tax deduction) will be set at $500,000. This is a potentially massive change as it is effective from budget night, and takes into account contribution you have made from July 2007! Tip – Get in touch with your accountant and financial planner to see where you currently stand in your ability to put more money into super.
A cap on pension within superannuation for individuals of up to $1.6m. This will mean that your superannuation balance over the cap amount will not 100% tax free when you are drawing down on it pension funds. This will significantly impact those with higher superannuation balances, especially where they have one large asset within their fund (e.g. business premises). Tip – Make sure that superannuation is the best place for you to be holding your assets going forward as it is slowly looking like it is not as tax effective as it has been previously.
It was announced that the work test (which can restrict over 65′s ability to contribute into superannuation) will be scrapped. This means that you can continue to grow your superannuation balance up to the age of 74 (provided you don’t breach any of the contribution thresholds).
Not so great news for those who have income in excess of $250,000. The Tax office will now be adding an extra 15% tax to any contributions that is made into superannuation that a tax deduction is claimed for (employment contributions included). This previously was for those with income in excess of $300,000.
Tip - The calculation used to determine your income for this extra tax is a not straight forward. Best to seek out some help if you have income anywhere above the $200,000 mark to be certain.
It’s easy to make knee jerk reactions to budget announcements, but the recommendations in the budget are not yet law and some won’t have the opportunity to be passed through parliament until post-election. By that time, we may have a new government and some of the recommendations may not be passed. That puts us in a really difficult position when advising on the changes resulting from the budget. Should some of the budget announcements not become law at a later stage there could be some missed opportunities, especially within the superannuation environment.
Additionally – remember that every year a new budget is released, and every year there are changes. What may become law soon, could be changed in 12 months’ time. That the beauty, and frustration, that we as consultants get to deal with every day!