The 2016 Budget was always going to be interesting. On one hand the Liberal Party wished to use this Budget as their policy platform for the coming election, and on the other hand, a budget deficit exists that needs to be eventually reduced. This Budget achieves its objectives of providing a few tax ‘perks’, whilst also increasing taxes in other areas that wouldn’t affect too many votes.
To summarise it all in a few words for those that don’t want to read the summary below:
• good for small business,
• just OK for people on salaries, and
• pretty rotten for most people who want to build up their superannuation (new-born mothers excluded)
The personal tax rates are remaining approximately the same, except from 1 July 2016 the 37% tax bracket will start at $87,000 taxable income rather than $80,000. If this applies to you, don’t get too excited as the most it will save you is $315 p.a.
Threshold Rate Threshold Rate
1st rate $0 – $18,200 0% $0 – $18,200 0%
2nd rate $18,201 – $37,000 19.0% $18,201 – $37,000 19.0%
3rd rate $37,001 – $80,000 32.5% $37,001 – $87,000 32.5%
4th rate $80,001 – $180,000 37.0% $87,001 – $180,000 37.0%
5th rate $180,001 47.0% $180,001 47.0%
• The 2% budget deficit levy for taxable incomes over $180,000 will cease as planned on 1 July 2017
• Higher Education is likely to get a lot more expensive in the next couple of years with the repayments thresholds likely to be reduced and other changes to the HECS system. There is nothing definitive announced in the budget, however the government has warned students of changes, so expect changes in the next Budget if the Liberal Party is re-elected.
Business Tax Rates
• Company tax rates are being reduced from 30% to 27.5% over the next few years. For our clients this means the following:
Income year Turnover Threshold (< $) Rate (%)
2015-16 (current year) 2m 28.5
2016-17 10m 27.5
2017-18 25m 27.5
By 2027 the company tax rate is proposed to reduce to 25%, but let’s wait and see.
• For those not running their business through a company (e.g. sole trader or partnership), an 8% tax discount will apply from 1 July 2016, up to a maximum discount of $1,000 p.a.
Business Between $2m and $10m turnover
From 1 July 2016 businesses with between $2m and $10m turnover will qualify for a range of small business entity concessions.
- an immediate tax deductibility for asset purchases costing less than $20,000 until 30 June
- the option to avoid an end of year stocktake if the value of the stock has changed by less
- a simplified method of paying PAYG instalments calculated by the ATO;
- the option to account for GST on a cash basis and pay GST instalments as calculated by
- immediate deductibility for various start-up costs (e.g. professional fees and government
- a 12-month prepayment rule; and
- the more generous FBT exemption for work-related portable electronic devices (e.g. than $5,000; mobile phones, laptops and tablets).
The government has made many changes to Superannuation that commence on 1 July 2017.
Let’s start with the positives first:
• From 1 July 2017 people will be able to make “catch-up” concessional contributions to their Super up to the annual concessional contributions limit over a 5 year period. It essentially means that if you only contribute $10,000 to super out of your $25,000 limit in the 2018 financial year, you will be able to roll-forward your unused $15,000 to the next financial year. In 2019 you could then contribute $40,000 (being $15,000 unused + $25,000 limit). This is great for people who are temporarily out of the workforce, such as new-born parents.
• The low-income spouse superannuation tax offset has been increased to $37,000 from 1 July 2017. This essentially means that a higher income spouse can receive a tax offset of up to $540 p.a. for making super contribution on behalf of a spouse with less than $37,000 of income (currently $10,800).
• In almost every budget for the last 10 years the government has changed the Concessional Contribution limit, that is, the maximum tax-deductible super contributions we can make to super. From 1 July 2017 this will be reduced to $25,000 for everyone.
• From 1 July 2017 you will have greater flexibility to make concessional super contributions. Anyone up to the age of 75 will be able to claim a tax deduction for personal super contributions (i.e. not just by salary sacrificing to super). Just remember the $25,000 limit though.
• Anyone older than age 65 will also be able to contribute to super without satisfying the “work test” (i.e. working 40 hours in a 30 day period). This offers more flexibility and tax planning opportunities for older Australians.
• From 1 July 2017 a 15% extra concessional contribution tax will apply to people with an income threshold over $250,000, currently $300,000.
• However, low-income earners (i.e. less than $37,000 of taxable income) will benefit by receiving a rebate of up to $500 on their contribution tax.
• Non-Concessional Contributions have been capped to a lifetime limit of $500,000 effective immediately. Any non-concessional contributions after 3 May 2017 in excess of the lifetime limit will be subject to penalties (This takes into account all non-concessional contributions made since
• Transition to Retirement Income Streams (TRIS) applies to employed people under age 65 who withdraw money from super. From 1 July 2017 these Income Streams will be taxed at 15% within Superannuation, rather than be tax-free as they currently are.
• From 1 July 2017 tax-free Pension Accounts will be capped at $1.6m. Anything held in pension phase must be either withdrawn from Super or transferred to an Accumulation Account.
• Last, but certainly not least, the Anti-Detriment deduction will be removed for Super from 1 July 2017. This is almost a mere footnote in the Budget, however this little known deduction has provided many of my clients tax bonuses of over $100,000 over the years. It can only be used in the event of death of a person aged under 65, however often has a significant effect on inheritances.
GST & Tobacco
• Buy your goods overseas before the government start charging GST on 1 July 2017. The government will be scrapping the $1,000 GST free threshold by requiring many foreign suppliers to register for GST.
• If you smoke, you might want to consider quitting before 1 July 2017. Increases in tobacco excises are likely to mean you will be paying $40 for a packet of cigarettes by 2020.
For more details on how this Budget impacts you, your family & your business, please contact our team on 02 4732 3844 or