SMALL BUSINESS

This year’s Federal Budget is based on a ten-year enterprise tax plan designed to stimulate more small business activity by boosting new investment, creating jobs and increasing real wages.

One of the key features of this plan is that the small business entity annual turnover threshold will be increased from $2 million to $10 million from 1 July 2016. The increased threshold will not apply for the purpose of accessing existing small business capital gains tax concessions.

The Government will also reduce the corporate tax rate for businesses with a turnover of less than $10 million per year to 27.5 per cent from 1 July 2016. This lower rate will be progressively reduced to 25 per cent over 10 years.

An 8 per cent unincorporated tax discount will be provided to unincorporated businesses with turnover less than $5 million per annum, capped at $1,000 per year from 1 July 2016 for the following eight years. The discount will increase to 16 per cent in increments from 2024 to 2026 to coincide with the staggered reductions in the corporate rate.

All Australian small businesses from 1 July 2016 with an annual turnover of less than $10 million will have access to:

Simplified depreciation rules

These include immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017.

Simplified trading stock rules

New rules will give businesses the option to avoid end of year stocktake if the value of their stock has changed by less than $5,000.

Simpler PAYG instalments

Instalments will be calculated by the ATO, removing the risk of under or overestimating PAYG and the resulting penalties that may be applied.

The option to account for GST

Small businesses will have the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Other tax concessions

Other tax concessions that are currently available to small businesses, such as fringe benefits tax (FBT) exemptions (from 1 April 2017 to align with the FBT year).

A trial of simpler BAS

The trial is to reduce GST compliance costs, with a full roll-out from 1 July 2017.

These threshold changes will not affect eligibility for the small business capital gains tax concessions, which will remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test.

SUPERANNUATION

Superannuation pension phase – $1.6m transfer balance cap for retirement accounts

From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into a tax-free “retirement account” (also known as retirement phase or pension phase). Subsequent earnings on these pension transfer balances will not be restricted.

The $1.6m cap will be indexed in $50,000 increments in line with CPI (the same as the Age Pension assets threshold does). Subsequent fluctuations in retirement accounts due to earnings growth or pension payments will not be considered when calculating cap space.

Existing pension balances Members already in the retirement phase as at 1 July 2017 with balances in excess of $1.6m will be required to either:

• transfer the excess back into an accumulation superannuation account to reduce their retirement account balance to $1.6m by 1 July 2017; or
• withdraw the excess amount from their superannuation.

Transition to retirement pensions – tax concessions to be reduced

The Government said it will remove the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs). Under the changes, earnings from assets supporting TRISs will be taxed at 15% (instead of the current 0%). The change will apply from 1 July 2017 irrespective of when the TRIS commenced. The Government believes that reducing the tax concessions for TRISs will help to ensure that they are “fit for purpose” (i.e. for the purpose of substituting work income) and not primarily accessed for tax purposes.

Non-concessional contributions: $500,000 lifetime cap from Budget night

The Government has introduced a lifetime non-concessional contributions cap $500,000 effective from Budget night, i.e. 7.30 pm (AEST) on 3 May 2016.

The lifetime non-concessional cap (indexed) will replace the existing annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3-years under the bring-forward rule for individuals aged under 65).

The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007. Contributions made before commencement (i.e. 7.30 pm AEST on 3 May 2016) cannot result in an excess of the lifetime cap.

Concessional contributions cap cut to $25,000 from 1 July 2017

The annual concessional contributions cap will be reduced to $25,000 for all individuals regardless of age from 1 July 2017. The cap will be indexed in line with wages growth.

The concessional cap is currently set at $30,000 for those under age 49 on 30 June for the previous income year (or $35,000 for those aged 49 or over on 30 June for the previous income year) for the 2015-16 and 2016-17 income years. Concessional contributions (i.e. before tax) include all employer contributions, such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.

Concessional contributions catch-up for account balances less than $500,000

From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions for “unused cap amounts” where they have not reached their concessional contributions cap in previous years. Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years.

Only unused amounts accrued from 1 July 2017 will be available to be carried forward.

Superannuation contributions tax (extra 15%) for incomes $250,001+

The income threshold above which the additional 15% Division 293 tax cuts in for superannuation concessional contributions will be reduced from $300,000 to $250,000 from 1 July 2017. Currently, individuals above the high income threshold of $300,000 are subject to an additional 15% Division 293 tax on their “low tax contributions” (essentially concessional contributions). The Division 293 tax effectively doubles the contributions tax rate from 15% to 30% for concessional contributions.

Tax deductions for personal super contributions extended

From 1 July 2017 the government will improve flexibility by allowing all individuals up to age 75 to claim an income tax deduction for personal super contributions.

This effectively allows all individuals, regardless of their employment circumstances, to make concessional super contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners (e.g. contractors), and individuals whose employers do not offer salary sacrifice arrangements will benefit from these proposed changes.

To access the tax deduction, individuals will be required to lodge a notice of their intention to claim the deduction with their super fund or retirement savings provider. Generally, this notice will need to be lodged before they lodge their income tax return. Individuals will be able to choose how much of their contributions to deduct.

PERSONAL TAXATION

Personal tax rates: small tax cut from 1 July 2016; Budget deficit levy not to be extended.

The Government announced that it will increase the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016 in an attempt to go some way to addressing tax bracket creep.

It also indicated that the 2% Budget deficit levy (tax) on incomes over $180,000 would not be extended beyond its initial 3 years. The levy was announced in last year’s Budget, has been legislated and applies for 3 years from 1 July 2014. It is due to cease at the end of the 2016-17 financial year.

MULTINATIONAL TAX MEASURES

Diverted profits tax (“Google tax”) at 40% to be introduced

The Government announced that it would introduce a 40% diverted profits tax (DPT), dubbed a “Google tax”.  The new tax is aimed at multinational corporations that artificially divert profits from Australia. The proposed to apply to income years commencing on or after 1 July 2017.

If you wish to discuss any of the above further please contact our office.