2016 Budget Report Summary

The Turnbull Government delivered the 2016-17 Federal Budget on 3 May 2016. Below we list the key changes.

SMALL BUSINESS

Increased turnover threshold for small business

The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016. This means businesses with an annual turnover of less than $10m will be able to access existing small business income tax concessions including the:
• Lower small business corporate tax rate, which will be reduced to 27.5% from the 2016/17 income year.
• Simplified depreciation rules including the instant asset write off threshold of $20,000 available until 30 June 2017.

The current $2m turnover thresholds remain for access to the small business capital gain tax concessions.

Unincorporated business

For unincorporated small businesses (eg. sole traders), the tax discount will be increased in phases over 10 years from the current 5% to 8% on 1 July 2016 until it reaches 16% in 2026-27. It will be available to unincorporated businesses with turnover of less than $5m.

OTHER BUSINESSES

Reductions of the company tax rate

The company tax rate will be progressively reduced for all companies to 25% over the next 10 years.

PERSONAL TAXATION

Personal tax rates

The threshold at which the 37% marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.

The 2% budget deficit levy on incomes over $180,000 will cease at the end of the 2016-17 financial year.

SUPERANNUATION

Introducing a $1.6 million super transfer balance cap

From 1 July 2017, the maximum that can be placed into a tax- free income stream will be $1.6 million. 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 are taxed at 15%). Any person who has already commenced income streams with balances above $1.6 million will need to reduce their balance to $1.6 million by 1 July 2017, by rolling it into the accumulation phase or withdraw the excess amount from their superannuation.

Introduction of lifetime cap for non-concessional super contributions

The Government has announced a $500,000 (indexed) life-time non-concessional contributions cap effective from 7:30pm (AEST), 3 May 2016. The cap will take into account all non-concessional contributions made on or after 1 July 2007. For those who have already contributed more than $500,000, they must not make any additional non-concessional contributions.

This measure will also remove the annual non-concessional contribution cap (currently $180,000 per annum) as well as the bring forward provisions (currently $540,000).

Division 293 tax income threshold reduced

From 1 July 2017, the Division 293 threshold, the point at which high-income earners pay an additional 15% tax on concessional contributions, will be reduced from $300,000 to $250,000.

Removal of the anti-detriment provision

From July 1, 2017, the Government will remove the anti-detriment provision, which results in a refund of a member’s lifetime contributions tax payments where their superannuation death benefit is paid to an eligible dependent of the member.

Transition to retirement income streams (TRISs)

Whilst TRISs will still be available from 1 July 2017 earnings on assets supporting the income stream will be taxed at 15%. It impacts persons over preservation age who are under 65 and not retired. Pension payments will continue to be tax free from age 60 and the taxable portion of pension payments will attract the 15% tax offset prior to age 60.

The government also ruled out treating pension payments as lump sums for tax purposes from 1 July 2017 which closes the door on a strategy that has had a lot of press lately.

Concessional contributions

The annual concessional contributions cap will be reduced to $25,000 per annum for all individuals regardless of age from 1 July 2017.

Harmonizing contribution rules for people aged 65 to 74

The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. 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.

Catch-up concessional superannuation contributions

Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional cap in previous years, with effect from 1 July 2017.

Restrictions on personal superannuation contribution deductions eased

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.

This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap.

We hope you enjoyed this budget summary and please contact us if you have any questions.

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