Increase “Small Business” from $2million to $10million Small businesses are currently able to access many concessions, such as the instant asset write off (for assets under $20,000 until 30 June 2017), and the ability to pay GST by instalments, these concessions will be available to entities with turnover of less than $10million from 1 July 2016. The reduced tax rate for small businesses to 27.5% from 1 July 2016 will be available to entities with less than $5million in turnover. Note that the small business capital gains tax concessions eligibility remains at the current turnover and asset limits.
Unincorporated small business tax cuts The current tax discount for unincorporated small businesses (sole traders, partnerships and trusts) will be increased from the current 5% to 16% over 10 years, capped at an annual benefit of $1,000
Progressive reduction in the company tax rate The reduction of the company tax rate from 30% currently to 27.5% from 1 July 2017 for businesses with turnover of less than $10mllion will be extended to all businesses by 2024. The eligibility is based on turnover, with businesses under $25million eligible from 1 July 2017, those under $50million eligible from 1 July 2018 with a staggered increase for other businesses with greater turnover until all businesses are eligible by 1 July 2023. The overall company tax rate is then scheduled to reduce to 26% in the 2025-2026 financial year and 25% in 2026-2027 financial year for all companies.
Individuals and Families – Key Changes
Increase 37% tax threshold from $80,000 to $87,000 The threshold at which the tax rate increases from 32.5% to 37% will be increased from $80,000 to $87,000. Whilst not a huge measure, this will save $315 in tax for anyone over this level of income, and is designed to offset bracket creep, that is, the effect of inflation/wage increases pushing an individual into a higher tax bracket.
Superannuation – Key Changes
Pension Transfer Balance Cap Introduction A pension transfer balance cap of $1.6million will be introduced from 1 July 2017. What this effectively means is that of the balances accumulated within a superannuation fund, only $1.6million per member will be able to be transferred into pension phase (the 0% tax environment). Any excess over this amount within the superannuation fund will be required to stay in accumulation phase (15% tax on earnings, 10% tax on capital gains held at least 12 months). Members already in retirement phase with balances above $1.6million will be required to reduce the pension balance to $1.6million, practically this will be done by either withdrawals or a conversion of the excess into accumulation phase.
Additional 15% tax on contributions for high income earners Currently individuals with adjusted taxable income of over $300,000 have their superannuation contributions tax at 30% rather than the standard 15%, known as Division 293 tax, the income at which this occurs is being reduced to $250,000 from 1 July 2017.
Annual concessional cap reduction to $25,000 The current concessional contributions cap (that is tax deductible contributions) of $30,000 (or $35,000 for those over 50) will be reduced to $25,000 from 1 July 2017.
Transition to retirement pensions Assets supporting transition to retirement pensions (that is, income streams for those over preservation age who are not yet retired), currently have the income from these assets taxed at 0%. This concession will be removed from 1 July 2017.
Lifetime Non Concessional Cap of $500,000 A lifetime non-concessional contribution cap (that is after tax contributions) of $500,000 will be introduced, and will replace the current caps of $180,000 per annum, or $540,000 over a three-year period. Importantly this will apply from 1 July 2007, where the ATO began collecting reliable data, with any excess contributions before budget night being disregarded. Any contributions over the $500,000 moving forward will need to be removed or be subject to a penalty tax.
Low Income Superannuation Tax Offset From 1 July 2017, the government will introduce a low income superannuation tax offset for low income earners up to a cap of $500. This is available to individuals whose taxable income is less than $37,000, and is designed to ensure that low income earners are not subject to more tax on their savings in superannuation compared to outside of superannuation.
Removal of the work test Currently individuals 65 to 74 can only make a superannuation contribution where they pass the “work test” (gainful employment for 40 hours in a 30-day period). This will be removed from 1 July 2017.
Concessional Contributions Extended Eligibility From 1 July 2017, individuals up to age 75 will be able to claim a tax deduction for personal super contributions regardless of their employment situations. This was previously restricted to substantially self-employed people.
Catch up of Concessional Contributions From 1 July 2017, the Government 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.
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