1. Reduction of company tax rate
The company tax rate will be progressively reduced to 25% over 10 years.
Currently, the company tax rate is 28.5% for companies with turnover less than $2 million, and 30% for all other companies. From 2016/17 financial year the tax rate for companies with a turnover of less than $10 million will be reduced further to 27.5%.
Although the increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions there are a number of other small business concessions which are worth having.
2. Tax breaks for other non-company businesses
So the next change will potentially apply to you if you operate your business as a sole trader, partnership or trust. The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.
3. Simplified depreciation rules
From 1 July, small business depreciation rules will be expanded to include business with turnover of less than $10 million (previously the turnover threshold was $2 million), meaning access to:
- Simplified depreciation rules, including the immediate deduction for asset purchases costing less than $20,000 until 30 June 2017, and then less than $1,000
- Simplified trading stock rules, giving the option to forgo an end of year stocktake if the value of stock has changed less than $5,000
- Simplified method of paying PAYG instalments which reduces risk of getting your estimate wrong and penalties being applied
- Option to calculate GST on a cash basis (once a business’s turnover reached $2 m you were required to account for GST on an accruals basis)
- Small business FBT concessions and immediate deductibility of professional expenses which will apply from 1 July 2016.
4. Division 7A
The Government intends to amend laws in relation to Division 7A (ie. related party debit loans). The new rules are intended to improve the operation of Div 7A and will include:
- A without penalty voluntary disclosure and self correction mechanism for taxpayers whose arrangements have triggered Div 7a but are non-compliant
- New safe harbor rules to provide certainty and compliance for taxpayers
- Amended rules, with appropriate transitional arrangements, regarding complying Div 7A loans, including having single a compliant 10 year loan duration and better alignment of the minimum interest benchmark with commercial transaction.
The government proposed changes are based in part on recommendations in the Murray Review and to address
1. Extension of the superannuation surcharge to high income earners
From 1 July 2017, the government will extend the 30% tax rate for concessional contributions (ie. SGC, salary sacrifice & personal deductible contributions) on behalf of individuals with income over $250,000 (previously $300,000)
2. Limiting excess balances
From 1 July 2017 the annual concessional contributions cap has been reduced to $25,000. Concessional contributions consist of the total compulsory SGC, salary sacrifice and personal deductible contributions that are received by your fund from either you or your employer during the year.
The Government will also introduce catch-up concessional superannuation contributions by allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less. This will allow those with lower contributions, interrupted work patterns or irregular capacity to make contributions to make ‘catch-up’ payments to boost their superannuation savings.
Non-concessional (after tax) contributions
With effect from 3 May 2016, the current $180,000 a year limit (rolling 3 year $540,000 limit) will be replaced by a life time non-concessional cap of $500,000. Non-concessional contributions consist of after tax contributions and are neither taxable income of the fund or tax deductible to the contributor.
3. Transition to retirement & super pensions
Income from super-based pension accounts will be taxed as accumulation accounts (15 per cent), not as tax-exempt superannuation funds in the draw-down phase which is currently the case. This effectively removes the generous existing tax incentive for most people under 60 to commence a transition to retirement arrangement.
There will be a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts. This puts a limit on taxpayer support for tax-free retirement phase accounts.
4. Removal of work test for over 65's
Currently, there are minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions. Restrictions also apply to the bring-forward of non-concessional contributions. In addition, spouses aged over 70 cannot receive contributions. None of these restrictions apply to individuals aged under 65. The Government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75, from 1 July 2017.
5. Contributing to your spouses superannuation
The current income threshold which applies to the superannuation spouse tax offset (whether married or de facto) will be lifted from $10,800 to $37,000. The contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made on behalf of their spouse.
Individuals and Families
- The threshold at which the 37% marginal tax rate threshold for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.
- Removal of the 2% Temporary Budget Repair Levy on taxable income over $180,000 from 1 July 2017
- The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year.
- The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years from 1 July 2018.
- Income tax exemptions will be provided for ADF personnel deployed in Afghanistan, the Middle East and in international waters.