The Federal Budget 2016 – Executive Summary
The Federal Treasurer, Scott Morrison, has delivered his first budget for the Liberal National Party (LNP) government.
None of the items contained within the Budget will become law until the Budget is passed by the House of Representatives and the Senate and signed by the Governor General.
Highlights of the Budget that affect small/medium enterprises include:
- Company Tax rate for small/medium enterprises – from 28.5% to 27.5% from 1st July 2016 for companies with turnovers of less than $10M.
- Superannuation changes include an increase in tax on superannuation contributions for taxpayers earning over $250,000 per annum.
- The government has introduced a lifetime non-concessional superannuation contribution cap of $500,000.
- The government proposes lowering the superannuation concessional contribution cap to $25,000 per annum.
- From 1st July 2016, the personal income tax threshold will be increased from $80,000 to $87,000. This will leave approximately 500,000 taxpayers in the 32.5% income tax bracket.
- Small business instant asset write-off extended for businesses with a turnover of less than $10M from 1st July 2016.
From 1st July 2016, unincorporated businesses turning over less than $5M per annum will be eligible for an 8% personal income tax "discount" (currently 5%). The unincorporated tax discount remains capped at $1,000. The unincorporated tax discount will continue to increase to a final rate of 16% by 1st July 2026.
Company Tax Cuts
From 1st July 2016, companies with turnover of up to $10M per annum will be liable for a tax rate of 27.5%. This cut is part of the government's "10-year enterprise tax plan", which will involve phased-in company tax cuts for all companies by 2026-27.
The Budget includes an extension of the $20,000 instant asset write-off and other tax concessions for businesses with turnovers of up to $10M
Businesses with turnovers of under $10M will be able to access benefits such as accelerated depreciation for eligible equipment and simplified stock rules (businesses will now have the option to avoid an end of year stocktake if the value of the value is changed by less than $5,000).
- There's no change in the negative gearing rules.
- There's no change in the CGT rules, however the key turnover figure for CGT purposes remains at $2M.
- Small businesses now have in effect 3 tax threshold amounts:
- $2M for CGT
- $5M for unincorporated businesses
- $10M for companies
- The government is proposing changes to the GST rules, which will mean the GST will be payable on goods imported into Australia if the vendor has an Australian turnover of $75,000 or more. This will mean the GST will be charged irrespective of the sales value of those goods.
- The proposed backpacker tax hasn't been dealt with. It's understood that further reviews of the implications of the introduction of the backpacker tax are being discussed within the government.
- The option to account for GST on a cash basis and pay GST instalment (this will have significant cashflow benefits for small businesses adopting the cash basis).
- Companies with turnovers of under $10M will also be eligible for Fringe Benefits Tax (FBT) concession and immediate deductibility of professional expenses. There are exemptions for car parking and portable electronic devices.
The government is also proposing cash bonuses for employers that offer internships and hire eligible young jobseekers.
- The budget tightens superannuation contribution rules for wealthy individuals.
- From 1st July 2017, the government will introduce a $1.6M cap on the amount of superannuation that can be withdrawn tax free in retirement.
- There will be a decrease in the threshold at which the 30% tax applies to concessional contributions, from $300,000 to $250,000.
- The government has introduced a lifetime non-concessional superannuation contribution cap of $500,000, which takes into account all contributions made on or after 1st July 2007. The lifetime cap will replace the existing annual cap on non-concessional contributions and comes into effect immediately. Please talk to us prior to making any large non-concessional contributions into your superannuation fund.
- Taxing the earnings on transition to retirement pensions.
Superannuation will be made more flexible by a number of measures, including:
- From 1st July 2017, people with superannuation balances of less than $500,000 will be able to carry forward unused concessional caps for 5 years. This will let people with broken career patterns catch up on their super savings.
- From 1st July 2017, people aged 65-74 will no longer have to satisfy a work test to make superannuation contributions.
- Superannuation will be made more equitable by introducing a low income tax superannuation tax offset of up to $500 for people earning less than $37,000, to avoid situations in which low income earners pay more tax on superannuation contributions than on their wages. This measure will replace the low income superannuation contribution when it expires on 30th June 2017.
Spouse tax offset will be extended to allow more families to support each other in accumulating superannuation – the income threshold for receiving spouse lifted from $10,800 to $37,000.
The government is proposing a $300M reduction in the Wine Equalisation Tax (WET) rebate, a concession that flows to small wineries.
There will be tighter eligibility criteria for the rebate.
Only wine producers who own a winery or have a long-term lease over a winery and sell packaged branded wine domestically will be eligible.
Grants And Incentives
R&D Tax Incentive
The government is not proposing any changes to the R&D Tax Incentive.
For companies with turnover of less than $20M, the tax rebate will continue at 45% of eligible R&D expenditure.
For companies with turnover in excess of $20M, the tax rebate will continue at 40%.
Industry Skills Fund
Whilst the Industry Skills Fund will continue over the next 4 years, the available funding will reduce by $247M over the 4-year period.
Skills Development Fund will continue to operate up to at least 2020, however with reduced funding of approximately $207M spread over 4 years.