Budget 2016 – What You Need to Know

Scott Morrison delivered his budget address last night and overviewed the Government’s economic plan to “ensure Australia continues to successfully transition from the mining investment boom to a stronger, more diversified economy”. So what does that mean for you?

Below we highlight the key points we think will affect our clients the most – changes to superannuation, tax and business.

Superannuation

As part of a plan to implement a more sustainable superannuation system, measures are in place to target high-income earners and support the superannuation of low-income earners.

Major changes include:

• From 7:30 pm (AEST) on the 3rd of May 2016, a $500,000 lifetime cap for non-concessional contributions will apply. The assessment of this will include all non-concessional contributions made from 1 July 2007. (Contributions made prior to this measure cannot result in an excess contribution of the lifetime cap). Different arrangements will apply for defined benefit funds.
• The concessional contributions cap will be cut to $25,000 from 1 July 2017 (currently $30,000 for those under age 50 and $35,000 for ages 50 and over).
• From 1 July 2017 a transfer balance cap will be introduced to restrict the total amount of superannuation that can be transferred from accumulation to pension phase to $1.6 million.
• From 1 July 2017 concessional contributions catch-up for account balances of less than $500,000 will be introduced, for those who have not reached their concessional contribution cap in previous years.
• Superannuation contributions tax (extra 15%) for incomes greater than $250,001.
• From 1 July 2017 the removal of the tax exemption for earnings on assets supporting ‘transition to retirement’ income streams. These are income streams where the member has reached their preservation age but has not yet retired.
• No changes were announced that effect age pension eligibility or payment rates. Some important changes to the aged pension assets test have, however, already been legislated that take effect on 1 January 2017. These changes could impact benefits.
• From 1 July 2017 individuals under 75 years of age will no longer have to satisfy a work test to contribute to superannuation.
• From 1 July 2017 abolishment of anti-detriment payments.

The proposed changes have raised significant changes in the superannuation space. If implemented, these changes will have significant ramifications on the ability to contribute and withdraw funds from superannuation and impact how you should structure your superannuation assets.

We recommend seeking advice from your Morrows Advisor prior to making any decisions regarding your superannuation to ensure that you understand how these proposed changes could impact your personal situation.

Personal and Business Tax

This year’s budget delivers benefits to more SMEs.

Key initiatives include:

• Raising the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016.
• The temporary budget repair levy of 2% tax on earnings over $180,000 will not be extended, finishing at the end of the 2016-17 financial year.
• Major SME tax changes – the small business threshold will be increased to $10m, reduced tax rates for small business and lower barriers to access small business tax concessions.
• A phased reduction in the company tax rate over 10 years to 25% under a Ten Year Enterprise Tax Plan including tax simplification and increasing integrity.
• Access to tax concessions increased to more than 90,000 additional small businesses.
• Significant new measures directed at tax avoidance for multinationals, eg, a diverted profits tax, hybrid mismatch measures, strengthened transfer pricing rules.
• 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.
• Tax incentives for investing in early stage innovative companies to be expanded.

Changes to Note from the VIC State Budget

Land tax primary production exemption for Superannuation Funds

The Andrews Government has announced it will extend the scope of the land tax primary production exemption to urban land owned by certain family superannuation funds.

Currently, where land in an urban zone is owned by a trust, the land must be used solely or primarily for a business of primary production, and the principal business of the trust must be primary production.

The result is that superannuation funds are not technically eligible for the exemption because their sole purpose must be to provide retirement benefits for their members. We understand the proposed change aims to overcome this technicality, so that, going forward, a farmer conducting a primary production business through a superannuation fund will be eligible for a land tax exemption for urban land.

This is a positive step from the state government, although there is still further scope for improvement – such as by extending the primary production land exemption for urban land to land owned by any entity as long as it is used for the business of primary production.

If you wish to discuss how these and other budget measures could impact you or your business. Contact your Morrows Advisor today.