This year’s Federal Budget includes the most significant changes to Australia’s superannuation system since 2007, plus tax initiatives to support low income earners and small businesses.
Tax changes
Company tax rate reduced
Starting from 1 July 2016, the company tax rate will be reduced to 25% over 10 years. Currently, small companies with aggregated turnover less than $2 million pay tax at a rate of 28.5%. Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution.
|
Financial year |
Companies with turnover below |
Applicable tax rate |
|
2016-17 |
$10 million |
27.5% |
|
2017-18 |
$25 million |
27.5% |
|
2018-19 |
$50 million |
27.5% |
|
2019-20 |
$100 million |
27.5% |
|
2020-21 |
$250 million |
27.5% |
|
2021-22 |
$500 million |
27.5% |
|
2022-23 |
$1 billion |
27.5% |
|
2024-25 |
All companies |
27% |
|
2025-26 |
All companies |
26% |
|
2026-27 |
All companies |
25% |
Small business turnover threshold increased
The small business entity turnover threshold will be increased from $2 million to $10 million so that more businesses can access certain existing income tax concessions. These include:
- simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017 and then less than $1,000.
- simplified trading stock rules, giving businesses the option to avoid an end-of-year stocktake if the value of the stock has changed by less than $5,000.
- a simplified method of paying PAYG instalments calculated by the ATO, which removes the risk of under- or over-estimating PAYG instalments and the resulting penalties that may be applied.
- the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.
- other tax concessions currently available to small businesses, such as the Fringe Benefits Tax concessions (from 1 April 2017, the beginning of the next fringe benefit tax year).
Small business tax discount increased
The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%. The following table indicates when the discount rates will apply.
|
Financial year |
Discount Rate |
|
2016-17 |
8% |
|
2017-18 to 2024-25 |
10% |
|
2025-26 |
13% |
|
2026-27+ |
16% |
Personal income tax reduced
From 1 July 2016, the 32.5% personal income tax threshold will increase from $80,000 to $87,000.
This measure will reduce the marginal rate of tax on income between $80,000 and $87,000 from 37% to 32.5%. For example, a taxpayer earning $87,000 will save $315 per year as a result.
This will ensure the average full-time wage earner will not move into the second highest tax bracket in the next three years.
|
Current tax rates 2015-16 |
|
|
Taxable Income |
Tax Payable* |
|
$0 - $18,200 |
0% |
|
$18,201 - $37,000 |
19% over $18,200 |
|
$37,001 - $80,000 |
$3,572 + 32.5% over $37,000 |
|
$80,000 - $180,000 |
$17,547 + 37% over $80,000 |
|
$180,000 + |
$54,547 + 45% over $180,000 |
*Excludes Medicare Levy and Temporary Budget Repair Levy
|
Proposed tax rates 2016-17 |
|
|
Taxable Income |
Tax Payable* |
|
$0 - $18,200 |
0% |
|
$18,201 - $37,000 |
19% over $18,200 |
|
$37,001 - $87,000 |
$3,572 + 32.5% over $37,000 |
|
$87,000 - $180,000 |
$19,822 + 37% over $87,000 |
|
$180,000 + |
$54,232 + 45% over $180,000 |
*Excludes Medicare Levy and Temporary Budget Repair Levy
Social security changes
Payments simplified and savings introduced
Means testing arrangements for students and other payment recipients will be simplified from 1 January 2017. The changes include aligning the:
- assets test for all Youth Allowance and Austudy recipients, including those partnered to a Social Security or Veterans’ Affairs income support recipient.
- means test rules used to assess interests in trusts and private companies for all student payment recipients, including independent Youth Allowance and ABSTUDY recipients.
- social security benefit and ABSTUDY income test treatment of gift payments from immediate family members with existing pension rules.
- Family Tax Benefit (FTB) income test and youth Parental Income Test, and authorising the use of FTB income details for the youth Parental Income Test low tax contributions (non-excessive concessional contributions) including super guarantee, salary sacrifice and personal concessional contributions.
A range of social security measures aimed at savings to fund the National Disability Insurance Scheme are also proposed. These include:
- new welfare recipients from 20 September 2016 will not be eligible for carbon tax compensation.
- backdating provisions for new Carer Allowance claims will be aligned with other social security payments. From 1 January 2017, Carer Allowance will be payable to eligible applicants from the date of the claim, or the date they first contact the Department of Human Services.
- increased reviews of Disability Support Pension recipients by assessing their capacity to work.