There were a few things to take notice of in this year's federal budget. There is a small change to the personal tax rates, changes to the small business entity threshold, changes to the company tax rate and changes to superannuation.
Personal taxation
As mentioned in a previous blog post (http://www.taxgo.com.au/tax-tips/38-bracket-creep-and-you), bracket creep slowly moves low income earners into higher tax brackets. The 2015-2016 Budget has made a minor adjustment to the tax scales and changed the third tax bracket. For those whose taxable income was between $37,001 to $80,000 the bracket is now $37,001 to $87,000. If the taxable income is above $80,000, the personal tax rate will be reduced from 37% to 32.5% for the income part between $80,000 and $87,000. In other words, it saves up to $315 tax per for those whose taxable income is more than $80,000. The change also applies to the non-resident tax rate.
| 2015-2016 | 2016-2017 | |||
| Threshold | Rate | Threshold | Rate | |
| $0 - $18,200 | 0.0% | $0 - $18,200 | 0.0% | |
| $18,201 - $37,000 | 19.0% | $18,201 - $37,000 | 19.0% | |
| $37,001 - $80,000 | 32.5% | $37,001 - $87,000 | 32.5% | |
| $80,001 - $180,000 | 37.0% | $87,001 - $180,000 | 37.0% | |
| Above $180,001 | 47.0% | Above $180,001 | 47.0% |
Small business
The definition of a small business just changed. The budget has announced the small business entity threshold will increase from $2m to $10m from 1 July 2016. As a result, a business with an aggregated annual turnover of less than $10m will be able to access a number of small business tax concession from 1 July 2016, including the simplified depreciation rules, trading stock rules, option to account for GST on a cash basis, immediate deductibility for various start-up costs, a 12-month prepayment rule, etc.
The company's tax rate will be reduced from 28.5% for the 2015-2016 income year to 27.5% for the 2016-2017 financial year. The government intends to reduce the company tax rate to 25% over the next 11 income years.
| Income year | Threshold (<$) | Rate (%) |
| 2015-2016 | 2m | 28.5 |
| 2016-2017 | 10m | 27.5 |
| 2017-2018 | 25m | 27.5 |
| 2018-2019 | 50m | 27.5 |
| 2019-2020 | 100m | 27.5 |
| 2020-2021 | 250m | 27.5 |
| 2021-2022 | 500m | 27.5 |
| 2022-2023 | 1bn | 27.5 |
| 2023-2024 | all companies | 27.5 |
| 2024-2025 | all companies | 27.0 |
| 2025-2026 | all companies | 26.0 |
| 2026-2027 | all companies | 25.0 |
To complement the company tax rate reductions, the tax discount for sole traders will increase over a 10-year period from 5% to 10%. The tax discount will increase to 8% on 1 July 2016, remain constant at 8% for 8 years, then increase to 10% in 2024-2025. From 1 July 2016, access to the tax discount will be extended to individual taxpayers with business annual turnover of less than $5m, rather than current threshold $2m.
Superannuation
- For those that can afford to do it, it has always been possible to put a bit extra into super, which attracts a lower tax rate. With effect from 1 July 2017, concessional contribution caps, i.e. contributions which come from pre-tax income are to be reduced to $25,000 (currently set at $30,000 for those aged under 50 and $35,000 for aged over 50 years).
- If you are self-employed or employed only on a part time basis you previously had to pass the 10 per cent test and demonstrate that your employed income was less than 10 per cent of your total income. From 1 July 2017 the 10 per cent test has been removed and everyone can simply make extra contributions to their super as per the concessional contribution caps. This will make life easier for anyone in that position.
- The low-income spouse threshold has increased from $10,800 to $37,000 which will make it easier to claim the spouse superannuation tax offset, which can be an additional tax deduction of up to $540 per annum.
These are some of the changes in the 2016 budget. If you want to discuss any issues relevant to you please give us a call.