A budget for extraordinary times
The Coalition Government’s 2016 Budget centred on three key themes – jobs and growth, changes to the tax system to fix perceived problems and to “live within our means”.
The government has proposed increased eligibility for tax incentives to drive growth in small and medium sized businesses and, in parallel, to train and develop young job seekers to encourage higher job participation and workplace-readiness.
The government’s proposed changes to superannuation legislation go further than expected and represent an overhaul rather than a minor tweak. Most impacted will be high-wealth individuals who have set up self managed super funds as a tax effective planning vehicle to build wealth for retirement.
Although the forward estimates provide for a steady decline in Australia’s debt levels, there are no significant reductions in government spending in the next few years.
In the context of “extraordinary economic times”, the budget is aimed at rebuilding trust in the Coalition Government’s economic management and to provide a point of difference for voters in the upcoming July election.
What are the key Budget points for SMEs?
The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016. This increased threshold means businesses with an annual turnover of less than $10m will be able to access existing small business income tax concessions including:
- Lower small business corporate tax rate (which will be reduced to 27.5% from the 2016/17 income year);
- Simplified depreciation rules including the instant asset write off threshold of $20,000 available until 30 June 2017;
- Simplified trading stock rules;
- Option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
- Simplified method of paying PAYG instalments calculated by the ATO; and
- Extension of the FBT exemption for work-related portable electronic devices and the immediate deduction of professional expenses.
Note that the increased $10m threshold will not be applicable for accessing the small business capital gains tax concessions. These concessions will remain available only for small businesses with a turnover of less than $2m or that satisfy the maximum net asset value test.
The Company Tax rate currently stands at 28.5% for small businesses ($2m turnover threshold). This will be lowered to 27.5% from 1 July 2016 but with an increase in the turnover threshold to $10m.
The Government has outlined a 10 year plan to reduce this rate to 25% aligned with increasing turnover thresholds.
Unincorporated small business income discount
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 discount will be available to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5m (also an increase from the current small business turnover threshold of less than $2m).
The existing cap of $1,000 per individual for each income year will be retained.
The gradual increase is intended to coincide with the staggered cuts in the corporate tax rate to 25%.
The superannuation changes announced in the Budget are of particular concern to high wealth individuals and those trying to accumulate large super balances. The changes create limits and require a long term plan to get the maximum amount of funds into Super, with several quick fixes being removed.
On the plus side, there will be better contribution deductions available for all taxpayers, with fewer tests for deductions. There will also be the ability to apply unused deduction threshold limits on a rolling five year basis for those with less than $500,000 in super. This will be particularly useful for those with fluctuating or irregular income like primary producers.
For further information on how the Budget announcement might affect you and your business, get in touch with our experts in Sydney (02) 8346 6000 or Newcastle on (02) 4962 2688.