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2016 Australian Federal Budget Overview

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Hill Rogers' Director's Andrew Lam and Garvin Jones present a summary of the major announcements and changes in the 2016 Australian Federal Budget from a Taxation and Financial Reporting perspective.

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2016 Australian Federal Budget Overview

  1. 1. 2016 Federal Budget Overview Tax & Superannuation Changes Andrew Lam & Garvin Jones| 31 May 2016 Twilight Seminar 2016
  2. 2. Federal Budget Overview 2016 Andrew Lam | Director Taxation | May 31 2016 Taxation Changes
  3. 3. Disclaimer The material contained in this publication is general commentary only for distribution to clients of Hill Rogers None of the material is, or should be regarded as advice. Accordingly, no person should rely on any of the contents of this publication without first obtaining specific advice from Hill Rogers. Hill Rogers, its Principals and agents accept no responsibility to any person who acts or relies in any way on any of the material without first obtaining such specific advice. Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 4
  4. 4. 2016 Federal Budget Overview Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 5 Tax Changes Personal tax • Personal tax rate changes Business Tax • Corporate tax rate reductions • Unincorporated small business tax offset • Simplifying Division 7A • Small business tax concessions International Tax • GST on low value imported goods • Diverted Profits Tax • Hybrid mismatches • New Tax Avoidance Taskforce
  5. 5. General Commentary • Tax cuts for individuals and corporates are positive especially for small business • Extending small business tax concessions for businesses < $10 million is positive and should result in immediate cash benefit and compliance savings • On the international tax front big business are a target and tax transparency will be a focus. Given the continuing work of the OECD and the BEPS projects, we expect international tax avoidance reforms will continue to be a focus of future budgets. Our trading partners are heading down the same path. • Superannuation also a target and a big concern • Election year • GST was not touched (foregone opportunity) Pro – small business budget Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 6
  6. 6. Personal Tax
  7. 7. Personal Tax Rate Changes Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 8 Taxable Income Tax on this income 0 – $18,200 Nil $18,201 – $37,000 19% of excess over $18,200 $37,001 – $87,000 [from $80,000] $3,572 plus 32.5% of excess over $37,000 $87,001 – $180,000 $19,822 plus 37% of excess over $87,000 $180,001 and over $54,232 plus 47% of excess over $180,000 From 1 July 2016 • Above rates exclude Medicare levy • 2% Temporary Budget Repair levy expires at end of 2017 year
  8. 8. Business Tax Important changes for the middle market
  9. 9. Corporate Tax Rate Reductions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 10 • The corporate tax rate will be progressively reduced to 27.5% • For 2016/17 the corporate tax rate is 27.5% for businesses with turnover < $10 million • From 2017/18 the threshold for access to the 27.5% tax rate will increase as follows, see table: • Franking credits can be distributed in line with rate of tax paid • Unclear whether this refers to the rate of tax paid in year of profit derivation or year the dividend is paid. Income year Annual aggregated turnover threshold Rate (%) 2015/16 (current year) < $2m 28.5 2016/17 < $10m 27.5 2017/18 < $25m 27.5 2018/19 < $50m 27.5 2019/20 < $100m 27.5 2020/21 < $250m 27.5 2021/22 < $500m 27.5 2022/23 < $1b 27.5 2023/24 None 27.5
  10. 10. Corporate Tax Rate Reductions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 11 • From 2024/25 the company tax rate will reduce to 27%, then 26%, then 25% Income year Annual aggregated turnover threshold Rate (%) 2024/25 None 27.0 2025/26 None 26.0 2026/27 None 25.0
  11. 11. Unincorporated Small Business Tax Discount • Available to individuals with business income that has aggregated turnover < $5 million • The unincorporated small business discount will increase in phases over 10 years from 5% now to 16% in 2026/27. • First increase is from 5% to 8% on 1 July 2016. • Current cap of $1,000 p.a. will be retained Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 12
  12. 12. Simplifying Division 7A • Amendments will be made to the operation and administration of the Division 7A rules • Board of Taxation post implementation review of Division 7A • Self-correction mechanism for inadvertent breaches of Division 7A without penalty • Simplified loan arrangements – 10 years, maybe no written agreement required • Safe harbour rules for calculating charge to shareholders for use of company assets • A number of technical amendments to improve the overall operation of Division 7A • Start date: 1 July 2018 • Government will consult stakeholders in developing the amendments Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 13
  13. 13. Small Business Tax Concessions • Small business entity turnover threshold increases from $2 million to $10 million • Start date 1 July 2016 • Access to the following small business tax concessions • 27.5% corporate tax rate • Simplified depreciation rules • $20,000 instant asset write off threshold (until 30 June 2017) • Simplified trading stock rules • Option to account for GST on a cash basis and pay GST instalments calculated by ATO • Simplified method for paying PAYG instalments • Other tax concessions e.g. FBT exemption for work related portable electronic devices from 1 April 2016 and car parking exemption • The $10 million threshold does not apply for access to small business CGT concessions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 14
  14. 14. International Tax
  15. 15. GST on Low Value Imported Goods • GST extended to low value goods imported by consumers • Start date 1 July 2017 • Overseas suppliers with Australian turnover > $75,000 must register • International clients should assess these measures and be ready to update their systems Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 16
  16. 16. Diverted Profits Tax • Similar to the UK ‘google tax’ • Penalty tax of 40% on diverted profits • Applies to groups with $1bn global turnover • Exemption if Australian turnover < $25 million Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 17
  17. 17. Hybrid Mismatches • Taking advantage of differential tax treatment of hybrid instruments • A Board of Taxation discussion paper has been released • Start date 1 January 2018 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 18
  18. 18. New Tax Avoidance Taskforce • ATO to establish a tax avoidance task force • Target multi-nationals, high wealth individuals and private groups • Closer cooperation with other government agencies • Expected to recover $3.7bn over 4 years • Project Do It • Wary of red tape Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 19
  19. 19. Questions
  20. 20. Federal Budget Overview 2016 Garvin Jones | Director - Superannuation| May 31 2016 Superannuation Changes
  21. 21. Top 5 Changes 1. Concessional Contribution caps $25,000 2. Non Concessional Contribution Cap $500,000 Lifetime Cap (NCC from 1 July 2007, effective 3 May 2016) 3. $1.6 million Cap on Pension balances 4. Removal of the tax free income for assets supporting Transition to Retirement Income Streams (TRIS) 5. Division 293 tax threshold, $250,000 • Changes apply to ALL Superfunds Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 23
  22. 22. Things that have not changed • Tax Free Pensions and Lump Sums – 60 and over • Minimum and Maximum Pension draw down factors • Access to Super Benefits and Preservation Rules • Reach preservation age and • Meet a condition of release (retirement) • Concessional Contributions for 2015/16 and 2016/17 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 24
  23. 23. Pensions
  24. 24. $1.6m pension cap per person • Assessed at • 1 July 2017 for existing pensions • Commencement day for new pensions • Pension balances in excess of cap • Must be rolled back to accumulation - Usual preservation / tax rules apply to rolled back amount - Investment income taxable again (15% on income, 10% on CG) • Or removed from super Otherwise, tax on both excess and associated earnings Effective 1 July 2017 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 26
  25. 25. $1.6m pension cap per person Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 27 • Earnings on pension balance after assessment do not count towards cap • Indexation: CPI, in $100k increments • Proportionate method would be used to determine how much ‘cap space’ available Effective 1 July 2017
  26. 26. $1.6m pension cap: example Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 28 Existing pension • $1.2m • 75% of cap ‘used’ $1.6m cap indexed to $1.7m 1 July 20211 July 2017 Proportionate method and indexation 1 July 2022 Pension balance now: $1.5m Accumulation balance: $1m How much accumulation $ could be converted to pension? • 25% of ‘cap space’ available • 25% x $1.7m = $425k
  27. 27. $1.6m pension cap: example • Jane and Bob are 70 • $2m each in super • Currently, all in pensions (one each) • Fund earns around $200k pa • No tax paid • They draw around $300k pa in pensions and want to keep it around there (even though the minimum is $200k) Balances in excess of cap Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 29
  28. 28. Effect of $1.6m pension cap: excess Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 30 Jane $2m Bob $2m $1.6m $0.4m Pension Accumulation $1.6m $0.4m Accumulation Pension Fund Income now only 80% tax free 20% ($40k) taxable Approx. $6k tax If rolled back amounts remain in super...
  29. 29. Effect of $1.6m pension cap: excess Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 31 $1.6m $0.4m Pension Accumulation One approach: What about their income ($300k, $150k each)? Draw as little as possible 5% x $1.6m = $80k No tax to pay – over 60 The rest - $70k (17.5% of the balance) Lump sum not a pension No tax to pay – over 60
  30. 30. Effect of $1.6m pension cap • Investment reserves • Hold back investment returns and allocate to pension balances • Death: CGT on accumulation balances • Increased focus on extracting $ before death • Reversionary pensions • Could this prevent ‘re-counting’ of the same pension for the $ for the survivor? What else is there to think about longer term? Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 32
  31. 31. $1.6m pension cap per person • Consider segregating assets to support $1.6m pension balance • May take time to organise • Evening up balances • Contribution splitting (concessional) • Recontribution for spouse Action plan: lead up to 1 July 2017 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 33
  32. 32. $1.6m pension cap per person • Realise large CG in 2016/17 before tax exemption lost • Refresh cost base • Also relevant for TRIS up to 1 July 2017 (when tax exemption no longer available) • Multiple pensions • How to keep tax free / taxable separate? - Consider another fund • Which to roll back? • Is it worth withdrawing excess and investing in own name? Action plan: lead up to 1 July 2017 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 34
  33. 33. TRIS: removal of tax concessions Effective 1 July 2017 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 35 Fund entitled to tax exemption on investment income generated from assets underpinning TRIS balance No tax exemption on investment income generated from assets underpinning TRIS balance Now Earlier of: • Retirement • Age 65 1 July 2017 • NO CHANGE to the eligibility rules to commence to TRIS But not until 1 July 2017... 13 months away
  34. 34. TRIS: Action for now and in 2016/17 Have member circumstances changed? • Ceased a paid job after 60? • Decided to never again work 10 or more hours per week? • TRIS converts to ABP • Earnings on ABP tax free For existing TRIS Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 36
  35. 35. Non-concessional Contributions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 37 Age Old New Up to 65 $180,000 / $540,000 $500,000 lifetime cap 65 – 74 *$180,000 $500,000 lifetime cap * Work test from age 65
  36. 36. Non-concessional contributions 1 July 2007 Lifetime cap of $500k from 3 May 2016 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 38 2010/11: $450k2007/08: $450k 2013/14: $450k Post 3 May 2016: $any 3 May 2016 Indexed to $550k Age 75
  37. 37. Non-concessional contributions 1 July 2007 Lifetime cap of $500k from 3 May 2016 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 39 2010/11: $450k2007/08: $450k 2013/14: $450k Post 3 May 2016: $any 3 May 2016 Indexed to $550k Age 75 “Used up” $500k lifetime cap – but no excess Excess
  38. 38. Non-concessional contributions 1 July 2007 Lifetime cap of $500k from 3 May 2016 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 40 2010/11: $450k2007/08: $450k 2013/14: $450k Post 3 May 2016: $any 3 May 2016 Indexed to $550k Age 75 “Used up” $500k lifetime cap – but no excess Excess 2015/16: $180k Cap left: $320k
  39. 39. Non-concessional contributions 1 July 2007 Lifetime cap of $500k from 3 May 2016 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 41 2010/11: $450k2007/08: $450k 2013/14: $450k Post 3 May 2016: $any 3 May 2016 Indexed to $550k Age 75 “Used up” $500k lifetime cap – but no excess Excess 2015/16: $180k Cap left: $320k 2015/16: $500k Cap left: $nil Cap left: $50k? Fully “used up” cap
  40. 40. Non-concessional contributions • Excess: treated in usual manner • Release excess NCC + 85% associated earnings; OR • Pay excess tax (currently 49%) • Indexation: AWOTE, in $50k increments • No changes to exclusions from NCC cap • Small Business CGT caps • Personal injury These would remain in place and are in addition to NCC cap Lifetime cap of $500k Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 42
  41. 41. Non-concessional contributions: items • Bring forwards planned for late 2015/2016 • In-specie contributions already in train • Contracted property: settlement sum funded by NCC • UK pension transfers already in train • Future recontributions • LRBAs: dependent on large NCC for repayment or asset improvement Review Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 43
  42. 42. Non-concessional contributions: items Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 44 • Remember: disallowed deductible contributions count! • Reimburse SMSF expenses paid personally • Beware improvements to fund assets for $0 • Obtain advice before making contributions Prevent inadvertent use of NCC cap
  43. 43. Contribution rules relaxed (from 1 July 2017) Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 45 Who is allowed to contribute? Old Aged under 65 OR 65-74 and working Anyone aged up to 75 Old New Work test removed
  44. 44. Contribution rules relaxed (from 1 July 2017) Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 46 Who is allowed to contribute? Who can claim a tax deduction? Old Aged under 65 OR 65-74 and working Less than 10% income + benefits from “employment Anyone aged up to 75 Anyone Old New
  45. 45. Concessional Contributions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 47 Old New Age 2016 + 2017 2018 49 – 74 *$35,000 $25,000 < 49 $30,000 $25,000 * Work test from age 65
  46. 46. Concessional contributions From 1 July 2017 $25k & ‘Catch up’ Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 48 But only for those with < $500k in super. (When? All years? Just Year 4?) Maximum of 5 years. $10k $5k $25k $15k Year 1 Year 2 Year 3 Year 4
  47. 47. Concessional contributions From 1 July 2017 $25k & ‘Catch up’ Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 49 But only for those with < $500k in super. (When? All years? Just Year 4?) Maximum of 5 years. $10k $5k $25k $15k $20k top up (Year 3) $10k top up (Year 2) $15k top up (Year 1) Year 1 Year 2 Year 3 Year 4
  48. 48. ‘Catch up’ unused concessional contributions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 50 • Broken work patterns • Lumpy income or variable contribution levels • Greater disposable income later in life • Non-working 65-74 year olds who expect to receive assessable income in the future (e.g. a large capital gain) Useful for those with:
  49. 49. Some new opportunities for 65-75s? Watch new $500k lifetime limit on any non-concessional contributions Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 51 High taxable income (investments) – tax deductible super contribution Sold assets in retirement – ability to contribute cash Recontribute pension payments
  50. 50. Other proposed contributions changes Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 52 Division 293 Tax • Additional 15% paid on Concessional Contributions • Income threshold to reduce from $300,000 to $250,000 Effective 1 July 2017
  51. 51. Other proposed contributions changes Introduction of ‘Low income super tax offset’ • LISC reintroduced • 15% tax offset (not refund) on Concessional Contributions (maximum offset $500 per person) Extending spouse tax offset • Income threshold for 18% tax offset (max $540) to increase from $10,800 to $37,000 (phase out at $40,000) Effective 1 July 2017 Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 53
  52. 52. Questions
  53. 53. About the speakers Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 55 Andrew is both a chartered tax adviser and a solicitor having worked with leading taxation advisory teams in chartered accounting firms (both big 4 and mid-tier) and a top tier law firm. Andrew’s expertise lies in • providingtax advice • leading tax due diligence assignments • general tax planning and • providingtax compliance services His clients include family groups, private and public companies (including listed entities) and not for profit groups. Andrew Lam - Director, BCom, LLM, CTA Services: Taxation, Large Corporate, Corporate Advisory, Not-For-Profit t: +61 2 9232 5111 d: +61 2 9220 0381 e: andrew.lam@hillrogers.com.au w: www.hillrogers.com.au
  54. 54. About the speakers Twilight Seminar | Federal Budget Analysis | 31 May 2016 | 56 Garvin’s extensive expertise and technical experience in income tax and superannuation makes him a valuable advisor to his clients, including SMSFs, High Net Worth Individuals and SMES. Garvin’s advises clients in • Tax planning and compliance • Wealth creation plans • Retirement planning • Regulatory compliance Garvin is passionate about helping people to plan for the transition between work and retirement in a way that sees their financial goals achieved. Garvin Jones - Director, BBus, CA Services: Superannuation High Net Worth Individuals and Professionals t: +61 2 9232 5111 d: +61 2 9220 0346 e: garvin.jones@hillrogers.com.au w: www.hillrogers.com.au
  55. 55. t +61 2 9232 5111 f +61 2 92337950 www.hillrogers.com.au | info@hillrogers.com.au Level 5, 1 Chifley Square, Sydney NSW 2000 Australia GPO Box 7066, Sydney NSW2001 H.R.P.H Pty Limited practising as Hill Rogers | ABN 12 003 718 518 Member of Morsion KSi, an association of global independent accounting firms. Liability limited by a scheme approved under Professional Standards Legislation. Disclaimer: The material contained in this publication is general commentary only for distribution to clients of Hill Rogers None of the material is, or should be regarded as advice. Accordingly, no person should rely on any of the contents of this publication without first obtaining specific advice from Hill Rogers. Hill Rogers, its Principals and agents accept no responsibility to any person who acts or relies in any way on any of the material without first obtaining such specific advice.

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