2016 Pre and Post Budget Presentation

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2016-17 Federal Budget
Tax Update
11 May 2016
Jamie Towers

2016-17 FEDERAL BUDGET UPDATE
 Individuals
 Business
 GST
 What else is new?
 What does this mean for tax planning?
experience. new thinking www.hanrickcurran.com.au

FEDERAL BUDGET
 $37.1 Billion Deficit Forecast
 Returning to surplus by 2021 (previously 2019)
BUT
 Reserve Bank dropped interest rates to 1.75% on
budget day plus possible further rate cuts
 Is the economy buoyant enough to reach these
targets?

INDIVIDUALS
 Fixing Bracket Creep – 32.5% bracket extended
from $80,000 to $87,000
BUT – Maximum Saving is only $315
 Will again become a problem in 5 yrs assuming 2%
inflation (RBA target 2-3%)
 Why no CPI increase?

INDIVIDUALS – NEW TAX RATES
2015/16 2016/17
Tax
Thresholds
Threshold Rate Threshold Rate
1 18,201 $0+19%>$18,200 18,201 $0+19%>$18,200
2 37,001 $3,572+32.5%>$37,000 37,001 $3,572+32.5%>$37,000
3 80,001 $17,547+37%>$80,000 87,001 $19,822+37%>$87,000
*4 180,001 $54,547+(45%+2%)>$180,000 180,001 $54,232+(45%+2%)>$180,000

INDIVIDUALS
 Medicare Increase
 Individuals – starts at $21,335 ($20,896 2016)
 Families – starts at $36,001 + $3,306 per child

INDIVIDUALS – Other Measures
 Tobacco Tax – 12.5% rise x 4 ($40 a packet?)
 Wine Equalisation Tax – more expensive wine?
 Jobs Creation Plan – Jobs PaTH
 $5 Bn Dental Plan

INDIVIDUALS – What Didn’t Change?
 Negative Gearing Remains
 Capital Gains Tax – 12 month general discount
remains at 50%
 Budget Repair Levy (2%) will apply until 30 June
2017 (will not get extended)

BUSINESS – COMPANY TAX RATE CUT
• Tax Rate Cut of 5% to 25% over 10 years
Company Tax Rate Cut to 27.5%
Year Turnover
2016/7 10,000,000
2017/8 25,000,000
2018/9 50,000,000
2019/20 100,000,000
2020/21 250,000,000
2021/22 1/2 Billion
2022/23 $1 Billion
2023/24 All turnovers

 Tax Rate Cut to 27% in 2024/25

 Tax Rate CUT to 25% by 2027
Lets Put this into Perspective
 Ireland Tax Rate is 12.5% - trading income (25%
other)
 UK – Reducing to 17% in 2020

 Singapore – 17% (+ exemptions)
 Hong Kong – 16.5% (+ exemptions)
 USA (above $18.33M – 35%)
 Global Average – 23.87% 2015 (source KPMG)

 A good start, but this needs to happen sooner
 In 2027 average company tax rate will likely be
lower than 23.87%

BUSINESS – Small Business
 What is a ‘SMALL’ Business?
 Turnover:
• $2M?
• $5M?
• $10M?
• $20M?

 Definition of ‘Small’ Business Expanded to $10
Million turnover (from $2M) from 1 July 2016
 Applies to Small Business Measures (Division 328)
 Small Business CGT Measures Turnover still $2M
 Small Unincorporated business discount turnover
now $5M

 Definition of ‘Small’ Business Expanded to $10
Million turnover (from $2M) from 1 July 2016
 Applies to Small Business Measures (Division 328)
• $20K Instant Asset Write-Off
• Accelerated Depreciation
• Trading Stock Rules
• GST – Cash Basis
• PAYG
• FBT

 Small Business CGT Measures – Still $2M turnover
 15 Year Exemption
 50% Active Asset Reduction
 Retirement Exemption ($500,000 cap)
 Small Business Roll-over

 Unincorporated Small Business Discount – turnover
definition $5M
 Discount % Increases from 5% (2016) to 16% over
10 years (8% 2016/7)
 Individual cap of $1,000 remains

BUSINESS – All Business
 Division 7a
 Self Correction Mechanism for ‘inadvertent
breaches’
 Safe Harbours
 Simplified Loan Arrangements
 Apply from 1/7/2018

BUSINESS – New Companies / Start-Ups
 Incentives (Tax Offset and CGT Exemption) for
investing in ‘Innovative’ start up companies
announced in MYEFO
 Law passed last week - Applies from 1 July 2016
 Investment Capped at $50,000 for non-
sophisticated investors

 Non-Refundable 20% Tax Offset for investing in
‘Innovative’ start up companies (Capped at
$200,000 pa)
 CGT exempt gains and losses on disposal of shares
held > 1 yr < 10 years
 Does not apply to > 30% ownership, or Affiliates
(control)

Criteria
1. Company must be < 3 years old; or
2. Incorporated in last 6 years and <$1M expenses; or
3. Registered on ABR within last 3 years; and

 Expenses < $1M in previous year; and
 < $200,000 revenue in previous year; and
 Unlisted; and
 Meet 100 point innovation criteria

BUSINESS – Larger &
International Business
 $679 Million to ATO for anti-avoidance task force
(expected to reap $3.7 Bn) (Also targets high
wealth individuals)
 Transfer Pricing Rules Expanded in line with OECD
• IP and Intangibles
• Analysis must match substance

BUSINESS – Larger &
International Business
 Tax Consolidation – Removing Inequities –
subsidiaries with deductible liabilities; DTLs
removed from ACA
 TOFA to be simplified
 Penalties for ‘Globally Significant Entities expanded
from $4,500 to $450,000

BUSINESS – Diverted Profits
Tax (Google Tax) – 40%
 Aus Company / PE has ‘shifted’ profits to a foreign
related company through ‘management charges’ etc
 Tax paid overseas is < 80% of tax than would
otherwise have been paid in Aus.
 Reasonable to Conclude arrangement designed to
reduce tax
 No Economic substance
 UK has a DPT (yet to be tested – introduced this
year)

GST
 GST will apply to Low Value Good Imports from 1
July 2017
 Current GST import exemption threshold is $1,000
– Proposed to reduce to $0
 How to enforce small vendors to become
registered?

GST
 More Simplified GST Registration for non-residents
 Same as registration proposed for the ‘Netflix’ tax
 Netflix Tax law actually passed Parliament last week
and will apply from 1/7/2017

GST
 GST Cash Basis and GST Instalments Basis will be
extended with small business threshold to $10
Million (from 1 July 2016)
 Simpler BAS reporting for small business ($10M
turnover) – trial from 1/7/16, application from
1/7/17

What Else is New?
 CGT – Look through treatment on Earn-out
Arrangements – New Law Finally Passed (applies
from 24/4/2015) (originally announced in 2009)
 Managed Investment Trusts Legislation finally
passed (apply from opt in time after 1/7/2015)
 This includes changes to Public Trading Trust rules.
No longer a PTT merely because super funds own >
20% of units

Key Tax Planning Measures
from the Budget
 Reduction in Company tax rate will encourage more
companies rather than trusts – will affect future
structuring decisions
 For companies > $2 Million but < $10 Million
turnover –
• Delay Asset purchases >$1,000, <$20,000 until
2016/7 year
• Defer income where possible until 2016/7 year

www.hanrickcurran.com.au
Budget Brief:
Superannuation
11 May 2016
Clive Todd

33experience. new thinking
What didn’t change?
 Tax-free withdrawals for over 60’s
 The spelling of the word “superannuation”

Top 3 change categories
 Contributions
 Pensions
 Other Announcements

Contributions

Concessional Contributions Cap
 Reduced to $25,000 from 1 July 2017 for
everyone
2015/16 2016/17 2017/18
Under 50 $30,000 $30,000 $25,000
Over 50 $35,000 $35,000 $25,000

Removal of The Work Test
 Currently people aged 65 to 74 are required to
work 40 hours within a 30 day period to be
eligible to contribute
 Removed as of 1 July 2017
 Applies to both personal concessional & non-
concessional contributions

Increased Access to Personal
Contributions
 Removes “10% rule”
 Effective from 1 July 2017
 All individuals under age 75 are able to claim tax
deductions for personal contributions in addition
to having employer contributions up to total of
$25,000

Catch-Up Concessional Contributions
 Unused concessional contribution cap amounts
can be carried forward
 Calculated on a rolling basis over 5 consecutive
years
 Effective 1 July 2017
 Restricted to individuals with a super balance less
than $500,000

Lifetime Cap for Non-Concessional
Contributions
 Capped at $500,000 over lifetime
 Effective 7:30pm (AEST) on 3 May 2016
 Includes all non-concessional contributions made
since 1 July 2007

 If non-concessional contributions exceed
$500,000 between 1/7/07 & 3/5/16 - no need to
withdraw but no further allowed
 If non-concessional contributions exceeds
$500,000 after 3/5/16 - it will be treated as
excess contributions
 Replaces current $180,000 per year limit
Impact of Lifetime NCC Cap

Potential Contributions
Strategies

 Non-working over 65s look to contribute post
1 July 2017
 If super balance less than $500,000 look to utilise
“catch-ups” prior to any potential non-
concessional contributions
 Maximise concessional contributions in 2016 &
2017 financial year
 Limited Recourse Borrowing Arrangements
(LRBAs) become more attractive
 Utilise “concessional catch up” to minimise one-
off tax events i.e. large CGT event
Strategies for consideration

Pensions

Superannuation Transfer Balance
Cap
 Restricts the total amount of super that can be in
converted to pension phase to $1.6 million (ie
purchase price)
 Any amounts in excess of $1.6 million must be
left in accumulation

 Subsequent earnings on pension balance will not
be required to be withdrawn
 If cap breached -> subject to tax on both excess
amount & earnings
 Existing pensions greater than $1.6 million will
have to transfer excess to accumulation or
withdraw from super
 Will be indexed in $100,000 increments in line
with CPI
Impact of Transfer Balance Cap

Transition to Retirement Changes
 Earnings on assets supporting Transition to
Retirement Income Streams will no longer be tax
free
 No longer able to treat income stream payments
as lump sums for tax purposes

Potential Pension Strategies

 Ideally equalise member balances – a couple can
have a combined $3.2 million in pension
 Utilise any unused $500,000 non-concessional
cap
 Contributions splitting – where concessional
contributions made in the previous financial
year are transferred to spouse
Strategies for consideration

 Segregate high earning assets in pension phase
and leave lower earning assets in accumulation
 Only withdraw minimum pension and supplement
with lump sums from accumulation
 Crystalise capital gains & bring forward
income prior to 30 June 2017
More strategies for
consideration

 Transition to Retirement still beneficial if over 60
as withdrawals are tax free and can be used to
maximise concessional contributions
 If in Transition to Retirement phase look to satisfy
condition of release
More strategies for
consideration

Other Announcements

Division 293 Tax
 Additional 15% contributions tax for high earners
 Income threshold reduced from $300,000 to
$250,000
 Income includes taxable income, reportable fringe
benefits, net investment losses & concessional
contributions
 Only applies to contributions that exceed the
$250,000 threshold

Spouse Superannuation
Tax Offset
 18% offset available up to $540 for contributions
made to eligible spouse’s super
 Income threshold increasing from $10,800 to
$37,000
 Count towards spouse’s non-concessional cap

Low Income Superannuation Tax
Offset
 Refund of the 15% contributions tax for low
income earners
 Capped at $500
 Apply to individuals with adjusted taxable of less
than $37,000
 Replaces Low Income Superannuation Contribution
(LISC)

Miscellaneous
 Anti-detriment payments abolished
 Objectives of superannuation to be enshrined in
law
 New retirement products innovation – tax
exemption extended

Important points to take home
 Pre 30 June 2016 - still make concessional
contributions & pension withdrawals as normal
 Don’t make any non-concessional contributions
without checking first!
 Accumulation phase still only attracts 15% tax rate
 Majority of changes effective 1 July 2017
 Changes dependent on outcome of Election
 Don’t panic! Planning opportunities will be available

Disclaimers
This document contains information in summary form and discusses proposed
but not legislated rules and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research or the exercise of
professional judgement. It does not purport to be comprehensive or to render
professional advice. The reader should not act on the basis of any matter
contained in this publication without first obtaining specific professional
advice.
We believe that the statements made by us in this document are accurate but
no warranty of accuracy or reliability is given. Our conclusions are based on
interpretations of accounting standards and other relevant professional
pronouncements and legislation current as at the date of this document.
Should the interpretations, accounting standards, other relevant professional
pronouncements or legislation change, our conclusions may not be valid.
© Hanrick Curran, 2016
All rights reserved

Topic Date
Thank you!
www.hanrickcurran.com.au

2016 Pre and Post Budget Presentation

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