2016 Federal Budget Analysis
The Federal Treasurer, Mr Scott Morrison, handed down his first Budget (the government's third) at 7.30pm on 3 May 2016. The Budget sets out the government's economic plan for Australia to transition from the mining investment boom to a stronger, more diversified new economy. The government states it will do this by:
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Introducing a 10-year enterprise tax plan
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Fixing problems in the tax system, and
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Ensuring that the government lives within its means.
Small to Medium Enterprises
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The small business entity annual turnover threshold will be increased from $2 million to $10 million from 1July 2016 for the purposes of accessing the proposed 27.5 per cent company tax rate and certain existing income tax concessions including the $20,000 instant asset write off.
As a result, a business with an aggregated annual turnover of less than $10 million will be able to access a number of small business tax concessions, including:
- the simplified depreciation rules including the ability to claim an immediate deduction for each and every asset purcahsed costing less than $20,000 until 30 June 2017;
- the simplified trading stock rules, giving businesses the option to avoid an end of year stocktake if the value of their stock is less than $5,000;
- a simplified method of paying PAYG instalments calculated by the ATO;
- the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
- immediate deductibility for various start-up costs;
- a 12-month prepayment rule; and
- the more generous FBT exemption for work-related portable electronic devices.
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From the 2016-17 income year, the company tax rate for businesses with an annual aggregated turnover of less than $10 million will be reduced to 27.5 per cent. The threshold to access the 27.5 per cent tax rate will be progressively increased to ultimately have all companies at that rate in the 2023-24 income year.
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By 2026-27, it is proposed that the company tax rate will fall to 25 per cent for all companies
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The unincorporated small business tax discount will be increased in phases over 10 years from the current5 per cent to 16 per cent, first increasing to 8 per cent on 1 July 2016. The current cap of $1000 per individual for each income year will be retained.
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GST reporting requirements for small businesses will be simplified from 1 July 2017.
- The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain avilable for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test).
Other enterprises
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The company tax rate will be progressively reduced to 25 per cent over 10 years.
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Targeted amendments will be made to improve the operation and administration of integrity rules for closely-held, private groups (in Div 7A of the Income Tax Assessment Act 1936) from 1 July 2018.
Individuals and families
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The threshold at which the 37 per cent marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.
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The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years from 1 July 2018.
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In the lead-up to the Budget, the Treasurer indicated that the 2% Budget deficit levy (tax) on incomes over $180,000 would not be extended beyond its initial three years. The levy applies for three years from 1 July 2014, and is due to cease at the end of the 2016–2017 financial year.
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Income tax exemptions will be provided for ADF personnel deployed in Afghanistan, the Middle East and in international waters.
GST and other indirect taxes
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GST will be extended to low value goods imported by consumers from 1 July 2017.
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The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018.
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The excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider from 1 July 2017.
Should you have any queries regarding how the proposed changes may apply to you, please contact your normal Addison Partners contact or call 02 4995 7300 to make an appointment.