2016 australian federal budget overview

2016FederalBudgetOverviewTax&Superannuation Changes

AndrewLam&GarvinJones|31May2016

TwilightSeminar2016

FederalBudgetOverview2016

AndrewLam|DirectorTaxation|May312016

TaxationChanges

Disclaimer

Thematerialcontainedinthispublication isgeneralcommentaryonlyfordistribution toclientsofHillRogersNoneofthematerialis,orshouldberegardedasadvice.Accordingly, nopersonshould relyonanyofthecontentsofthispublicationwithoutfirstobtaining specificadvicefromHillRogers.HillRogers, itsPrincipalsandagentsacceptnoresponsibility toanypersonwhoactsorreliesinanywayonanyofthematerialwithout firstobtainingsuchspecificadvice.

TwilightSeminar|FederalBudgetAnalysis|31May2016| 4

2016FederalBudgetOverview


Tax Changes

Personaltax • Personaltaxratechanges

BusinessTax • Corporatetax ratereductions• Unincorporated smallbusiness taxoffset• Simplifying Division7A• Smallbusinesstaxconcessions

InternationalTax • GSTonlowvalueimportedgoods• DivertedProfitsTax• Hybridmismatches• NewTaxAvoidanceTaskforce

GeneralCommentary

• Taxcutsforindividualsandcorporatesarepositiveespeciallyforsmallbusiness

• Extendingsmallbusinesstaxconcessionsforbusinesses<$10millionispositiveandshouldresultinimmediatecashbenefitandcompliancesavings

• Ontheinternationaltaxfrontbigbusinessareatargetandtaxtransparencywillbeafocus.GiventhecontinuingworkoftheOECDandtheBEPSprojects,weexpectinternationaltaxavoidancereformswillcontinuetobeafocusoffuturebudgets.Ourtradingpartnersareheadingdownthesamepath.

• Superannuationalsoatargetandabigconcern

• Electionyear

• GSTwasnottouched(foregoneopportunity)

Pro– smallbusinessbudget


PersonalTax

PersonalTaxRateChanges


TaxableIncome Taxonthis income

0– $18,200 Nil

$18,201– $37,000 19%ofexcessover$18,200

$37,001– $87,000[from$80,000] $3,572plus32.5%ofexcessover$37,000

$87,001– $180,000 $19,822plus37%ofexcessover$87,000

$180,001andover $54,232plus47%ofexcessover$180,000

From1July2016

• AboveratesexcludeMedicarelevy• 2%TemporaryBudgetRepairlevyexpiresatendof2017year

BusinessTaxImportantchangesfor themiddlemarket

CorporateTaxRateReductions


• Thecorporatetaxratewillbeprogressivelyreducedto27.5%

• For2016/17thecorporatetaxrateis27.5%forbusinesseswithturnover<$10million

• From2017/18thethresholdforaccess tothe27.5%taxratewillincreaseasfollows,seetable:

• Frankingcreditscanbedistributedinlinewithrateoftaxpaid

• Unclearwhetherthisreferstotherateoftaxpaidinyearofprofitderivationoryearthedividendispaid.

IncomeyearAnnualaggregatedturnoverthreshold

Rate(%)

2015/16 (currentyear) <$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

CorporateTaxRateReductions


• From2024/25thecompany taxratewillreduceto27%,then26%,then25%

IncomeyearAnnualaggregatedturnover threshold

Rate(%)

2024/25 None 27.0

2025/26 None 26.0

2026/27 None 25.0

UnincorporatedSmallBusinessTaxDiscount

• Availabletoindividuals withbusiness incomethathasaggregated turnover<$5million

• Theunincorporated smallbusinessdiscountwillincreaseinphasesover10yearsfrom5%nowto16%in2026/27.

• Firstincreaseisfrom5%to8%on1July2016.

• Currentcapof$1,000p.a.willberetained


SimplifyingDivision7A

• AmendmentswillbemadetotheoperationandadministrationoftheDivision7Arules

• BoardofTaxationpostimplementationreviewofDivision7A

• Self-correctionmechanism forinadvertentbreachesofDivision7Awithoutpenalty

• Simplified loanarrangements– 10years,maybenowrittenagreement required

• Safeharbourrulesforcalculatingcharge toshareholders foruseofcompanyassets

• Anumberoftechnicalamendmentstoimprove theoveralloperationofDivision7A

• Startdate:1July2018

• Governmentwillconsultstakeholdersindevelopingtheamendments


SmallBusinessTaxConcessions

• Smallbusiness entityturnoverthreshold increasesfrom$2million to$10million

• Startdate1July 2016

• Accesstothefollowingsmallbusiness taxconcessions

• 27.5%corporate taxrate

• Simplifieddepreciationrules

• $20,000 instantassetwriteoffthreshold(until30June2017)

• Simplifiedtradingstockrules

• OptiontoaccountforGSTonacashbasisandpayGSTinstalmentscalculatedbyATO

• SimplifiedmethodforpayingPAYGinstalments

• Othertaxconcessionse.g.FBTexemptionforwork relatedportableelectronicdevicesfrom1April2016andcarparkingexemption

• The$10million thresholddoesnotapplyforaccesstosmallbusinessCGTconcessionsTwilightSeminar|FederalBudgetAnalysis|31May2016| 14

InternationalTax

GSTonLowValueImportedGoods

• GSTextendedtolowvaluegoods importedbyconsumers

• Startdate1July2017

• OverseassupplierswithAustralianturnover>$75,000mustregister

• Internationalclientsshouldassessthesemeasuresandbereadytoupdatetheirsystems


DivertedProfitsTax

• SimilartotheUK‘google tax’

• Penaltytaxof40%ondivertedprofits

• Applies togroups with$1bnglobalturnover

• Exemption ifAustralian turnover<$25million


HybridMismatches

• Takingadvantageofdifferential taxtreatmentofhybrid instruments

• ABoardofTaxationdiscussionpaperhasbeenreleased

• Startdate1January2018


NewTaxAvoidanceTaskforce

• ATOtoestablishataxavoidancetaskforce

• Targetmulti-nationals, highwealthindividualsandprivategroups

• Closercooperationwithothergovernment agencies

• Expectedtorecover$3.7bnover4years

• ProjectDoIt

• Waryofredtape


Questions

FederalBudgetOverview2016

GarvinJones|Director - Superannuation|May312016

Superannuation Changes

Top5Changes

1. ConcessionalContributioncaps$25,000

2. NonConcessionalContributionCap$500,000LifetimeCap(NCCfrom1July2007,effective3May2016)

3. $1.6millionCaponPensionbalances

4. RemovalofthetaxfreeincomeforassetssupportingTransitiontoRetirementIncomeStreams(TRIS)

5. Division293taxthreshold,$250,000

• ChangesapplytoALLSuperfunds


Thingsthathavenot changed

• TaxFreePensionsandLumpSums– 60andover

• Minimum andMaximumPensiondrawdownfactors

• AccesstoSuperBenefitsandPreservationRules

• Reachpreservationageand

• Meetaconditionofrelease (retirement)

• ConcessionalContributions for2015/16and2016/17


Pensions

$1.6mpensioncapperperson

• Assessed at

• 1July2017forexistingpensions

• Commencementdayfornewpensions

• Pensionbalancesinexcessofcap

• Mustberolledbacktoaccumulation

- Usualpreservation/taxrulesapplytorolledbackamount

- Investment incometaxableagain(15%onincome,10%onCG)

• Orremovedfromsuper

Otherwise,taxonbothexcessandassociatedearnings

Effective1July2017




• Earningsonpensionbalanceafterassessmentdonotcounttowardscap

• Indexation:CPI,in$100kincrements

• Proportionatemethodwouldbeused todeterminehowmuch‘capspace’available

Effective1July2017

$1.6mpensioncap:example


Existingpension• $1.2m• 75%ofcap‘used’

$1.6mcapindexedto$1.7m

1July20211July2017

Proportionatemethodandindexation

1July2022

Pensionbalancenow:$1.5mAccumulationbalance:$1m

Howmuchaccumulation$couldbeconvertedtopension?

• 25%of‘capspace’available• 25%x$1.7m=$425k

$1.6mpensioncap:example

• JaneandBobare70

• $2meachinsuper

• Currently,allinpensions (oneeach)

• Fundearnsaround$200kpa

• Notaxpaid

• Theydrawaround$300kpainpensionsandwanttokeepitaround there(eventhough theminimum is$200k)

Balancesinexcessofcap


Effectof$1.6mpensioncap:excess


Jane$2m

Bob$2m

$1.6m

$0.4m

Pension

Accumulation

$1.6m

$0.4m Accumulation

Pension

Fund Incomenowonly80%taxfree

20%($40k)taxable

Approx.$6ktax

Ifrolledbackamountsremaininsuper...

Effectof$1.6mpensioncap:excess


$1.6m

$0.4m

Pension

Accumulation

Oneapproach:

Whatabout theirincome($300k,$150keach)?

Drawaslittleaspossible5%x$1.6m=$80kNotaxtopay– over60

Therest- $70k(17.5%ofthebalance)LumpsumnotapensionNotaxtopay– over60

Effectof$1.6mpensioncap

• Investmentreserves

• Holdbackinvestmentreturnsandallocatetopensionbalances

• Death:CGTonaccumulationbalances

• Increasedfocusonextracting$beforedeath

• Reversionarypensions

• Couldthisprevent‘re-counting’ofthesamepensionforthe$forthesurvivor?

Whatelseistheretothinkaboutlonger term?



• Consider segregatingassetstosupport $1.6mpensionbalance

• Maytaketimetoorganise

• Eveningupbalances

• Contributionsplitting(concessional)

• Recontribution forspouse

Actionplan:leadup to1July2017



• RealiselargeCGin2016/17before taxexemptionlost

• Refreshcostbase

• AlsorelevantforTRISupto1July2017(whentaxexemptionnolongeravailable)

• Multiplepensions

• Howtokeeptaxfree/taxableseparate?

- Consideranotherfund

• Whichtorollback?

• Isitworthwithdrawingexcessandinvestinginownname?

Actionplan:leadup to1July2017


TRIS:removaloftaxconcessionsEffective1July2017


Fundentitledtotaxexemptiononinvestmentincomegeneratedfromassets

underpinning TRISbalance

Notaxexemptiononinvestmentincomegeneratedfromassetsunderpinning TRISbalance

Now

Earlierof:• Retirement• Age65

1July2017

• NOCHANGEtotheeligibility rulestocommencetoTRIS

Butnotuntil1July2017...13monthsaway

TRIS:Actionfornowandin2016/17

Havemembercircumstanceschanged?

• Ceasedapaidjobafter60?

• Decidedtoneveragainwork10ormorehoursperweek?

• TRISconverts toABP

• EarningsonABPtaxfree

ForexistingTRIS


Non-concessionalContributions


Age Old New

Up to65 $180,000 /$540,000 $500,000 lifetime cap

65– 74 *$180,000 $500,000 lifetimecap

*Worktestfromage65

Non-concessionalcontributions

1July2007Lifetimecapof$500kfrom3May2016


2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any

3May2016Indexedto$550k

Age75




2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any


Age75

“Usedup”$500klifetimecap– butno excess Excess




2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any


Age75


2015/16:$180k Capleft:$320k




2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any


Age75


2015/16:$180k Capleft:$320k

2015/16:$500k Capleft:$nil Capleft:$50k?

Fully“usedup”cap


• Excess:treatedinusualmanner• Release excessNCC+85%associated earnings;OR

• Payexcesstax(currently49%)

• Indexation:AWOTE,in$50kincrements

• NochangestoexclusionsfromNCCcap• SmallBusinessCGTcaps

• Personalinjury

Thesewould remaininplaceandareinaddition toNCCcap

Lifetimecapof$500k


Non-concessionalcontributions: items

• Bringforwardsplanned forlate2015/2016

• In-speciecontributions alreadyintrain

• Contractedproperty: settlementsumfunded byNCC

• UKpension transfersalreadyintrain

• Future recontributions

• LRBAs:dependentonlargeNCCforrepaymentorassetimprovement

Review


Non-concessionalcontributions: items


• Remember:disalloweddeductiblecontributionscount!

• ReimburseSMSFexpensespaidpersonally

• Bewareimprovements tofundassetsfor$0

• Obtainadvicebeforemakingcontributions

PreventinadvertentuseofNCCcap

Contributionrulesrelaxed(from1July2017)


Whoisallowedtocontribute?

Old Agedunder65OR65-74andworking

Anyone agedup to75

Old

New Worktestremoved

Contributionrulesrelaxed(from1July2017)


Whoisallowedtocontribute? Whocanclaimataxdeduction?

Old Agedunder65OR65-74andworking

Lessthan10%income+benefitsfrom“employment

Anyone agedup to75 Anyone

Old

New

ConcessionalContributions


Old New

Age 2016 +2017 2018

49 – 74 *$35,000 $25,000

< 49 $30,000 $25,000

*Worktestfromage65

ConcessionalcontributionsFrom1July2017$25k&‘Catchup’


Butonly forthosewith<$500kinsuper.(When?Allyears?JustYear4?)

Maximumof5years.

$10k $5k

$25k$15k

Year1 Year2 Year3 Year4

ConcessionalcontributionsFrom1July2017$25k&‘Catchup’


Butonly forthosewith<$500kinsuper.(When?Allyears?JustYear4?)

Maximumof5years.

$10k $5k

$25k$15k

$20ktopup(Year3)

$10ktopup(Year2)

$15ktopup(Year1)

Year1 Year2 Year3 Year4

‘Catchup’unusedconcessionalcontributions


• Brokenworkpatterns

• Lumpyincomeorvariablecontribution levels

• Greaterdisposable incomelaterinlife

• Non-working65-74yearoldswhoexpecttoreceiveassessableincome inthefuture (e.g.alargecapitalgain)

Usefulforthosewith:

Somenewopportunitiesfor65-75s?Watchnew$500klifetime limitonanynon-concessional contributions


High taxableincome(investments)– taxdeductible supercontribution

Soldassetsinretirement– abilityto

contributecash

Recontributepensionpayments

Otherproposedcontributionschanges


Division293Tax

• Additional 15%paidonConcessionalContributions

• Incomethreshold toreducefrom$300,000to$250,000

Effective1July2017

Otherproposedcontributionschanges

Introduction of‘Lowincomesupertaxoffset’

• LISCreintroduced

• 15%taxoffset(not refund) onConcessionalContributions (maximumoffset$500perperson)

Extendingspousetaxoffset

• Incomethreshold for18%taxoffset (max$540)toincreasefrom$10,800to$37,000(phaseoutat$40,000)

Effective1July2017


Questions

Aboutthespeakers


Andrew is both a chartered tax adviser and a solicitor having worked with leading taxationadvisory teams in chartered accounting firms (both big 4 and mid-tier) and a top tier law firm.

Andrew’s expertise lies in

• providing tax advice

• leading tax due diligence assignments

• general tax planning and

• providing tax compliance services

His clients include family groups, private and public companies (including listed entities) and notfor profit groups.

AndrewLam- Director,BCom,LLM,CTA

Services:Taxation, LargeCorporate,CorporateAdvisory,Not-For-Profit

t:+61292325111d:+61292200381e:[email protected]:www.hillrogers.com.au

Aboutthespeakers


Garvin’s extensive expertise and technical experience in income tax and superannuation makeshim 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

Garvinispassionateabouthelpingpeopletoplanforthetransitionbetweenworkandretirement inawaythatseestheirfinancialgoalsachieved.

GarvinJones- Director,BBus,CA

Services:SuperannuationHighNetWorth IndividualsandProfessionals

t:+61292325111d:+61292200346e:[email protected]:www.hillrogers.com.au

t+61292325111f+61292337950www.hillrogers.com.au| [email protected]

Level5,1ChifleySquare,SydneyNSW2000 AustraliaGPOBox7066,SydneyNSW2001

H.R.P.HPtyLimitedpractisingasHillRogers|ABN12003718 518MemberofMorsion KSi,anassociationofglobal independentaccountingfirms.Liability limitedbyaschemeapprovedunderProfessional StandardsLegislation.

Disclaimer:ThematerialcontainedinthispublicationisgeneralcommentaryonlyfordistributiontoclientsofHillRogersNoneofthematerialis,orshouldberegardedasadvice.Accordingly,nopersonshouldrelyonanyofthecontentsofthispublicationwithoutfirstobtainingspecificadvicefromHillRogers.HillRogers,itsPrincipalsandagentsacceptnoresponsibilitytoanypersonwhoactsorreliesinanywayonanyofthematerialwithoutfirstobtainingsuchspecificadvice.

2016 australian federal budget overview

Economy & Finance