Monthly Archives: May 2016

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Federal Budget 2016 Highlights

2016/17 Federal Budget Highlights

The Federal Treasurer presented the government budget on 3 May 2016. The Budget sets out the government’s economic plan to facilitate Australia’s transition from the mining investment boom to a stronger, more diversified new economy.
The tax and superannuation highlights are set out below.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.

 

Individuals and families

  • The threshold at which the 37% marginal tax rate threshold for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.
  • The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year.
  • 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.
  • Income tax exemptions will be provided for ADF personnel deployed in Afghanistan, the Middle East and in international waters.
  • Six organisations have been added to the list of specifically-listed deductible gift recipients.

Superannuation

  • The threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000.
  • The tax exemption on earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017.
  • A lifetime non-concessional contributions cap of $500,000 will be introduced.
  • The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017.
  • Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.
  • From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
  • A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017.
  • The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased to $37,000 from 1 July 2017.
  • A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017.
  • The anti-detriment provision in respect of death benefits from superannuation will be removed from 1 July 2017.

Small business

  • The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016 for the purposes of accessing certain existing income tax concessions. The increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions.
  • 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 current cap of $1,000 per individual for each income year will be retained.
  • GST reporting requirements for small businesses will be simplified from 1 July 2017.

Other enterprises

  • The company tax rate will be progressively reduced to 25% over 10 years.
  • 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.
  • Tax incentives for investing in early-stage innovative companies are to be expanded.
  • Funding arrangements to attract more venture capital investment will be expanded.
  • A new tax and regulatory framework will be introduced for two new types of collective investment vehicles.
  • The proposed measure addressing the double counting of deductible liabilities under the tax consolidation regime announced in the 2013/14 Federal Budget will be modified.
  • The treatment of deferred tax liabilities under the tax consolidation regime will be amended.
  • An integrity measure concerning liabilities arising from securitisation arrangements announced in the 2014/15 Federal Budget will be extended to also apply to non-financial institutions with securitisation arrangements.
  • The taxation of financial arrangements (TOFA) rules will be reformed and new simplified rules will apply from 1 January 2018.
  • The tax treatment of asset backed financing arrangements such as deferred payment arrangements and hire purchase arrangements will be amended.

GST and other indirect taxes

  • GST will be extended to low value goods imported by consumers from 1 July 2017.
  • A discussion paper on the “double taxation” of digital currencies under the GST regime has been released.
  • Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017.
  • 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.
  • 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.
  • Access to refunds under the Indirect Tax Concession Scheme has been granted or extended to diplomats and consuls from Cyprus, Estonia and Finland as well as the Organisation for the Prohibition of Chemical Weapons.

Multinational profit shifting and international

  • A 40% tax on the profits of multinational corporations that are artificially diverted from Australia will be introduced from 1 July 2017.
  • Transfer pricing rules will be amended to give effect to OECD recommendations, effective from 1 July 2016.
  • Rules developed by the OECD to eliminate hybrid mismatch arrangements will be implemented from 1 January 2018.
  • Administrative penalties imposed on significant global entities will be increased from 1 July 2017.

Tax administration

  • A Tax Avoidance Taskforce will be established within the ATO to undertake enhanced compliance activities targeting multinationals, large public and private groups, and high-wealth individuals.
  • Individuals who disclose information on tax avoidance to the ATO will receive stronger protection under the law from 1 July 2018.
  • The government is encouraging all companies to adopt the Tax Transparency Code (TTC) from the 2016 financial year.
  • The operation of the Australian Public Service including the ATO will be reviewed to achieve efficiencies and manage their transformation to a more modern public sector.

Newsletter: May 2016

Tax planning

There are many ways in which entities can defer income, maximise deductions and take advantage of other tax planning initiatives to manage their taxable income. Taxpayers should be aware that they need to start the year-end tax planning process early in order to maximise these opportunities. Of course, those undertaking tax planning should be aware of the potential application of anti-avoidance provisions. However, if done correctly, tax planning can provide a number of tax savings.

 

Deferring assessable income

 

 

  • Income received in advance of services being provided is generally not assessable until the services are provided.
  • Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June in order to defer the income.
  • A taxpayer is required to calculate the balancing adjustment amount resulting from the disposal of a depreciating asset. If disposal of an asset will result in assessable income, the taxpayer may consider postponing the disposal to the following income year.
  • Rollover relief may be available for balancing adjustments arising from an involuntary disposal of assets where replacement assets are acquired.

 

Maximising deductions

Business taxpayers

 

 

  • Taxpayers should review all outstanding debts before year-end to identify any debtors who may be unable to pay their bills. Once a taxpayer has done everything in their power to seek repayment of the debt, they may consider writing off the balance as bad debt.
  • The entitlement of corporate tax entities to deductions in respect of prior year losses is subject to certain restrictions. An entity needs to satisfy the “continuity of ownership” test before deducting prior year losses. If the continuity of ownership test is failed, the entity may still deduct the loss if it satisfies the same business test.
  • A deduction may be available on the disposal of a depreciating asset if a taxpayer stops using it and expects never to use it again. Therefore, asset registers may need to be reviewed for any assets that fit this category.
  • Small business entities are entitled to an outright deduction for the taxable purpose proportion of the adjustable value of a depreciating asset, subject to conditions.

 

Non-business taxpayers

 

 

  • Non-business taxpayers are entitled to an immediate deduction for assets that are used predominantly to produce assessable income and that cost $300 or less, subject to conditions.
  • Self-employed and other eligible people are entitled to a deduction for personal superannuation contributions, subject to meeting conditions such as the “10% rule”.

 

Companies

 

 

  • Companies should ensure that all dividends paid to shareholders during the relevant franking period (generally the income year) are franked to the same extent to avoid breaching the “benchmark rule”.
  • Loans, payments and debts forgiven by private companies to their shareholders and associates may give rise to unfranked dividends that are assessable to the shareholders and their associates. Shareholders and entities should consider repaying loans and making payments on time, or have appropriate loan agreements in place.
  • Companies should consider whether they have undertaken eligible research and development (R&D) activities that may be eligible for the R&D tax incentive.
  • Companies may consider consolidating before year-end to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.

 

 

Trusts

 

 

  • Taxpayers should review trust deeds to determine how trust income is defined. This may have an impact on the trustee’s tax planning.
  • Trustees should consider whether a family trust election (an FTE) is required to ensure that any losses or bad debts incurred by the trust will be deductible and that franking credits will be available to beneficiaries.
  • Taxpayers should avoid retaining income in a trust because it may be taxed in the hands of the trustee at the top marginal tax rate.

 

Small business entities

 

 

  • From 2015–2016, the tax rate applicable to small business entities that are companies is 28.5% (rather than the standard 30% rate) and other types of small business entities are entitled to a tax discount in the form of a tax offset.
  • Small business entities are entitled to an immediate deduction for certain pre-business expenditure incurred after 30 June 2015.
  • Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.
  • An optional rollover has been introduced for the transfer of business assets from one entity to another for small business owners who change the legal structure of their business.
  • A CGT “look-through” treatment for eligible earnout arrangements has been introduced.
  • From the 2016–2017 FBT year, small business entities will be able to provide more than one work-related portable electronic device to an employee and claim the FBT exemption for each device, even if the devices have substantially identical functions and are not replacement items.

 

Capital gains tax

 

 

  • Taxpayers may consider crystallising any unrealised capital gains and losses to improve their overall tax position for an income year.

 

Superannuation

 

 

  • Individuals who wish to take advantage of the concessionally taxed superannuation environment should keep track of their contributions.
  • Individuals with salary sacrifice superannuation arrangements may want to have early discussions with their employers to help ensure contributions are allocated to the correct financial year.
  • Individuals earning above $300,000 are subject to an additional 15% tax on concessional contributions. However, despite the extra 15% tax, there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on their contributions up to the relevant cap.
  • Self managed super funds (SMSFs) have been reminded that if they have investments in collectables or personal-use assets that were acquired before 1 July 2011, time is running out to ensure they meet the requirements of the superannuation law for these assets.

 

Fringe benefits tax

 

 

  • The rules for individuals claiming car expense deductions have changed. As a result, if employers reimburse expenses relating to an employee’s use of their own car, only two methods are available for calculating the taxable value of this fringe benefit (when employers apply the “otherwise deductible rule”).
  • A separate gross-up cap of $5,000 has been introduced for salary sacrificed meal entertainment and entertainment facility leasing expenses for certain employees of not-for-profit organisations. Affected individuals may want to discuss it with their employers.

 

Individuals

 

 

  • For the 2015–2016 income year, the general tax-free threshold available to Australian resident taxpayers is $18,200.
  • Australians who have student debts and are travelling or living overseas will soon have the same repayment obligations as people who are still living in Australia.