Federal Budget 2017: Making the right choices and securing better days ahead……perhaps for some?

OVERVIEW

According to the Federal Treasurer, Scott Morrison, the 2017-18 budget is intended to be a “practical” budget. Mr Morrison pointed out that the economic changes we’ve experienced over recent years have delivered overall benefit but still left many Australian’s “digging deep”, with not all sharing in the nation’s growth and prosperity. Many of our small businesses and SMEs have gone without just to keep their businesses open.

So what does this budget hold for families and businesses which makes it “practical” and delivers on Mr Morrison’s vision of “fairness” and “opportunity”? Well, depending on where you sit there are winners and losers. Overall however there are fewer significant changes when compared to budgets in prior years, indicating a cautious Government looking to win back much needed community support.

Super

This budget presents nothing like the changes put forward last year which affect super. However the Government is proposing adjustments to how property with debt is treated in SMSF, and there is good news for ‘downsizers’ who can benefit from a new non-concessional contribution incentive.

Business

There is some positive support for business in the form of extending the instant asset write-off and implementing the first phase of the 10-year Enterprise Tax Plan. Importantly, the Government is proposing significant initiatives across infrastructure and health which are designed to create “more and better paid jobs” across all markets.

The Government says that the global economic outlook is good and that we can expect 3% real growth rebound over the next two years.

Individuals & Families

Mr Morrison spoke of the pressures on families and that we are “moving to the end of a difficult period”. Initiatives for individuals and families are a key feature of this year’s budget. However, changes to the Medicare levy are earmarked to fund the National Disability Insurance Scheme and the new “Guarantee Medicare Bill” will come at a cost to taxpayers. Stimulating housing stock is designed to provide affordable housing as well as jobs growth, while higher education students will find their costs increase and pensioners will win back some benefits. 

INDIVIDUALS & FAMILIES

Changes to Personal Taxes

  • 2% Debt Levy wound back

Some good news for taxpayers with taxable incomes which exceed $180,000 – the debt levy of 2% that increased the tax rate for these income earners to 49% will come to an end on 30 June 2017 with no indication that this will be reintroduced.

  • Medicare Levy Up

Medicare is getting a boost but the counter is a measure predicted to make $8.2billion for the Government over four years.

Most workers will be hit hard when the Medicare levy increases from 2% to 2.5% of taxable income from 1 July 2019 to fund the National Disability Insurance Scheme.

Individuals will only be exempt if their income is below the threshold of $21,655 for singles, $36,541 for families and $34,244 for pensioners.

Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

  • Travel Expenses related to residential rental properties disallowed

From 1 July 2017 with the aim of gaining $540million in revenue, travel expenses related to inspecting or collecting rent for a residential rental property will be disallowed.

  • Depreciation deductions limited for residential rental properties

To address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value, from 1 July 2017, investors can only claim depreciation on plant and equipment they actually acquire and not on items that are acquired from the previous owner of the property.

  • CGT Discount increased to 60% for “affordable housing” investments

From 1 January 2018, the CGT discount will increase from 50% to 60% for capital gains made by resident individuals from the sale of investments in “Affordable Housing”.

“Affordable Housing” are properties that are:

  • managed through a registered community housing provider;
  • provided to low to moderate income tenants;
  • with rent charged at a discount below the private rental market rate.

In addition, you must also own the property for a least three years to access the extra discount.

  • Purchasers of new residential properties to remit GST

From 1 July 2018, if you acquire a newly constructed property or new subdivision and GST is included in the purchase price, you will be required to remit the GST directly to the ATO at the time of settlement.

Previously, the developer who sold the property would collect the GST and remit the amount to the ATO.

  • New HELP repayments and thresholds for higher education debt

From 1 July 2018 a new minimum threshold of $42,000 will be established with a 1% repayment rate.  Currently the minimum repayment threshold for the 2017/2018 year is $55,874 with a repayment rate of 4%.

Foreign Residents

Foreign investors in Australian residential property are facing tougher rules. This includes the removal of the main residence Capital Gains Tax exemption, tightened compliance and a cap of 50% sales to overseas investors in new developments. There will also be a levy on all foreign investors who fail to either occupy or lease their property for at least six months of the year.

  • Capital Gains Tax Changes

Individuals who are foreign or temporary residents will no longer have access to the CGT main residence exemption from 9 May 2017. Existing properties held before this date will continue to be exempt until 30 June 2019.

Currently, the foreign resident CGT Withholding rate applies to Australian real property or related interests valued at $2million or more. From 1 July 2017 not only will the threshold be reduced to $750,000 but the rate will be increased from 10% to 12.5%.

  • Annual Levy on vacant residential properties

As a measure to make more rental properties available, a charge of at least $5,000 will be levied annually on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months.

The measure will apply to foreign investors who make a foreign investment application for residential property from 9 May 2017.

  • Foreign ownership in new developments restricted to 50%

With the aim of increasing housing stock to Australian purchasers, a 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates from 9 May 2017.

New dwelling certificates are granted to a property developer and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchase seeing their own foreign investment approval. The current certificates do not limit the sales that are made to foreign purchasers.

New & Existing Home Owners

  • Major Bank Levy

A new major bank levy is to be implemented affecting five of Australia’s biggest banks in an effort to level the playing field among big and small bank lenders. The Government proposes to monitor the potential impact on residential mortgage pricing with the aim to ensure that the levy is not passed on through mortgage pricing and fees to borrowers.

  • Access to Super for first home deposit

From 1 July 2017, individuals will be given the option of piggybacking on their superannuation to access a kind of super-charged savings account, which will allow savers to salary sacrifice up to $30,000 – with $15,000 in a single year – from their pre-tax income. It will receive the same favorable tax treatment as superannuation.

Then from 1 July 2018, individuals will be able to withdraw the contributions and the earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal rate, less a 30% tax offset.

Pensioners

The Government will provide $268.9 million over two years for a one-off winter energy payment in 2016-17 of $75 to singles and $125 per couple.

The pensioner concession card will be restored to those who lost it after the pension assets test change introduced earlier this year. Seniors will regain access to state and territory based concessions that were lost after the changes.

The Government will also provide $5.5 billion for home support services for the elderly as Australia’s population continues to age. However the residency requirements will be tougher, with recipients required to have 15 years of continuous Australian residence in order to access the support funding.

Anti-vaxxers “No Jab No Pay”

Parents who don’t vaccinate their children will be $14-a-week worse off, with $28 set to be wiped from their family tax benefits every fortnight.

The measure, which will start from July 2018, is expected to raise $15million over four years, while sending a tough message to those who fail or refuse to immunise their children.

Welfare recipients

A crackdown on unemployed Australians with drug and alcohol habits will include penalties for those who fail to turn up to appointments or work-for-the-dole placements due to intoxication, with payments to be reduced or cancelled.

A further initiative will target single parents who attempt to collect multiple welfare payments. Single-parent households will be subjected to closer scrutiny to verify any relationship status.

Smokers

Roll-your-own tobacco and cigars will soon be more expensive under a plan to bring their tax treatment in line with pre-made cigarettes. The change will be phased in over four years from 2017 to 2020, to coincide with the existing annual 12.5 per cent tobacco tax increases which occur on 1 September each year.

The move is expected to claw an extra $360million in tax revenue.

A boost for those in regional areas

Those living in regional areas can look forward to some improved infrastructure. Firstly, the government will provide an extra $8.4billion in equity investment to the Australian Rail Track Corporation to deliver inland rail. It’s earmarked as a boost for regional Australia and a boon for jobs growth.

There will be $28.5million to establish the Regional Investment Corporation to streamline the delivery of $4 billion in concessional loans. This includes the $2 billion National Water Infrastructure Loan Facility and the $2 billion Farm Business Concessional Loan Scheme.

Superannuation

Most had thought taxation of super would be untouched given the significant changes which were announced in last year’s budget.

  • SMSFs with loans targeted for $1.6million cap

The Government proposes to introduce legislation confirming that from 1 July 2017, the use of Limited Recourse Borrowing Arrangements will be included in a member’s total superannuation balance and transfer balance cap.

This is a highly controversial proposal because, in addition to capturing a larger amount against the transfer balance cap by adding outstanding loans to member balances, the interplay with the total superannuation balance could threaten the ability of the member to make a contribution which in turn could affect the fund’s ability to service the loan.

  • Added bonus for ‘downsizers’

Older Australians will benefit from the incentive to ‘downsize’ their home property.

From 1 July 2018, an individual aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their home. The key requirement is that they must have owned the home for at least 10 years.

The contributions are in addition to existing rules and caps and exempt from the works test, the $1.6million total superannuation balance test and age test for making non-concessional contributions.

This is available to both members of a couple for the same home. 

SME BUSINESS

  • Instant asset write-off extended

The $20,000 instant asset write-off concession will be extended for another year. This now applies to businesses with a turnover of up to $10million since the recently legislated expansion of the definition of a small business which was announced in last year’s budget. It’s noted that this is potentially more valuable in the current year due to the 2% reduction in the top marginal personal income tax rates (discussed above).

  • More support for small business

The Government will provide $15million over two years to undertake a small business information campaign to educate the small business community about what programs and support are available to assist them.

  • CGT concessions to tighten

The Small Business CGT Concessions will be tightened to deny eligibility for assets which are unrelated to the small business. This effectively closes a loophole whereby ownership interests in larger businesses did not count towards the tests for determining eligibility for the concessions. The exact mechanism to achieve this result remains to be seen, however it’s expected that where access to the concessions is established through the $2million turnover test, the relevant asset that the concession may apply to must be used in that business (or another business you are connected to), rather than, for example, a shareholding in another active business or an unrelated active asset.

  • Accessing Crowd-Sourced funding

The Crowd-Sourced Equity Framework (CSEF) regime will be extended to proprietary companies through additional funding with the aim of facilitating crowd-sourced financial contributions.

  • Skilling Australia

Businesses employing foreign workers on skilled visas will be subject to a new regime including an upfront levy. The levy is designed to fund a new ‘Skilling Australia Fund’. For each employee on a Temporary Skill Shortage visa the levy will be an upfront payment of $1,200 for small business (<$10m turnover) or $1,800 for other businesses. For each employee being sponsored for a subclass 186 or 187 visa the payment required will be $3,000 for small business and $5,000 for other businesses.

  • Increased reporting for courier and cleaning businesses

The taxable payments reporting system (TPRS) currently in place in the building industry will be extended to contractors in the courier and cleaning industries. Business owners will be required from 1 July 2018 to report payments (individual and total for the year) that they make to contractors. The first annual report will be due in August 2019.

  • A boost for manufacturing, tourism and Indigenous businesses

Just over $100million will be allocated over five years to establish an Advanced Manufacturing Fund to promote research and capital development for high technology manufacturing businesses.

Indigenous businesses and entrepreneurs will receive increased business support, albeit from a new department, including training, loan products and capital support.

$5million will be provided for tourism operators in Queensland.

Business Administration

The Government will seek to incentivise the States and Territories to cut “red tape” for small business and SMEs with rewards when they do. It remains to be seen what red tape is to be targeted and how and what the rewards will include.   

HEALTH SECTOR CHANGES

  • Lifting the Medicare freeze

The Medicare Benefits Schedule (MBS) will be unfrozen at an expected cost of $1billion over four years. The bulk-billing incentives for General Practitioners will be indexed from 1 July 2017, standard consultations by General Practitioners and specialist attendances will be indexed from 1 July 2018, and from 1 July 2019 indexation will apply to specialist procedures and allied health services.

Diagnostic imaging items on the MBS will be indexed from 1 July 2020. There will also be some minor amendments to MBS items with a focus on cancer screening.

Improvements to MBS compliance arrangements and debt recovery practices are anticipated to result in combined savings of $104million over four years. It will target unusual business billing and “improve the consistency of administrative arrangements”.

The MBS Review Taskforce will continue the review of the MBS with the aim of improving patient outcomes and $67million will be spent in 2017-18 in modernising the health and aged care payments system.

  • Hospital & health funding increases

The Government has indicated a total of $10.2billion for vital health funding. This includes additional funding of $2.8billion to be provided to a range of hospitals and $1.4billion to health research.

Up to $12.5million over six years will be allocated to the Central Coast Health & Medical Campus establishment in order to stimulate jobs and training access and participation.

There will be $115million for mental health initiatives, with $80million for severe mental illness support.

  • Changes to the PBS

The PBS will increase statutory price reduction arrangements with medicine manufacturers resulting in Government savings of $1.8billion over five years and reducing the cost of medicines for the public. A much needed win for individuals and families.

  • My Health Record System

Funding will be provided for the My Health Record system and the previously mooted national opt-out arrangements will be implemented.

  • NDIS

The National Disability Insurance Scheme is to be fully-funded by the 0.5% increase to the Medicare Levy from 2020 with legislation also to be passed to guarantee Medicare and the PBS. 

OTHER ENTERPRISES

Extension to the ‘Google Tax’ rules

Multinational anti-avoidance rules (such as the Diverted Profits Tax) will be extended to include partnerships and trusts. This will apply retrospectively from 1 January 2016.

 

Find out more

We are available to discuss your specific circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity Adviser today or give us a call on 1800 855 844.

EOFY 2016: It’s all about the money!

Siobhan article EOFY all about the money

First published in Business First Magazine’s June/July 2016 edition.

Now could be the time for a financial reboot that is going to make the future smoother by following 3 key criteria to improve your bottom line and bank balance.  Here are 3 key things for you to consider.

  1. Cash flow planning is paramount!

Regardless of size, cash flow management can be a challenge for business owners. Tips to help improve your cash position include:

  • Have a cash flow forecast for the coming year. This will help you better understand the ins and outs over the next 12 months.
  • Make sure you track your cash flow forecast against your actual cash in and out the door at least monthly.
  • Don’t use the cash in the business like a personal bank account! Break this habit if you are. Work out an amount you need each month and stick to it.
  • Be on top of your debtors and creditors. Understand what your collection days look like. Are you in line with industry average?
  1. Making the most of Technology

If you’re looking for the opportunity to save time, money and hassles consider turning to cloud-based software solutions. Whether you’re a fan of cloud accounting or not, current technology gives businesses opportunities, such as:

  • Access to valuable information in real time about business performance and benchmarks;
  • Save money by eliminating the purchase of software programs and servers to host the traditional accounting packages;
  • Allow seamless workflow amongst business teams and advisers by having data available to all authorised users at all times.

Now is the best time to talk to your advisers. Don’t just have the conversation about performance and results once a year – do it regularly and ask them how you can improve your business.

  1. Year-end tax planning

There are still opportunities for businesses to reduce an overall tax liability. Here are a few noteworthy items to have on your checklists:

  • Bring forward any creditors you know will come due in July or spending the money in June instead of deferring it until July;
  • Conduct a stocktake before year end to work out what stock can be written off;
  • Consider maximising the concessional superannuation contributions for key individuals. Don’t forget that you don’t get a tax deduction for super contributions until it has been paid into the fund;
  • Make sure you have met your superannuation guarantee obligations (9.5% for 2016) for all employees;
  • Review your debtors list and write off any bad debts;
  • Review your FBT costs and determine if it’s possible to reduce this cost;
  • Maximise work related car expense deductions. With changes applying from 1 July 2016 to limit the methods under which you can claim car expenses, it may be worth considering keeping a log book and record of expenses. Otherwise the maximum (under the only other available method) is 66 cents per business kilometre.

Understanding Small Business Entities

The big winners in terms of accessing various new and existing tax concessions are small business entities – businesses with an aggregated turnover less than $2m.  While in the Federal Budget the government announced a change to the definition of a small business entity, for the purposes of accessing a number of tax concessions, the current definition remains:

Reduction in company tax rate

The income tax rate payable by a company carrying on business has been reduced for the year ending 30 June 2016 by 1.5% to 28.5%.

Small Business Tax Offset

If you are an individual carrying on a business via a trust, partnership or sole trader and your taxable income includes assessable business income, then for the year ending 30 June 2016 you may be eligible to a maximum tax offset of $1,000.

Immediate Deduction for New Assets

One of the concessions for all small business is the ability to get an immediate deduction for depreciating assets that cost less than $20K (generally $1k).  You must ensure that the asset is first used or installed and ready for use by 30 June 2017. Note that the government did announce in the Federal Budget to extend this date further.

Restructuring

If you a small business operating via a trust and keen to access the lower company tax rate, changes to tax rules from 1 July 2016 will significantly broaden the landscape for small business owners to restructure with generally no immediate tax consequences.

Roll-over relief will be available where a small business entity transfers a business asset including goodwill to another small business entity that is part of the same family group under a “genuine business restructure”.

Together with the existing capital gains tax concessions for small business, the new concessions provide small business entities a significant opportunity to restructure for genuine commercial reasons such as asset protection, estate and succession planning.

There could also be the added benefit of tax savings that arise from a restructure so speak with your adviser about the options for your business.

 

Federal Budget 2016: Living within our means…or robbing Peter to pay Paul?

2016 Federal Budget Analysis (Small)

Overview

In handing down his first national budget, the Federal Treasurer, Scott Morrison was quick to remind us that these are very sensitive times. According to Mr Morrison, the budget delivered on 3 May is intended to be a foundation upon which we can build a brighter and stronger economy for Australia to ensure our future prosperity.

A significant component of this “brighter and stronger” economy will rely on making not inconsiderable changes to the fabric of our retirement system, while simultaneously providing a big bonus for not just small business. In fact we can say that small business isn’t so small anymore!

1 July 2017 is earmarked as a major date for many reforms set to shape our economy. Many of these are bold changes! Not unsurprisingly for this government, we’ll get good incentives for business owners but it comes at the expense of self-funded retirees and higher income earners.

Super

Heralding the biggest changes to superannuation since 2007, self-funded retirees and higher income earners will bear the brunt of the changes. The changes on the face of it seem contradictory to the essence of being financially independent and free of welfare support in retirement. It seems the intention of the changes is to continue to ensure the “integrity” of the superannuation system by stopping it from being a tax planning and estate planning mechanism. For the first time we’ll see the purpose of superannuation enshrined in legislation as “to provide income in retirement to substantiate or supplement the Age Pension”.

Business

Business reaps rewards with a 10 Year Enterprise Tax Plan, aimed at helping small and medium businesses – currently employing around 4.9 million workers  – to continue to drive jobs and growth. The plan involves lowering company tax from 1 July 2016 to 27.5% and increasing the threshold for businesses who can access this from $2m up to $10m. Our traditionally defined medium enterprises are a key winner here. But the big end also wins as the company tax rate is earmarked to be progressively reduce to 25% for all companies over a 10 year period.

The $20,000 immediate deduction for asset purchases by a ‘small’ business is extended to 30 June 2017. Note the eligibility for this has expanded to include businesses with turnover up to $10m.

Beware the Tax Avoidance Taskforce! With its extra funding the taskforce is expected to recover $3.7b by targeting multi-nationals, high net worth individuals and private groups who attempt to avoid their Australian tax obligations.

Individuals

Some 500,000 tax payers will be pleased to see the threshold at which the marginal tax rate of 37% applies, increase from $80,000 to $87,000 from 1 July this year. This might just help to take some of the sting out of the application of GST to low value goods imported by consumers (yes, that online shopping basket!) due to start on 1 July 2017.

Sigh of relief…no changes to negative gearing anytime soon.

Coinciding with an official interest rate drop of 0.25% on the same day as the budget, the scene is well and truly set to put a flame under small business, making it burn brightly for our nation.

This isn’t a budget about having more money in your hip pocket, it’s about having faith in building for the future.

Individuals and Family

Personal Income Tax Relief

The big winners are middle income earners. With what the Government terms a genuine tax cut, 500,000 Australians will be able to ‘earn more without being taxed more’. For at least the next 3 years, the average full-time wage earner will not move into the 37% tax bracket.

The tax bracket at which the tax rates increases from 32.5% to 37% will change from $80,000 to $87,000 from 1 July 2016.

Medicare Levy and Medicare Levy Surcharge Thresholds to Increase

Low income earners will continue to be exempted from paying the Medicare Levy (2%) and the Medicare Levy Surcharge (1%).

The Government will increase the Medicare Levy low income thresholds for singles, families and seniors and pensioners from 2015-16 income year.

Medicare Levy Surcharge and Private Health Insurance Rebate Thresholds

To cover the cost of increases in the low income thresholds noted above, the thresholds will be paused for a further 3 years.  They will not be indexed in line with CPI increases.

Other

Other changes proposed that impact families include the Child and Adult Public Dental Scheme. All children and adult concession card holders will be eligible for fully funded dental services as part of the Government’s reforms to the new Child and Adult Public Dental Scheme.

Superannuation

The Government has certainly taken a very large knife to superannuation tax concessions.

New ‘Transfer Balance Cap’

By far the biggest change to the taxation of superannuation earnings since 2007 will see a cap of $1.6m introduced from 1 July 2017 to the amount that can be tax-free during retirement phase.

Members with large balances in super that currently pay no tax on earnings that support tax-free retirement benefits to members, will see a significant change in their super funds tax position as result of the cap.

Where an individual accumulates amounts in excess of $1.6m, they will be required to maintain this excess in an accumulation account where earnings will be taxed at the concessional rate of 15%.

Members already in accumulation phase with balances above $1.6m will be required to reduce their retirement balance to $1.6m from 1 July 2017.  Excess balances will need to be converted to accumulation phase accounts.

Lifetime Cap on Non-Concessional Superannuation Contributions

A life-time non concessional cap of $500,000 will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year or $540,000 over three years for individuals aged under 60.

This rule will commence from 3 May 2016 and will take into account all non-concessional contributions made on or after 1 July 2007.

However, contributions made before 3 May 2016 cannot result in an excess.  Any excess contributions made after this date will need to be removed or be subject to penalty tax.

Changes to Annual Concession Caps

From 1 July 2017 the annual cap on concessional superannuation contributions will also be reduced to $25,000. Currently the caps for those under age 50 is $30,000 and those aged 50 and over is $35,000.

Tax Exemption Supporting Transition to Retirement Income Streams Removed

Currently individuals over preservation age, i.e. 55 but not retired can commence a Transition to Retirement Income Stream. The earnings in the fund supporting the income stream are exempt from tax.

From 1 July 2017 tax exemption on earnings from assets supporting Transition to Retirement Income Streams as predicted will be removed.

Changes to Contribution Rules for People Aged 65 to 74

Currently there are minimum work requirements for individuals aged 65 to 74 who want to make superannuation contributions.

From 1 July 2017, the restrictions will be removed and individuals under the age of 75 will no longer have to satisfy the work test and will be able to receive contributions from their spouse.

Catch-up Concessional Superannuation Contributions

Aimed at increasing the super balances of women in particular, from 1 July 2017, individuals with superannuation balances of less than $500,000 due to lower contributions, interrupted work patterns or irregular capacity to make contributions, can make catch up payments to boost their superannuation balances.

Any unused amounts from 1 July 2017 can be carried forward on a rolling basis for a period of 5 consecutive years.

Restrictions for Personal Superannuation Contribution Deductions Eased

Currently, not all individuals making a personal superannuation contributions can claim an income tax deduction due to the restrictions that apply such as having no employer support or having less than 10% of assessable income being from salaries and wages.

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions regardless of their employment circumstances.

Division 293 Tax Income Threshold Reduced

The point at which high income earners pay additional tax on contributions will be lowered from $300,000 to $250,000 from 1 July 2017.

This lower threshold will also apply to members of defined benefit schemes and constitutionally protected funds.

Low Income Spouse Tax Offset Increased

As it stands currently, the low income spouse offset provides up to $540 per annum for the contributing spouse where the receiving spouse’s income is less than $10,800.  From 1 July 2017 this low income threshold will increase to $37,000.

Low Income Superannuation Tax Offset Introduced

From 1 July 2017 low income earners will get the benefit of a tax offset, reducing the tax payable by their superannuation fund on superannuation contributions made on their behalf.

A super fund would currently pay 15% tax on concessional contributions. The low income superannuation tax offset will provide a non-refundable tax offset to the fund of up to $500 per annum for members with adjusted taxable incomes up to $37,000.

Anti-Detriment Death Benefit Provision Removed

The anti-detriment as it currently applies can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is a dependent of the member.

This provision in respect of death benefits from superannuation will be removed from 1 July 2017.

Small Business

Increased Turnover Threshold For Certain Tax Concessions

From 1 July 2016, the small business entity turnover threshold will be $10m (previously $2m).

This is a big win for small business as it allows many more taxpayers to qualify for certain tax concessions including the:

  • Lower small business company tax rate (to be reduced to 27.5% with effect from the 2016/17 year of income)
  • The simplified tax depreciation regime which includes the immediate asset write off threshold of $20,000 which will operate up to 30 June 2017
  • Simplified trading stock rules; and
  • Other concessions including the immediate deduction of professional expenses under the “blackhole” rules and the extension of the FBT exemption for work related portable electronic devices.

This measure will not affect the current $2m turnover threshold to access the CGT small business concessions.

Unincorporated Small Business Tax Discount Increased

The tax discount for unincorporated small business entities is to be incrementally increased over 10 years from the current rate of 5% to 16%.  This will coincide with the staggered corporate tax rate cuts to 25%. The current cap of $1,000 is retained.

Other Enterprises

Staggered Tax Cuts

After much speculation, the company tax rate is to be reduced to 25% on a phased in basis over 10 years. This initiative is described in the Budget Papers as the “Ten year Enterprise Tax Plan”.

Not surprisingly, the initial beneficiaries will be small businesses (i.e. companies with an aggregated turnover of less than $10m), that, commencing in FY 2016-17, will pay corporate tax at the rate of 27.5%.

This $10m threshold will be increased on a progressive basis so that by FY 2023-24 all companies, regardless of their turnover, will be subject to a corporate tax rate of 27.5%.

For those of us lucky enough to be still staggering around, it is proposed that the company tax rate will then be progressively lowered to 25% from FY 2024-25.

Targeted Amendments to Division 7A

The Government has foreshadowed targeted amendments to improve the operation and fairness of “Division 7A” i.e. private company dividend deeming rules for loans and other distributions.

This has been on the horizon for some time and is welcome news for closely held private groups.

Although light on detail, the amendments include:

  • A self-correction mechanism for inadvertent breaches of Division 7A (a positive initiative given the complex nature of these provisions and the practical every day compliance difficulties for taxpayers)
  • Appropriate safe harbour rules to provide certainty
  • Simplified Division 7A loan arrangements; and
  • A number of technical adjustments to improve the operation of Division 7A and provide greater certainty.

Broadening of Tax Incentives For Early Stage Investors

As part of its National Innovation and Science Agenda, the Government had introduced legislation giving effect to a range of concessional tax measures to encourage investment in emerging/start up innovation companies.

Subject to various requirements being met, these concessions included:

  • A 20% non-refundable tax offset capped at $200,000 per investor per year; and
  • A CGT exemption, provided investments are held for at least 3 years.

The progress of this legislation was suspended following the announcement by Prime Minister Turnbull to recall Parliament in April which in turn set the scene for a Federal election.

It’s encouraging that this initiative is still very much on the agenda and that, following further consultation with stakeholders, the Government has decided that the tax incentives will be amended for angel investors to:

  • reduce the holding period from three years to 12 months for investors to access the 10 year capital gains tax exemption;
  • include in the definition of eligible startups, a time limit on incorporation and criteria for determining if the startup is an innovation company;
  • require that the investor and innovation company are non-affiliates; and
  • limit the investment amount for non-sophisticated investors to $50,000 or less per income year in order to receive a tax offset.

Proposed Expansion of Funding Arrangements for Venture Capital Investment

The Government has amended the National Innovation and Science Agenda — new arrangement for venture capital investment to introduce measures that are designed to improve access to venture capital investment.

Modifications to Tax Consolidation Tax Cost Setting Measures

Technical amendments will be made to legislation governing tax consolidated groups to address tax benefits (i.e. step ups in the tax cost of assets) arising in the entry tax cost setting process and also to improve the integrity of the tax consolidation regime.

The start date for the tax cost setting adjustments will be deferred from 14 May 2013 to 1 July 2016.

GST and Other Indirect Taxes

GST on Low Value Goods

The powerful retail lobby group appears to have finally got their way….with effect from 1 July 2017, GST will be imposed on low value goods imported by Australian consumers i.e. products costing less than $1,000.

Under this measure, overseas suppliers with turnover in Australia exceeding $75,000 will be required to register for, collect and remit GST for low value goods supplied to consumers in Australia.

Bad News for Smokers

The price of cigarettes is set to increase significantly with tobacco excise and excise-equivalent customs duties to be subject to 4 annual increases of 12.5% from 2017 to 2020.

Wine Equalisation Tax Rebate Cap Reduced

Due to perceived integrity concerns, the Government is proposing to water down entitlements to the Wine Equalisation Tax rebate. It is hoped that this measure will better target assistance and reduce distortions in the wine industry.

Tax Administration

The ATO will receive $679m over 4 years to fund a Tax Avoidance Taskforce to enhance the ATO’s current compliance activities. The Taskforce has been tasked with the objective of recovering $3.7b in tax liabilities.

The Government says that it will also provide “whistleblowers” with improved protection under the law.

Multinationals and Profit Shifting Measures

The Government intends to hit non law abiding multinationals with a 40% diverted profits tax (DPT). Broadly, the DPT will be levied on profits deemed to have been artificially diverted from the Australian tax system.

The Australian DPT regime will apply for income years commencing on or after 1 July 2017 to significant global entities (entities and their associates with global revenue of at least $1b) that are Australian tax residents or have a permanent establishment in Australia.

The Australian transfer pricing rules are also to be strengthened with emphasis to controlled transactions relating to intangibles and hybrid mismatch arrangements.

Health Sector Specific

Some of the key measures aimed at the Health Sector include:

Medicare Benefits Schedule Paused

There will be an extension on the pause on indexation of Medicare Benefits Schedule fees for all services provided by general practitioners, medical specialists, allied health and other health practitioners until 30 June 2020.

The Government is set to achieve $925.3m over 2 years from 1 July 2018 with this measure.

Healthier Medicare

The Government intends to introduce an advanced data analytics capability to better target providers who make Medicare claims that are inconsistent with existing rules.

The estimated $66.2m in savings are intended to be directed to fund the Governments other health policy priorities.

Support for Rural and Remote Registrars

The Government intends to provide $8m over 4 years from 1 November 2016 to enable general practice registrars training on the Australian of Rural and Remote Medicine Independent Pathway to claim a higher level of Medicare benefit rebate for the services they provide while training.

Rural General Practice Grants

The Government intends to redesign the Rural and Regional Training Infrastructure Grants Program to provide a broader range of infrastructure grants to increase opportunities to teach and train health practitioners in rural, regional and remote areas across Australia.

Find Out More

We are available to discuss your circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity contact today or give us a call on ‌1800 855 844.

Don’t wait for death or divorce…Knowing how to handle your finances is a necessity

Don’t leave your spouse or partner to manage your family finances. Whatever your role, stay home parent or CFO of a top 200 company you need to have some control over your family finances.

Despite the fact that women hold more than half of the country’s private wealth and make the majority of a household’s purchasing decisions, they tend to push financial decisions to the side, often relying on a spouse or a parent to handle them.

My drive to encourage women to have some control comes from client and personal experiences. When I first met one client she was under a great deal of stress because she had just found out that her husband was having an affair and was about to go through a separation. Her only request was “are you able to help me work out what we have?” She had no idea of their financial position – not an uncommon scenario. She was married to a wealthy executive and had been the parent at home raising her 3 daughters for the past 16 years. From the time her children were born, she let go of any control over the family finances leaving it to her husband to take care of. The extent of her involvement was to sign the documents her husband placed in front of her from time to time. She was content just having access to cash when she needed and credit cards that were paid off by her husband. When he offered a lump sum of cash as a settlement that didn’t really tally even close to the value of some of the assets, she knew that she needed help.

The good news was that she recognised that she needed help. We were able to piece together the family’s financial position that resulted in her settlement being 3 times that offered to her initially by her husband.

A more recent experience involved the death of one my elderly male clients. I had always dealt with him and despite many requests for the wife to join us for meetings it was always “that’s his area, I don’t need to know”.  When the client unexpectedly passed away, the first call with the wife involved a very distressed discussion around “what do I do? Can I keep taking cash out? How do I pay the bills”. Even worse in this example was that the client had not documented many things and had most of their personal information in his head, including the location of his will. While we were able to work with the client to sort out the various concerns, it took unnecessary stress and time.

I also grew up in a household where my mother was the stay home parent while my father handled all the finances. My mother didn’t have access to any of their accounts or credit cards. She relied on a weekly allowance from my father to cover the household costs. When they divorced after 15 years of marriage, my mother walked away with 3 children and no assets. My father had no assets in his name at the time, as he had managed to transfer them to his siblings to manage.

Don’t think it won’t be you. Research shows that 9 out of 10 women will be solely responsible for finances at some point in their lives.

Some simple tips you can follow:

  • Get involved in managing the family’s finances. Understand what is going on with the investments and debt. Review all bank and investment statements monthly. Know where your money is. Keep organised records.
  • Have your own bank account and credit cards. If not at least make sure all the cash and savings accounts are in joint names.
  • Make sure your home is in joint names. This is a must to ensure that the home transfers to you automatically on death.
  • Make sure you have a copy of both wills. It’s important to understand how the assets will flow on death.

Fortunately events like this break down the barriers and encourage women to take the helm. A key part of getting on top of one’s finances, is considering how to handle both immediate, and future, finance.