The budget measures: Dead or alive … or mutated?
It has been several months since the government released their 2016-17 budget and there has been plenty of debate on the proposed budget measures.
It is now becoming a bit clearer which budget measures the Coalition will be able to pass with the support of Labor and independents. The three major proposal areas that will affect the majority of Australians are individual and business tax cuts and superannuation.
Income tax cuts
The government has proposed that the 32.5% personal income tax threshold be increased from $80,000 to $87,000 from 1 July 2016 as a way to protect against bracket creep. Currently it seems that Labor will side with the Coalition on this measure.
There has also been some talk by several minor parties (such as the Greens and Xenophon) to have the ‘Temporary budget repair levy’ continue beyond 30 June 2017, however at this stage there is no serious drive by either mainstream party to continue it beyond its expiration date.
Business tax cuts
The government has proposed a company tax rate reduction to 25% over 10 years, commencing with businesses that have a turnover of up to $10 million accessing a 27.5% tax rate from 1 July 2016. This issue is currently being hotly debated in parliament and does not seem like it will get through in its current form with Labor presently only willing to support reducing the company tax rate to 27.5% for businesses with a turnover of less than $2 million. Labor also does not currently support increasing the small business entity threshold.
In an effort aimed at making superannuation more sustainable the government has made several proposals to reform the system. The government’s proposed superannuation reforms have been recently modified in order to obtain Labor’s support.
Originally, the government proposed a $500,000 life time limit on non-concessional contributions and was intended to apply to all non-concessional contributions made on or after 1 July 2007. The government has recently scrapped this proposal and instead replaced it with a $100,000 annual cap (which is down from the current $180,000 cap). The bring forward three year rule will still be able to be utilised for those members under 65 years old and with a superannuation balance of less than $1.6 million. Unfortunately, members whose superannuation balance has reached $1.6 million will no longer be able to make non-concessional contributions to super. These proposals, if passed, are set to commence from 1 July 2017.
As a result of these changes, the government has also scrapped a proposed easing of the rules for contributions by those over 65 years old. The current work test requirements will remain.
Other superannuation changes proposed by the government have broad support by Labor and look to be proceeding unchanged. These include reducing the concessional cap to $25,000 and imposing a 15% tax on transition to retirement pensions. While Labor generally agrees that earnings in pension phase need to be taxed differently, they are opposed to the Coalition’s plan to cap the balance that can be transferred into retirement phase accounts to $1.6 million. These proposals, if passed, are set to commence from 1 July 2017.
It is important to note that none of these proposals are currently law. We will keep you updated on any of these and other pertinent changes to tax law.