2016 Federal Budget

At 7:30pm tonight, Scott Morrison delivered his first budget with a forecast budget deficit of $37.1 Billion for 2016-17, $26.1 Billion for 2017-18, $15.4 Billion for 2018-19, and $6 Billion for 2019-20.

The treasurer announced that this is not just another budget but an economic plan and a foundation to build a brighter more secure future. Some of the key objectives of this budget are to boost new investment and support jobs and growth.

Key Forecasts

2.5% growth is expected for 2016-17, 3% for 2017-18, and 3% for 2018-19 and 2019-20
5.5% unemployment is expected for the 2016-17 year until the 2019-20 year

Key Changes for Small and Medium Business

The treasurer delivered a “ten year enterprise tax plan” to support jobs and growth, because small medium enterprises are driving jobs and growth in Australia and must continue to do so.

The key changes announced in the budget that support small and medium businesses are:

From 1 July 2016, the company tax rate will be reduced from 28.5% to 27.5% for small and medium businesses;
Currently, small businesses turning over under $2m per year can access the 28.5% company tax rate. This threshold increases to $10m from 1 July 2016;
The above turnover threshold continues to increase from $10m to $25m from 1 July 2017, to $50m from 1 July 2018, and to $100m form 1 July 2019. From 1 July 2023, there will be no turnover threshold and all Australian companies will be taxed at 27.5%. From 1 July 2026, the company tax rate will reduce to 25% for all Australian companies;
From 1 July 2016, the current 5% tax discount (up to $1,000) for unincorporated small businesses, i.e. sole traders, will increase to 8%;
The current small business entity tax concessions that are available for businesses turning over under $2m per year, will be available to businesses turning over under $10m per year from 1 July 2016. This includes the immediate tax deduction for assets costing less than $20,000.

Key Changes for Individuals

The treasurer announced that this budget backs full time wage earners by preventing them moving into the second highest tax bracket. This will be achieved by increasing the start of the 37% tax bracket from $80,000 per year to $87,000 per year.

The treasurer also made the following announcements in relation to individuals:

The current 2% deficit levy on taxable incomes over $180,000 will end as planned on 30 June 2017;
The government will not remove or limit negative gearing;
There are no changes to Capital Gains Tax and GST in this budget.

Superannuation

Scott Morrison announced that “becoming financially independent in retirement is one of life’s greatest challenges and achievements”. He has, therefore, announced a number of superannuation changes with the purpose of supporting those who are most at risk of being dependant on the aged pension in retirement. These superannuation changes also raise revenue for the government by reducing access to the generous concessions for higher income earners.

The key superannuation changes are:

From 1 July 2017, there will be a retrospective transfer balance cap of $1.6m on superannuation accounts moving from accumulation phase to the tax free pension phase. This will apply to future pension accounts as well as retrospectively to current pension accounts;
From 1 July 2017, concessional contributions will be taxed at 30% for taxpayers earning more than $250,000. This currently applies to taxpayers earning over $300,000;
From 1 July 2017, the annual cap on concessional contributions will be reduced to $25,000 for all taxpayers;
From tonight, a lifetime non-concessional contributions cap of $500,000 will apply to everyone. This is not retrospective so people who have already contributed more than $500,000 will not have to remove money from their superannuation funds. However, the lifetime cap covers contributions made since 1 July 2007 so people who have already exceeded $500,000 between 1 July 2007 and budget night cannot make additional non-concessional contributions;
From 1 July 2017, earnings from assets supporting transition to retirement pensions will no longer be tax free;
From 1 July 2017, people with superannuation balances below $500,000 will be able to carry forward 3 years of concessional contributions cap to allow them to make “catch up” contributions;
From 1 July 2017, all people aged under 75 will be able to claim tax deductions on personal concessional contributions – this is currently only available to self-employed people;
From 1 July 2017, a low income superannuation tax offset will apply to refund tax, up to $500, paid on concessional contributions by people earning less than $37,000.