Federal Budget 2016/2017

In this edition:

Welcome

Superannuation - Accumulation Phase Measures

Superannuation - Pension Phase Measures

Individuals & Other Measures

Small Business & Company Measures

Reducing the company tax rate over 10 years
The government will reduce the company tax rate to 25% over 10 years, by 1 July 2026.

This measure will commence from 1 July 2016, whereby the government will cut the small business company tax rate to 27.5%, and make this tax rate available to small companies with an annual aggregated turnover of less than $10 million. This turnover threshold will then be progressively increased to ultimately have all companies eligible for the 27.5% tax rate in 2023/24.

The progressive increase in the annual aggregated turnover thresholds for companies eligible for the 27.5% tax rate will be as follows:

• $25.0 million in the 2017/18 income year;
• $50.0 million in the 2018/19 income year;
• $100.0 million in the 2019/20 income year;
• $250.0 million in the 2020/21 income year;
• $500.0 million in the 2021/22 income year; and
• $1 billion in the 2022/23 income year.

In the 2024/25 income year, the company tax rate will be reduced to 27% and then be reduced progressively by 1 percentage point per year until it reaches 25% in the 2026/27 income year.

Franking credits will be distributed in line with the rate of tax paid by the company.

Increasing the small business entity ('SBE') turnover threshold

From 1 July 2016, the government will increase the SBE turnover threshold from $2 million to $10 million.

The current $2 million turnover threshold will be retained for access to the small business capital gains tax (CGT) concessions, and access to the SBITO (i.e. the increased 8% tax discount) will be limited to entities with turnover less than $5 million (as noted above).

The increased $10 million turnover threshold will allow more business entities to gain access to certain small business concessions, such as:

• The lower small business corporate tax rate 27.50% (noted above).
• The simplified depreciation rules including the ability to claim an immediate deduction for an asset purchased costing less than $20,000 until 30 June 2017.
• Simplified trading stock rules which gives businesses the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000.
• The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Targeted amendments to Division 7A (Shareholder Loans)

From 1 July 2018, the government will make targeted amendments to improve the operation and administration of Division 7A as a result of a number of recommendations from the Board of Taxation's Post-implementation Review into Division 7A.

These changes will provide clearer rules for taxpayers and assist in easing their compliance burden while maintaining the overall integrity and policy intent of Division 7A.

The amendments will include:

• a self-correction mechanism for inadvertent breaches of Division 7A;
• 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 increased certainty for taxpayers.

If you have any questions about how these measures may impact your family, please contact the team at Goodwin Chivas & Co.