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2016FederalBudgetOverviewTax&Superannuation Changes
AndrewLam&GarvinJones|31May2016
TwilightSeminar2016
FederalBudgetOverview2016
AndrewLam|DirectorTaxation|May312016
TaxationChanges
Disclaimer
Thematerialcontainedinthispublication isgeneralcommentaryonlyfordistribution toclientsofHillRogersNoneofthematerialis,orshouldberegardedasadvice.Accordingly, nopersonshould relyonanyofthecontentsofthispublicationwithoutfirstobtaining specificadvicefromHillRogers.HillRogers, itsPrincipalsandagentsacceptnoresponsibility toanypersonwhoactsorreliesinanywayonanyofthematerialwithout firstobtainingsuchspecificadvice.
TwilightSeminar|FederalBudgetAnalysis|31May2016| 4
2016FederalBudgetOverview
TwilightSeminar|FederalBudgetAnalysis|31May2016| 5
Tax Changes
Personaltax • Personaltaxratechanges
BusinessTax • Corporatetax ratereductions• Unincorporated smallbusiness taxoffset• Simplifying Division7A• Smallbusinesstaxconcessions
InternationalTax • GSTonlowvalueimportedgoods• DivertedProfitsTax• Hybridmismatches• NewTaxAvoidanceTaskforce
GeneralCommentary
• Taxcutsforindividualsandcorporatesarepositiveespeciallyforsmallbusiness
• Extendingsmallbusinesstaxconcessionsforbusinesses<$10millionispositiveandshouldresultinimmediatecashbenefitandcompliancesavings
• Ontheinternationaltaxfrontbigbusinessareatargetandtaxtransparencywillbeafocus.GiventhecontinuingworkoftheOECDandtheBEPSprojects,weexpectinternationaltaxavoidancereformswillcontinuetobeafocusoffuturebudgets.Ourtradingpartnersareheadingdownthesamepath.
• Superannuationalsoatargetandabigconcern
• Electionyear
• GSTwasnottouched(foregoneopportunity)
Pro– smallbusinessbudget
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PersonalTax
PersonalTaxRateChanges
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TaxableIncome Taxonthis income
0– $18,200 Nil
$18,201– $37,000 19%ofexcessover$18,200
$37,001– $87,000[from$80,000] $3,572plus32.5%ofexcessover$37,000
$87,001– $180,000 $19,822plus37%ofexcessover$87,000
$180,001andover $54,232plus47%ofexcessover$180,000
From1July2016
• AboveratesexcludeMedicarelevy• 2%TemporaryBudgetRepairlevyexpiresatendof2017year
BusinessTaxImportantchangesfor themiddlemarket
CorporateTaxRateReductions
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• Thecorporatetaxratewillbeprogressivelyreducedto27.5%
• For2016/17thecorporatetaxrateis27.5%forbusinesseswithturnover<$10million
• From2017/18thethresholdforaccess tothe27.5%taxratewillincreaseasfollows,seetable:
• Frankingcreditscanbedistributedinlinewithrateoftaxpaid
• Unclearwhetherthisreferstotherateoftaxpaidinyearofprofitderivationoryearthedividendispaid.
IncomeyearAnnualaggregatedturnoverthreshold
Rate(%)
2015/16 (currentyear) <$2m 28.5
2016/17 <$10m 27.5
2017/18 <$25m 27.5
2018/19 <$50m 27.5
2019/20 <$100m 27.5
2020/21 <$250m 27.5
2021/22 <$500m 27.5
2022/23 <$1b 27.5
2023/24 None 27.5
CorporateTaxRateReductions
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• From2024/25thecompany taxratewillreduceto27%,then26%,then25%
IncomeyearAnnualaggregatedturnover threshold
Rate(%)
2024/25 None 27.0
2025/26 None 26.0
2026/27 None 25.0
UnincorporatedSmallBusinessTaxDiscount
• Availabletoindividuals withbusiness incomethathasaggregated turnover<$5million
• Theunincorporated smallbusinessdiscountwillincreaseinphasesover10yearsfrom5%nowto16%in2026/27.
• Firstincreaseisfrom5%to8%on1July2016.
• Currentcapof$1,000p.a.willberetained
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SimplifyingDivision7A
• AmendmentswillbemadetotheoperationandadministrationoftheDivision7Arules
• BoardofTaxationpostimplementationreviewofDivision7A
• Self-correctionmechanism forinadvertentbreachesofDivision7Awithoutpenalty
• Simplified loanarrangements– 10years,maybenowrittenagreement required
• Safeharbourrulesforcalculatingcharge toshareholders foruseofcompanyassets
• Anumberoftechnicalamendmentstoimprove theoveralloperationofDivision7A
• Startdate:1July2018
• Governmentwillconsultstakeholdersindevelopingtheamendments
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SmallBusinessTaxConcessions
• Smallbusiness entityturnoverthreshold increasesfrom$2million to$10million
• Startdate1July 2016
• Accesstothefollowingsmallbusiness taxconcessions
• 27.5%corporate taxrate
• Simplifieddepreciationrules
• $20,000 instantassetwriteoffthreshold(until30June2017)
• Simplifiedtradingstockrules
• OptiontoaccountforGSTonacashbasisandpayGSTinstalmentscalculatedbyATO
• SimplifiedmethodforpayingPAYGinstalments
• Othertaxconcessionse.g.FBTexemptionforwork relatedportableelectronicdevicesfrom1April2016andcarparkingexemption
• The$10million thresholddoesnotapplyforaccesstosmallbusinessCGTconcessionsTwilightSeminar|FederalBudgetAnalysis|31May2016| 14
InternationalTax
GSTonLowValueImportedGoods
• GSTextendedtolowvaluegoods importedbyconsumers
• Startdate1July2017
• OverseassupplierswithAustralianturnover>$75,000mustregister
• Internationalclientsshouldassessthesemeasuresandbereadytoupdatetheirsystems
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DivertedProfitsTax
• SimilartotheUK‘google tax’
• Penaltytaxof40%ondivertedprofits
• Applies togroups with$1bnglobalturnover
• Exemption ifAustralian turnover<$25million
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HybridMismatches
• Takingadvantageofdifferential taxtreatmentofhybrid instruments
• ABoardofTaxationdiscussionpaperhasbeenreleased
• Startdate1January2018
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NewTaxAvoidanceTaskforce
• ATOtoestablishataxavoidancetaskforce
• Targetmulti-nationals, highwealthindividualsandprivategroups
• Closercooperationwithothergovernment agencies
• Expectedtorecover$3.7bnover4years
• ProjectDoIt
• Waryofredtape
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Questions
FederalBudgetOverview2016
GarvinJones|Director - Superannuation|May312016
Superannuation Changes
Top5Changes
1. ConcessionalContributioncaps$25,000
2. NonConcessionalContributionCap$500,000LifetimeCap(NCCfrom1July2007,effective3May2016)
3. $1.6millionCaponPensionbalances
4. RemovalofthetaxfreeincomeforassetssupportingTransitiontoRetirementIncomeStreams(TRIS)
5. Division293taxthreshold,$250,000
• ChangesapplytoALLSuperfunds
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Thingsthathavenot changed
• TaxFreePensionsandLumpSums– 60andover
• Minimum andMaximumPensiondrawdownfactors
• AccesstoSuperBenefitsandPreservationRules
• Reachpreservationageand
• Meetaconditionofrelease (retirement)
• ConcessionalContributions for2015/16and2016/17
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Pensions
$1.6mpensioncapperperson
• Assessed at
• 1July2017forexistingpensions
• Commencementdayfornewpensions
• Pensionbalancesinexcessofcap
• Mustberolledbacktoaccumulation
- Usualpreservation/taxrulesapplytorolledbackamount
- Investment incometaxableagain(15%onincome,10%onCG)
• Orremovedfromsuper
Otherwise,taxonbothexcessandassociatedearnings
Effective1July2017
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$1.6mpensioncapperperson
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• Earningsonpensionbalanceafterassessmentdonotcounttowardscap
• Indexation:CPI,in$100kincrements
• Proportionatemethodwouldbeused todeterminehowmuch‘capspace’available
Effective1July2017
$1.6mpensioncap:example
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Existingpension• $1.2m• 75%ofcap‘used’
$1.6mcapindexedto$1.7m
1July20211July2017
Proportionatemethodandindexation
1July2022
Pensionbalancenow:$1.5mAccumulationbalance:$1m
Howmuchaccumulation$couldbeconvertedtopension?
• 25%of‘capspace’available• 25%x$1.7m=$425k
$1.6mpensioncap:example
• JaneandBobare70
• $2meachinsuper
• Currently,allinpensions (oneeach)
• Fundearnsaround$200kpa
• Notaxpaid
• Theydrawaround$300kpainpensionsandwanttokeepitaround there(eventhough theminimum is$200k)
Balancesinexcessofcap
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Effectof$1.6mpensioncap:excess
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Jane$2m
Bob$2m
$1.6m
$0.4m
Pension
Accumulation
$1.6m
$0.4m Accumulation
Pension
Fund Incomenowonly80%taxfree
20%($40k)taxable
Approx.$6ktax
Ifrolledbackamountsremaininsuper...
Effectof$1.6mpensioncap:excess
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$1.6m
$0.4m
Pension
Accumulation
Oneapproach:
Whatabout theirincome($300k,$150keach)?
Drawaslittleaspossible5%x$1.6m=$80kNotaxtopay– over60
Therest- $70k(17.5%ofthebalance)LumpsumnotapensionNotaxtopay– over60
Effectof$1.6mpensioncap
• Investmentreserves
• Holdbackinvestmentreturnsandallocatetopensionbalances
• Death:CGTonaccumulationbalances
• Increasedfocusonextracting$beforedeath
• Reversionarypensions
• Couldthisprevent‘re-counting’ofthesamepensionforthe$forthesurvivor?
Whatelseistheretothinkaboutlonger term?
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$1.6mpensioncapperperson
• Consider segregatingassetstosupport $1.6mpensionbalance
• Maytaketimetoorganise
• Eveningupbalances
• Contributionsplitting(concessional)
• Recontribution forspouse
Actionplan:leadup to1July2017
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$1.6mpensioncapperperson
• RealiselargeCGin2016/17before taxexemptionlost
• Refreshcostbase
• AlsorelevantforTRISupto1July2017(whentaxexemptionnolongeravailable)
• Multiplepensions
• Howtokeeptaxfree/taxableseparate?
- Consideranotherfund
• Whichtorollback?
• Isitworthwithdrawingexcessandinvestinginownname?
Actionplan:leadup to1July2017
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TRIS:removaloftaxconcessionsEffective1July2017
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Fundentitledtotaxexemptiononinvestmentincomegeneratedfromassets
underpinning TRISbalance
Notaxexemptiononinvestmentincomegeneratedfromassetsunderpinning TRISbalance
Now
Earlierof:• Retirement• Age65
1July2017
• NOCHANGEtotheeligibility rulestocommencetoTRIS
Butnotuntil1July2017...13monthsaway
TRIS:Actionfornowandin2016/17
Havemembercircumstanceschanged?
• Ceasedapaidjobafter60?
• Decidedtoneveragainwork10ormorehoursperweek?
• TRISconverts toABP
• EarningsonABPtaxfree
ForexistingTRIS
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Non-concessionalContributions
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Age Old New
Up to65 $180,000 /$540,000 $500,000 lifetime cap
65– 74 *$180,000 $500,000 lifetimecap
*Worktestfromage65
Non-concessionalcontributions
1July2007Lifetimecapof$500kfrom3May2016
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2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any
3May2016Indexedto$550k
Age75
Non-concessionalcontributions
1July2007Lifetimecapof$500kfrom3May2016
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2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any
3May2016Indexedto$550k
Age75
“Usedup”$500klifetimecap– butno excess Excess
Non-concessionalcontributions
1July2007Lifetimecapof$500kfrom3May2016
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2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any
3May2016Indexedto$550k
Age75
“Usedup”$500klifetimecap– butno excess Excess
2015/16:$180k Capleft:$320k
Non-concessionalcontributions
1July2007Lifetimecapof$500kfrom3May2016
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2010/11:$450k2007/08:$450k 2013/14:$450k Post3May2016:$any
3May2016Indexedto$550k
Age75
“Usedup”$500klifetimecap– butno excess Excess
2015/16:$180k Capleft:$320k
2015/16:$500k Capleft:$nil Capleft:$50k?
Fully“usedup”cap
Non-concessionalcontributions
• Excess:treatedinusualmanner• Release excessNCC+85%associated earnings;OR
• Payexcesstax(currently49%)
• Indexation:AWOTE,in$50kincrements
• NochangestoexclusionsfromNCCcap• SmallBusinessCGTcaps
• Personalinjury
Thesewould remaininplaceandareinaddition toNCCcap
Lifetimecapof$500k
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Non-concessionalcontributions: items
• Bringforwardsplanned forlate2015/2016
• In-speciecontributions alreadyintrain
• Contractedproperty: settlementsumfunded byNCC
• UKpension transfersalreadyintrain
• Future recontributions
• LRBAs:dependentonlargeNCCforrepaymentorassetimprovement
Review
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Non-concessionalcontributions: items
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• Remember:disalloweddeductiblecontributionscount!
• ReimburseSMSFexpensespaidpersonally
• Bewareimprovements tofundassetsfor$0
• Obtainadvicebeforemakingcontributions
PreventinadvertentuseofNCCcap
Contributionrulesrelaxed(from1July2017)
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Whoisallowedtocontribute?
Old Agedunder65OR65-74andworking
Anyone agedup to75
Old
New Worktestremoved
Contributionrulesrelaxed(from1July2017)
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Whoisallowedtocontribute? Whocanclaimataxdeduction?
Old Agedunder65OR65-74andworking
Lessthan10%income+benefitsfrom“employment
Anyone agedup to75 Anyone
Old
New
ConcessionalContributions
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Old New
Age 2016 +2017 2018
49 – 74 *$35,000 $25,000
< 49 $30,000 $25,000
*Worktestfromage65
ConcessionalcontributionsFrom1July2017$25k&‘Catchup’
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Butonly forthosewith<$500kinsuper.(When?Allyears?JustYear4?)
Maximumof5years.
$10k $5k
$25k$15k
Year1 Year2 Year3 Year4
ConcessionalcontributionsFrom1July2017$25k&‘Catchup’
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Butonly forthosewith<$500kinsuper.(When?Allyears?JustYear4?)
Maximumof5years.
$10k $5k
$25k$15k
$20ktopup(Year3)
$10ktopup(Year2)
$15ktopup(Year1)
Year1 Year2 Year3 Year4
‘Catchup’unusedconcessionalcontributions
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• Brokenworkpatterns
• Lumpyincomeorvariablecontribution levels
• Greaterdisposable incomelaterinlife
• Non-working65-74yearoldswhoexpecttoreceiveassessableincome inthefuture (e.g.alargecapitalgain)
Usefulforthosewith:
Somenewopportunitiesfor65-75s?Watchnew$500klifetime limitonanynon-concessional contributions
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High taxableincome(investments)– taxdeductible supercontribution
Soldassetsinretirement– abilityto
contributecash
Recontributepensionpayments
Otherproposedcontributionschanges
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Division293Tax
• Additional 15%paidonConcessionalContributions
• Incomethreshold toreducefrom$300,000to$250,000
Effective1July2017
Otherproposedcontributionschanges
Introduction of‘Lowincomesupertaxoffset’
• LISCreintroduced
• 15%taxoffset(not refund) onConcessionalContributions (maximumoffset$500perperson)
Extendingspousetaxoffset
• Incomethreshold for18%taxoffset (max$540)toincreasefrom$10,800to$37,000(phaseoutat$40,000)
Effective1July2017
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Questions
Aboutthespeakers
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Andrew is both a chartered tax adviser and a solicitor having worked with leading taxationadvisory teams in chartered accounting firms (both big 4 and mid-tier) and a top tier law firm.
Andrew’s expertise lies in
• providing tax advice
• leading tax due diligence assignments
• general tax planning and
• providing tax compliance services
His clients include family groups, private and public companies (including listed entities) and notfor profit groups.
AndrewLam- Director,BCom,LLM,CTA
Services:Taxation, LargeCorporate,CorporateAdvisory,Not-For-Profit
t:+61292325111d:+61292200381e:[email protected]:www.hillrogers.com.au
Aboutthespeakers
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Garvin’s extensive expertise and technical experience in income tax and superannuation makeshim a valuable advisor to his clients, including SMSFs, High Net Worth Individuals and SMES.
Garvin’s advises clients in
• Tax planning and compliance
• Wealth creation plans
• Retirement planning
• Regulatory compliance
Garvinispassionateabouthelpingpeopletoplanforthetransitionbetweenworkandretirement inawaythatseestheirfinancialgoalsachieved.
GarvinJones- Director,BBus,CA
Services:SuperannuationHighNetWorth IndividualsandProfessionals
t:+61292325111d:+61292200346e:[email protected]:www.hillrogers.com.au
t+61292325111f+61292337950www.hillrogers.com.au| [email protected]
Level5,1ChifleySquare,SydneyNSW2000 AustraliaGPOBox7066,SydneyNSW2001
H.R.P.HPtyLimitedpractisingasHillRogers|ABN12003718 518MemberofMorsion KSi,anassociationofglobal independentaccountingfirms.Liability limitedbyaschemeapprovedunderProfessional StandardsLegislation.
Disclaimer:ThematerialcontainedinthispublicationisgeneralcommentaryonlyfordistributiontoclientsofHillRogersNoneofthematerialis,orshouldberegardedasadvice.Accordingly,nopersonshouldrelyonanyofthecontentsofthispublicationwithoutfirstobtainingspecificadvicefromHillRogers.HillRogers,itsPrincipalsandagentsacceptnoresponsibilitytoanypersonwhoactsorreliesinanywayonanyofthematerialwithoutfirstobtainingsuchspecificadvice.