Yesterday the Turnbull government delivered its first Federal Budget with highlights on jobs, growth and superannuation reforms.

Business

Company tax rate decrease

The company tax rate will be reduced to 25% over 10 years. The reduction will initially target companies with a turnover of less than $10 million (previously $2 million), then gradually increase to companies with turnover less than $1 billion in the 2023 financial year. All companies will see their tax rate plateau at 25% in the 2027 financial year.

GST to apply on all imported consumer goods

From 1 July 2017, GST exemption for goods imported by consumers into Australia with a value of $1,000 or less will be removed.

This measure will be reviewed after 2 years to ensure that it operates as intended and that foreign suppliers comply with GST when exporting goods to Australia.

Division 7A Simplified

The Division 7A reforms will include a self-correction mechanism for inadvertent breaches of Division 7A, simplified 7A loan arrangements and a number of technical adjustments to improve operation and provide increased certainty for tax payers.

Simplified BAS arrangements trial

From 1 July 2017, businesses with less than $10 million in annual turnover will be able to easily classify transactions and prepare and lodge their BAS to simplify their reporting requirements.

Superannuation

A series of dramatic changes to the concessional status of superannuation will change many of the strategies currently used to maximize benefits. We recommend that you contact your financial planner to discuss these changes and establish new strategies if necessary.

Lifetime cap on non-concessional contributions

A lifetime $500,000 non-concessional contributions cap has been introduced, effective 7.30pm last night (3 May) and replaces the current $180,000 annual cap (or $540,000 every three years for individuals under 65 years of age).

This lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, however no penalties will be charged for excess contributions made prior to Budget night.

Concessional contributions cap reduced

The very popular retirement saving strategy and current concessional contributions cap of $30,000 (or $35,000 for those over 50 years of age) is set to be reduced to $25,000, effective 1 July 2017.

High income earners

Individuals with combined income and superannuation contributions of more than $300,000 are currently taxed an additional 15% on concessional contributions. From 1 July 2017, the threshold will reduce to $250,000 and the additional tax will increase to 30%.

Tax free super balance cap

From 1 July 2017, this new cap will limit the amount of super that can be transferred into a retirement phase account to $1.6 million, however any excess amounts can live in the accumulation phase account.

Low Income Super Tax Offset for super contributions

The introduction of the Low Income Super Tax Offset (LISTO) will avoid situations where the low income earners pay more tax on super than their income. A non-refundable offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, with a cap of up to $400 will be available for taxpayers with income up to $37,000.

Catch up on concessional contributions

Effective 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make extra concessional contributions where they have not reached their concessional contributions cap in past years. Amounts will be carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.

The purpose of this measure is to allow those with broken work patterns to make catch-up payments to boost their superannuation savings.

Work test for super contributions

From 1 July 2017, those aged between 65 and 74 will no longer need to meet a work test to make super contributions and will be able to receive these contributions from their spouse.

Transition to Retirement Income Stream tax exemption

A Transition to Retirement Income Stream (TRIS) is a pension that allows those over preservation age and still working to supplement employment income with a super pension. With effect from 1 July 2017, these pensions will no longer receive a tax exemption on their earnings.

The rule that allows individuals to treat payments from these income streams as lump sums will also be removed. While a TRIS will still be useful to supplement part time work, those currently using this strategy will need to consider the reduction of the tax benefit.

Individuals & Families

Personal tax cuts for middle income earners

The 32.5% personal income tax threshold will increase from $80,000 to $87,000 from 1 July 2016. This will keep 500,000 workers from entering the second highest tax bracket, which carries a 37% tax rate. Those who remain in the middle bracket will continue to pay 32.5%.

These tax rates exclude the Medicare Levy and the 2% debt tax on high-income earners over $180,000 which will come to an end on 30 June 2017.

Medicare low-income threshold increase

The Medicare low-income threshold for singles, families and seniors and pensioners will increase as follows:

  • Singles – $21,335
  • Couples (no children) – $36,001
  • Additional amount of threshold for each dependent child or student – $3,306
  • Single seniors and pensioners – $33,738
  • Senior and pensioner couples with no children – $49,966

Child care reforms on hold

The Government has deferred the implementation of the Child Care Subsidy, Additional Child Care Subsidy and Community Child Care Fund by one year to 1 July 2018 due to the Family Tax Benefit reforms to fund the child care package not being passed by senate.

Unemployed youth – subsidies to create path to employment

PaTh (Prepare – Trial – Hire) is for job seekers under 25 years of age. The programme has 3 elements:

  • Prepare: Industry-endorsed pre-employment training – from 1 April 2017, training for up to six weeks will be provided to develop basic employability skills, including those required to identify and secure sustainable employment.
  • Trial: Internship placements will be offered each year to enable businesses and job seekers to trial their employment fit. Job seekers will receive a $200 fortnightly incentive payment and businesses will receive $1,000 upfront to hose an intern. Placements will be voluntary and will be organised by employment services providers. Job seekers must be registered with jobactive, Disability Employment Services or Transition to Work, and have been in employment services for at least six months to be eligible for the internship program.
  • Hire: Youth Bonus wage subsidies – From 1 January 2017, employers will receive a wage subsidy of up to $10,000 for job seekers under 25 years old with barriers to employment and will continue to receive up to $6,5000 for the most job-ready job seekers.

Going up in smoke

A 12.5% tobacco excise increase will take place on 1 September for the next 4 years and will be in addition to existing indexation.

Farm Household Allowance debt waiver

Any Farm Household Allowance (FHA) recipients who incurred and income support debt arising from an underestimate of their annual business income in the 2015 financial year will be offered a transitional waiver.

Income support debt from the 2016 financial year onward will be subject to the usual debt recovery arrangements.

Tax avoidance task force

A new anti-avoidance task force will provide the Australian Taxation Office with an increase in funding to undertake “enhanced compliance activities” targeting multinationals, large public and private groups and high wealth individuals.