Budget 2016: An overview from ADPs Budget enthusiast
Let’s be honest, no one was expecting an earth shattering Budget in the wake of an election. This meant that I wasn’t expecting to see any major tax reform, but thankfully the tone of the Budget has mellowed from ‘deficit crisis’ to more of a focus on stimulating the economy, tightening the purse strings a little and growth in jobs for Australians.
The Budget does contain a lot of measures with longer term deliverables, for example the Ten Year Enterprise Tax Plan, but I think it gave stakeholders an insight to what is to come and what the ultimate intention of the measures are.
There was no date given for reaching a surplus, instead the message of the Treasurer was quite positive to say that Australia’s growth has far outweighed many other advanced economies (including Canada, the US, the UK and Japan) and that the focus is on further developing that trend for a strong economy.
So how did the Budget measure up? Let’s look at some of the key measures announced:
Small to medium businesses were once again the winners in the 2016 Budget.
In summary, the key measures impacting businesses with effect from 1 July 2016 are:
- Extending the definition of ‘small business’ from being a business with a turnover of less than $2 million in turnover to a business with a turnover of less than $10 million
- Businesses that meet the definition of small business, will enjoy a company tax rate cut from 28.5% to 27.5%
- The unincorporated entity tax discount will increase to 8% for businesses with a turnover under $5 million (capped at $1,000)
- The instant asset write-off up to $20,000 will continue to apply to businesses that meet the new definition of small business
To address the unintended effect of ‘bracket creep’ the Treasurer announced that the second top bracket would increase from $80,000 per annum to $87,000. At ADP we’ll be updating our calculations for your payroll on this once legislated.
The Treasurer stated in his Budget speech that it would result in 500,000 Australians remaining at an effective tax rate of 32.5% instead of 37%.
For young Australians, there was some good news in respect of getting skilled and assistance finding jobs.
The Treasurer announced the PaTH initiative, which stands for Prepare, Trial and Hire and applies to young Australians (under the age of 25).
The pathway is split into three phases:
- Phase one is a 6 week intensive pre-employment skills training
- Phase two is a 4-12 week internship placement as work experience for up to $30,000 job seekers each year. An incentive payment of $200 per fortnight will be paid to interns (in addition to their income support) and businesses will receive an upfront payment of $1,000 for hosting interns
- Phase 3 will consist of a wage subsidy up to $10,000 paid to employers who hire an eligible young job seeker and will be paid over six months.
It is unclear at this stage whether this would be processed through the employer’s payroll (much like the Government maternity leave scheme) or through some other administrative process.
We knew that superannuation was going to be in the limelight in this Budget, possibly the degree of which was underestimated.
It does at first glance seem like it is largely an attack at the wealthier end of the spectrum, almost like imposing a form of penalty for adding more savings into superannuation.
The Treasurer explained that the intent of these superannuation reforms was intended to target wealthier Australians that heavily rely on superannuation as a vessel for tax planning and better targeting concessions to those that need them most to ensure they can retire.
The superannuation reforms will take effect from 1 July 2017 and include:
- A $1.6 billion transfer balance cap on the amount that can be rolled into a tax-free pension or retirement phase account
- An increase in the tax rate on contributions from the standard 15% to 30% for those that have income over $250,000 per year (including superannuation)
- Reduction in the concessional contributions cap to $25,000 regardless of age (this includes all pre-tax contributions)
- A lifetime non-concessional contribution cap of $500,000
- The Government will lift the work test and restrictions on contributions for those aged between 65-74 years of age that continue to work.
Multinationals and Tax Avoidance
Last year saw the introduction of the Multinational Anti Avoidance Law (MAAL) to combat multinational entities that are shifting their profits outside of Australia and therefore not paying tax at an effective tax rate that is reasonable in light of their Australian revenue.
Further to this theme, the Treasurer announced that a Diverted Profits Tax will be introduced which includes a penalty tax rate of 40% to companies that profit shift.
Check out the infographic! (Click to expand it)
So… what was left out?
Initial Budget rumours included discussion around removing or limiting negative gearing as well as altering the repayment rules around HELP/SFSS debts. Neither of which came to fruition.
Environmental sustainability, emissions and the like did not have a mention at all in this Budget.
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In the coming days, I will be dissecting the Budget in a little more detail, including who it impacts, possible effects and what are some of the questions you need to be asking NOW.
Measures discussed in this blog have been taken from the 2016 Budget papers and are subject to legislation being passed.
Written by: Angela Lehmann