By Domenic Festa (Accredited Tax Specialist and Chartered Tax Adviser)

The passing of each federal budget will always be of interest to those of us that practice in the tax structuring sphere. We will be keenly conscious of changes that may impact upon strategies that have been used previously and looking for opportunities for the implementation of new strategies.

Here is our take on the 2016 Federal Budget:

Topic Commences Comments
Business Taxes
Small business entity turnover threshold increase 1 July 2016 ** Threshold will be increased from $2m to $10m for small business income tax concessions, with the exception of the small business CGT concessions and the unincorporated small business tax discount.NOTE: $10 million threshold applies to the small business restructure rollover
Small business tax discount increase Phases from 1 July 2016 ** Increased in phases over 10 years from 5% to 16%. The existing cap of $1,000 per individual for each income year will be retained.NOTE: This will effectively reduce the amount of income required for the full offset of $1000 from about $61,500-$19,200. It now has a favourable comparison to the reduction in the tax rate for small business companies.
Company tax rate will be progressively reduced Phases from 1 July 2016 ** Reduced to 25% over 10 years
Transfer pricing amendments 1 July 2016 Addresses transfer pricing issues relating to controlled transactions involving intangibles
40% diverted profits tax 1 July 2017 Applies to company groups with global annual revenue of $1b or more
Investment in early stage innovative companies Includes:

•     a 20% non-refundable tax offset capped at $200,000 per investor per year; and

•           a capital gains tax exemption, provided investments are held for at least three years and less than 10 years.

The amendments include:

•      reducing the holding period from three years to 12 months for investors to access the CGT exemption;

•      a time limit on incorporation and criteria for determining if a company is an innovation company under the definition of “eligible business”;

•      requiring that the investor and innovation company are non-affiliates; and

•      limiting the investment amount for non-sophisticated investors to qualify for the tax offset to $50,000 or less per income year.
Division 7A amendments 1 July 2018 Targeted amendments will be made to improve the operation of Division 7A including:

•     a self-correction mechanism for inadvertent breaches of Div 7A;

•     appropriate safe-harbour rules to provide certainty;

•     simplified Div 7A loan arrangements; and

•     a number of technical adjustments to improve the operation of Div 7A and provide greater certainty.

The above are based on a number of recommendations from the Board of Taxation’s post-implementation review of Div 7A.

NOTE: This announcement is merely to consult on the recommendations of the Board of Taxation rather than announcing a law change at this point.
Consolidated groups 1 July 2016 A consolidated group that acquires a subsidiary with deductible liabilities will no longer include those liabilities in the consolidation entry tax cost setting process.
Consolidated groups – securitisation arrangements 3 May 2016 Liabilities will be disregarded if the relevant securitised asset is not recognised for tax purposes. This integrity measure announced in the 2014/15 Federal Budget will be extended to non-financial institutions.
Small business CGT concessions No change announced
Non-portfolio dividend exemption No change announced
Personal Taxes
Increase in tax 1 July 2016 The 37% marginal tax rate threshold to increase from $80,000 to $87,000.
2% temporary Budget deficit levy Expires at the end of the 2016-17 financial year – no proposal to extend.
CGT discount No change announced
Superannuation
30% rate on contributions 1 July 2017 The threshold for this higher rate of tax is reduced from $300,000 to $250,000.
Concessional contributions cap 1 July 2017 Reduced to $25,000 (including over 50’s).
Transition to Retirement Income Streams 1 July 2017 Removal of income tax exemption on earnings that generally applies to pensions, and election to tax as a lump sum
Non-concessional contributions ($500k cap) 1 July 2017 15/09/2016 announcement: This proposal will be replaced by reducing the annual cap to $100,000 and nonconcessional contributions can only be made by those with balances less than $1.6 million (to be indexed). Three-year bring forward rule remains.
Contributions for persons over 65 1 July 2017 15/09/2016 announcement: not proceeding with proposal to remove the work test for people aged between 65 and 74.
Concessional contributions – catch up payments 1 July 2018 Catch up payments for shortfalls over the previous five years allowed for members with balances less than $500,000. 15/09/2016 announcement: introduction delayed until 1 July 2018.
Deduction for personal superannuation contributions 1 July 2017 *** All individuals up to age 75
Low income superannuation tax offset 1 July 2017 *** The LISTO will provide a non-refundable tax offset to superannuation funds, for tax paid on concessional contributions up to a cap of $500. Applies to members with adjusted taxable income up to $37,000.
Spouse Contributions 1 July 2017 *** Income threshold of spouse increased from $10,800-$37,000
Transfers the pension phase 1 July 2017 Cap of $1.6 million. NOTE: This change also applies to pensions commenced prior to the announcement, and in the writer’s opinion is retrospective. Strategies to address this change should be considered.
Anti-detriment provision 1 July 2017 Abolished from 1 July 2017.
Objective of Superannuation Enshrined in a stand-alone Act (NOTE: Only enshrined until changed by a later amendment).
GST
Digital currencies Discussion paper seeking to address the “double taxation” of digital currencies released
GENERAL 10-year enterprise tax plan What is described as the 10 year enterprise tax plan is a combination of: Increasing the small business entity turnover threshold, increasing the unincorporated small business tax discount, reducing the company tax rate to 25% over 10 years, increasing the 32.5% tax threshold from $80,000 to $87,000 from 1 July 2016,  targeted amendments to Div 7A, better targeting the deductible liabilities measure under the consolidation regime, enhancing asset backed financing, 2 new types of collective investment vehicles (CIVs), reform of the TOFA rules, extending the brewery refund scheme to domestic distillers and producers of low strength beverages, reducing the WET rebate cap and tightening the eligibility criteria.

 

**        Included in Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016

***      Exposure draft released.

 

NOTE: This article is for general information only and should not be relied upon without first seeking advice from one o