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Affect of Federal Budget on small business and individuals

With the close of the 2015/16 Financial Year and the Coalition forming government for another term, we thought it an ideal time to take a look at what the recent budget means for small business and individuals. 

Key changes for individuals

  • The second-highest marginal tax bracket threshold has been increased from $80,001 to $87,001 to address wage inflation.  Approximately 500,000 taxpayers won’t enter the 37% tax bracket until 2019-2020 income year.
  • No changes proposed for tax deductions for work related expenses.
  • Medicare levy rate to remain at 2% of taxable income.
  • Medicare levy low-income thresholds have been increased for singles, families and single seniors and pensioners.  This is to ensure low-income taxpayers don’t have to pay the Medicare Levy.  Individuals have increased to $21,335 and families to $36,001.
  • No changes to ‘Negative Gearing’.
  • If you are <75 years of age you can claim a deduction for personal superannuation contributions – no need for salary sacrifice arrangements.
  • Threshold for high-income earners reduced from $300,000 to $250,000 for requirement to pay additional 15% tax on Concessional Superannuation Contributions.
  • The Spouses Income Threshold to claim a tax offset of $540 for low-income spouses, has been increased from $10,800 to $37,000.
  • Low-income earners will receive a tax offset to their super fund to compensate for tax paid on super contributions.  Up to a $500 non-refundable tax offset where concessional contributions have been made where taxable income is less than $37,000.

 

Key changes for small to medium business

  • Corporate tax rate to reduce to 25% for all companies over the next 10 years, with businesses with annual aggregated turnover of less that $10 million reducing to 27.5% this financial year.
  • Small business entity turnover threshold has increased from $2 million to $10 million.  All businesses within this threshold will be able to:
    • Claim the immediate deduction for depreciable asset purchases costing less than $20,000 until 30 June 2017.  Beware thought; if this results in a tax loss, there is no immediate cash-flow advantage.
    • Avoid end of year stocktake if value of stock has changed by <$5,000.
    • Use a simplified method of paying PAYG instalments that removes risk of under or over-estimating and the penalties that may be applied.
    • Take the option to account for GST on a cash basis
    • Use a simpler BAS.
  • Businesses <$2million turnover threshold will retain access to small business capital gains tax concessions.
  • Access to unincorporated small business tax discount will be limited to entities with turnover less than $5 million.
  • Top-up tax payable when private company profits are distributed to shareholders will increase as a result of the corporate tax rate changes.  Consider tax profile of shareholders and their capacity to frank dividends when considering annual dividend strategies.
  • Overseas suppliers that have an Australian turnover greater than $75,000 will be required to register for, collect and remit GST on the sale of low value goods to Australian consumers.

 

If you have any questions about how these changes affect your or your business, or need more details please don’t hesitate to contact our office.

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