The Federal Government has managed to deliver a budget that refines upon previous years and puts forth a few new initiatives, but that is ultimately designed to get them through the next federal election. Most of the population will be pleased to see the new ATO taskforce that’s been proposed to go after multinational tax dodging, along with some crackdown on the superannuation benefits for the wealthier members of the population. The budget predicts that the deficit will fall from $37.1 billion to $6 billion in the next four years.
In our annual review of the Federal Budget, we’ll cut through the noise to quickly get you up to speed on what it means to you. It’s a huge document, however much of it won’t affect you. Keep in mind that the challenge moving forward will be to have the budget bill passed through the Senate, so it’s highly likely that there will be further refinements and changes over the forthcoming weeks.
Income Tax Rates
For the first time in several years, there are changes to tax brackets, however the tax rates themselves are staying the same. The $80,000 bracket is moving up to $87,000, while the 2% “we blew out the budget” temporary budget repair levy will finish up. Other changes include:
- Increase in the threshold for when you have to pay the Medicare levy to $21,335 for singles, $36,001 for couples without children and $46,966 for seniors and pensioners.
- For families, each child will increase your Medicare levy threshold by $3,306
- Low income earners will keep the low income super tax offset, which ensures that up to $500 of their superannuation tax will be refunded
- Tobacco excise increases by 12.5% each year for the next 4 years
- No changes to negative gearing laws for property or share investors
Here are the new proposed tax rates for Australian individual taxpayers:
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for every $1 above $18,200|
|$37,001 – $87,000||$3,572 and 32.5% for every $1 above $37,000|
|$87,001 – $180,000||$19,822 and 37c for every $1 above $87,000|
|$180,000 plus||$54,547 and 45c for every $1 above $180,000|
Changes to Superannuation
It was expected that we would see changes to superannuation, as it’s been a political hot potato for some time. Superannuation is frequently referred to as a ‘tax break for the rich’ and it’s the wealthier members of superannuation funds that are currently under the spotlight.
- Tax-free super to be capped at $1.6 million and any funds above that will need to be held in an ‘accumulation fund’ which will attract a 15% tax
- No work test for those looking to contribute to superannuation between the ages of 65 and 74
- Spouse contribution limits lifted, allowing you to make contributions for your spouse regardless of their work status
- Maximum after tax contribution to superannuation to be $500,000
- Cap on the maximum amount of tax free money that can be accessed via Transition to Retirement before the age of 65 of $1.6 million
- 15% surcharge for high income earners extended and is now applicable to those earning $250,000, down from $300,000 last year
- Concessional contribution limits dropped to $25,000 per year for all ages, not just those below 50 years of age
Changes to Companies
If you don’t own a company, there is a good chance that you work for one. The 2016 Federal Budget has offered a bonus to small business owners with a tax cut to the company income tax rate. Further cuts to the company income tax rate are slated for future years, for both small companies as well as larger businesses.
- Company income tax rate cut by 1%, down to 27.5% for companies with turnover of less than $10 million (previously $2 million)
- In 2017-18, this tax cut will be made available to businesses turning over $25 million, $50 million in 2018-19 and $100 million in 2019-20
- 25% company income tax rate for all companies by 2026-27
- Businesses turning over up to $10 million will have access to the $20,000 instant tax write off for capital purchases
- An additional $121 million in funding for ASIC to increase surveillance and enforcement in the financial services sector
- For large multinationals, a new ‘diverted profits tax’ of 40% will be placed on income that is shifted offshore, with an additional 1,000 staff for the ATO to handle this
Changes to Education
$1.2 billion has been allocated as additional funding for both government and non-government schools. Overall, this is a modest increase and looks to have greater controls put on it than previous spending promises.
- Increase in school funding of $1.2 billion that is tied to federal performance measures
- University fees will no longer be facing deregulation, however will still be faced with a 20% cut to funding
- Additional $118 million for disabled student support
Changes to Health and Welfare
Quite a few cuts have been made to both health and welfare, but nothing to the extent that we saw in the brutal 2014 Budget.
- $750 million jobs incentive package, offering internships and training, and rewards for employers
- $2.9 billion in additional hospital funding between 2017 and 2020
- $1 billion cut to aged care funding of complex healthcare over the next 4 years
- Medicare benefits payment schedule to be frozen for the next 3 years
- No carbon offset payments for all new welfare recipients
- $1.7 billion public dental scheme, which will direct dental spending to those most in need of assistance
- Foreign aid will be cut by a further $224 million to bring it to record low levels
Changes to Defence and Infrastructure
Infrastructure payments and projects are often a favourite of the government just prior to an election, so the additional spending is quite light. While announced as extra funding, much of this has been previously announced and was already budgeted in for payment.
- $115 million for the proposed Badgerys Creek Airport
- $3.1 billion worth of rail project funding for the eastern states
- $195 billion in defence building projects over the next 10 years, which includes the recently announced submarine program
- Terrorism funding sits at $351 million for the next year, along with a further $153 million for the Federal Police
- $195 million for a comprehensive cyber security strategy for the country