2016 budget announcements that will affect businesses
Lowering of company tax rates
The tax rate for companies with a turnover less than $10 million will drop to 27.5% in the 2016-17 financial year. While this may not sound like a significant reduction, it equates to an 8.33% decrease in the amount of tax small businesses will have to pay.
Companies have become the preferred structure for many small businesses over the past 6 or 7 years since changes to trust legislation made trusts less attractive. It is likely that lower tax rates for companies will entice more small business operators to use this structure.
Small Business Turnover increase
For many years, qualifying for the various small business tax concessions has meant that business turnover had to be lower than $2million. That threshold will increase to $10 million from 1 July 2016.
This means that more businesses will be able to access:
* The lower corporate tax rate
* The $20,000 instant write off for business assets
* Simplified trading stock rules
* Immediate deductibility of business start-up costs
* 12 month prepayment rules
* Some FBT concessions
However, note that the ability to access CGT small business concessions still requires a turnover less than $2million.
Lower concessional superannuation contributions
From the 1 July 2017 the amount of super contributions you can claim as a tax deduction has been reduced to $25,000. This limit will apply to everyone up to age 75.
Change to the tax brackets for individuals
For individuals there has been an increase in the 32.5% tax bracket. As of 1 July 2016, the upper limit of the bracket has increased from $80,000 to $87,000. Previously you were paying 37% on this $7,000 and now you will be paying 32.5% which results in a saving of $315. This applies to all individual taxpayers, including those operating as a sole trader or in a partnership.
This measure is designed to ensure that as wages and income rise in Australia, the average income earner is not subject to the higher rates of tax.
Abolition of the 10% rule
The 10% rule has previously stopped anyone who has made more than 10% of their income by way of employment from contributing directly to superannuation. This has resulted in business owners offering salary sacrificing options so that employees can get higher sums into the super accounts and claim a tax deduction for the contribution.
Following the abolition of this rule, the need for salary sacrificing to superannuation will be reduced.
A number of these announcements won’t take effect until 1 July 2017. Given that we are due to have a federal election in July 2016, it is possible that a new government, especially a new labour government, might change a number of these measures.