2016 Pre and Post Budget Presentation

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2016-17 Federal Budget Tax Update

11 May 2016

Jamie Towers

2016-17 FEDERAL BUDGET UPDATE Individuals Business GST What else is new? What does this mean for tax planning?

experience. new thinking www.hanrickcurran.com.au

FEDERAL BUDGET $37.1 Billion Deficit Forecast Returning to surplus by 2021 (previously 2019)

BUT Reserve Bank dropped interest rates to 1.75% on

budget day plus possible further rate cuts Is the economy buoyant enough to reach these

targets?


INDIVIDUALS Fixing Bracket Creep – 32.5% bracket extended

from $80,000 to $87,000

BUT – Maximum Saving is only $315

Will again become a problem in 5 yrs assuming 2% inflation (RBA target 2-3%)

Why no CPI increase?


INDIVIDUALS – NEW TAX RATES2015/16 2016/17

Tax Thresholds

Threshold Rate Threshold Rate1 18,201 $0 + 19% > $18,200 18,201 $0 + 19% > $18,2002 37,001 $3,572 + 32.5% > $37,000 37,001 $3,572 + 32.5% > $37,0003 80,001 $17,547 + 37% > $80,000 87,001 $19,822+ 37% > $87,000

*4 180,001 $54,547 + (45% + 2%) > $180,000 180,001 $54,232 + (45% + 2%) > $180,000


INDIVIDUALS

Medicare Increase

Individuals – starts at $21,335 ($20,896 2016)

Families – starts at $36,001 + $3,306 per child


INDIVIDUALS – Other Measures Tobacco Tax – 12.5% rise x 4 ($40 a packet?)

Wine Equalisation Tax – more expensive wine?

Jobs Creation Plan – Jobs PaTH

$5 Bn Dental Plan


INDIVIDUALS – What Didn’t Change? Negative Gearing Remains

Capital Gains Tax – 12 month general discount remains at 50%

Budget Repair Levy (2%) will apply until 30 June 2017 (will not get extended)


BUSINESS – COMPANY TAX RATE CUT• Tax Rate Cut of 5% to 25% over 10 years

Company Tax Rate Cut to 27.5%

Year Turnover2016/7 10,000,000 2017/8 25,000,000 2018/9 50,000,000 2019/20 100,000,000 2020/21 250,000,000 2021/22 1/2 Billion2022/23 $1 Billion2023/24 All turnovers


BUSINESS – COMPANY TAX RATE CUT Tax Rate Cut to 27% in 2024/25

Tax Rate Cut to 26% in 2025/26

Tax Rate Cut to 25% in 2026/27


BUSINESS – COMPANY TAX RATE CUT Tax Rate CUT to 25% by 2027

Lets Put this into Perspective

Ireland Tax Rate is 12.5% - trading income (25% other)

UK – Reducing to 17% in 2020


BUSINESS – COMPANY TAX RATE CUT Singapore – 17% (+ exemptions)

Hong Kong – 16.5% (+ exemptions)

USA (above $18.33M – 35%)

Global Average – 23.87% 2015 (source KPMG)


BUSINESS – COMPANY TAX RATE CUT

A good start, but this needs to happen sooner

In 2027 average company tax rate will likely be lower than 23.87%


BUSINESS – Small Business What is a ‘SMALL’ Business?

Turnover:

• $2M?• $5M?• $10M?• $20M?


BUSINESS – Small Business Definition of ‘Small’ Business Expanded to $10

Million turnover (from $2M) from 1 July 2016

Applies to Small Business Measures (Division 328)

Small Business CGT Measures Turnover still $2M

Small Unincorporated business discount turnover now $5M


BUSINESS – Small Business Definition of ‘Small’ Business Expanded to $10

Million turnover (from $2M) from 1 July 2016

Applies to Small Business Measures (Division 328)• $20K Instant Asset Write-Off• Accelerated Depreciation• Trading Stock Rules• GST – Cash Basis• PAYG• FBT


BUSINESS – Small Business Small Business CGT Measures – Still $2M turnover 15 Year Exemption 50% Active Asset Reduction Retirement Exemption ($500,000 cap) Small Business Roll-over


BUSINESS – Small Business Unincorporated Small Business Discount – turnover

definition $5M

Discount % Increases from 5% (2016) to 16% over 10 years (8% 2016/7)

Individual cap of $1,000 remains


BUSINESS – All Business Division 7a Self Correction Mechanism for ‘inadvertent

breaches’ Safe Harbours Simplified Loan Arrangements Apply from 1/7/2018


BUSINESS – New Companies / Start-Ups Incentives (Tax Offset and CGT Exemption) for

investing in ‘Innovative’ start up companies announced in MYEFO

Law passed last week - Applies from 1 July 2016

Investment Capped at $50,000 for non-sophisticated investors


Non-Refundable 20% Tax Offset for investing in ‘Innovative’ start up companies (Capped at $200,000 pa)

CGT exempt gains and losses on disposal of shares held > 1 yr < 10 years

Does not apply to > 30% ownership, or Affiliates (control)


BUSINESS – New Companies / Start-Ups

Criteria1. Company must be < 3 years old; or2. Incorporated in last 6 years and <$1M expenses; or3. Registered on ABR within last 3 years; and



Expenses < $1M in previous year; and < $200,000 revenue in previous year; and Unlisted; and Meet 100 point innovation criteria



BUSINESS – Larger & International Business $679 Million to ATO for anti-avoidance task force

(expected to reap $3.7 Bn) (Also targets high wealth individuals)

Transfer Pricing Rules Expanded in line with OECD• IP and Intangibles• Analysis must match substance


BUSINESS – Larger & International Business Tax Consolidation – Removing Inequities –

subsidiaries with deductible liabilities; DTLs removed from ACA

TOFA to be simplified

Penalties for ‘Globally Significant Entities expanded from $4,500 to $450,000


BUSINESS – Diverted Profits Tax (Google Tax) – 40% Aus Company / PE has ‘shifted’ profits to a foreign

related company through ‘management charges’ etc Tax paid overseas is < 80% of tax than would

otherwise have been paid in Aus. Reasonable to Conclude arrangement designed to

reduce tax No Economic substance UK has a DPT (yet to be tested – introduced this

year)experience. new thinking www.hanrickcurran.com.au

GST GST will apply to Low Value Good Imports from 1

July 2017

Current GST import exemption threshold is $1,000 – Proposed to reduce to $0

How to enforce small vendors to become registered?


GST More Simplified GST Registration for non-residents

Same as registration proposed for the ‘Netflix’ tax

Netflix Tax law actually passed Parliament last week and will apply from 1/7/2017


GST GST Cash Basis and GST Instalments Basis will be

extended with small business threshold to $10 Million (from 1 July 2016)

Simpler BAS reporting for small business ($10M turnover) – trial from 1/7/16, application from 1/7/17


What Else is New? CGT – Look through treatment on Earn-out

Arrangements – New Law Finally Passed (applies from 24/4/2015) (originally announced in 2009)

Managed Investment Trusts Legislation finally passed (apply from opt in time after 1/7/2015)

This includes changes to Public Trading Trust rules. No longer a PTT merely because super funds own > 20% of units


Key Tax Planning Measures from the Budget Reduction in Company tax rate will encourage more

companies rather than trusts – will affect future structuring decisions

For companies > $2 Million but < $10 Million turnover – • Delay Asset purchases >$1,000, <$20,000 until

2016/7 year• Defer income where possible until 2016/7 year


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Budget Brief:Superannuation

11 May 2016

Clive Todd

33experience. new thinking

What didn’t change?

Tax-free withdrawals for over 60’s The spelling of the word “superannuation”


Top 3 change categories

Contributions Pensions Other Announcements


Contributions


Concessional Contributions Cap

Reduced to $25,000 from 1 July 2017 for everyone

2015/16 2016/17 2017/18

Under 50 $30,000 $30,000 $25,000

Over 50 $35,000 $35,000 $25,000


Removal of The Work Test

Currently people aged 65 to 74 are required to work 40 hours within a 30 day period to be eligible to contribute

Removed as of 1 July 2017

Applies to both personal concessional & non-concessional contributions


Increased Access to Personal Contributions Removes “10% rule”

Effective from 1 July 2017

All individuals under age 75 are able to claim tax deductions for personal contributions in addition to having employer contributions up to total of $25,000


Catch-Up Concessional Contributions Unused concessional contribution cap amounts

can be carried forward

Calculated on a rolling basis over 5 consecutive years

Effective 1 July 2017

Restricted to individuals with a super balance less than $500,000


Lifetime Cap for Non-Concessional Contributions Capped at $500,000 over lifetime

Effective 7:30pm (AEST) on 3 May 2016

Includes all non-concessional contributions made since 1 July 2007


If non-concessional contributions exceed $500,000 between 1/7/07 & 3/5/16 - no need to withdraw but no further allowed

If non-concessional contributions exceeds $500,000 after 3/5/16 - it will be treated as excess contributions

Replaces current $180,000 per year limit

Impact of Lifetime NCC Cap


Potential Contributions Strategies


Non-working over 65s look to contribute post 1 July 2017 If super balance less than $500,000 look to utilise

“catch-ups” prior to any potential non-concessional contributions

Maximise concessional contributions in 2016 & 2017 financial year

Limited Recourse Borrowing Arrangements (LRBAs) become more attractive

Utilise “concessional catch up” to minimise one-off tax events i.e. large CGT event

Strategies for consideration


Pensions


Superannuation Transfer Balance Cap Restricts the total amount of super that can be in

converted to pension phase to $1.6 million (ie purchase price)


Any amounts in excess of $1.6 million must be left in accumulation


Subsequent earnings on pension balance will not be required to be withdrawn

If cap breached -> subject to tax on both excess amount & earnings

Existing pensions greater than $1.6 million will have to transfer excess to accumulation or withdraw from super

Will be indexed in $100,000 increments in line with CPI

Impact of Transfer Balance Cap


Transition to Retirement Changes

Earnings on assets supporting Transition to Retirement Income Streams will no longer be tax free


No longer able to treat income stream payments as lump sums for tax purposes


Potential Pension Strategies


Ideally equalise member balances – a couple can have a combined $3.2 million in pension

Utilise any unused $500,000 non-concessional cap

Contributions splitting – where concessional contributions made in the previous financial year are transferred to spouse

Strategies for consideration


Segregate high earning assets in pension phase and leave lower earning assets in accumulation

Only withdraw minimum pension and supplement with lump sums from accumulation

Crystalise capital gains & bring forward income prior to 30 June 2017

More strategies for consideration


Transition to Retirement still beneficial if over 60 as withdrawals are tax free and can be used to maximise concessional contributions

If in Transition to Retirement phase look to satisfy condition of release

More strategies for consideration


Other Announcements


Division 293 Tax

Additional 15% contributions tax for high earners Income threshold reduced from $300,000 to

$250,000 Effective 1 July 2017 Income includes taxable income, reportable fringe

benefits, net investment losses & concessional contributions

Only applies to contributions that exceed the $250,000 threshold


Spouse Superannuation Tax Offset 18% offset available up to $540 for contributions made to

eligible spouse’s super

Income threshold increasing from $10,800 to $37,000


Count towards spouse’s non-concessional cap


Low Income Superannuation Tax Offset Refund of the 15% contributions tax for low income earners

Capped at $500

Apply to individuals with adjusted taxable of less than $37,000

Replaces Low Income Superannuation Contribution (LISC)


Miscellaneous

Anti-detriment payments abolished

Objectives of superannuation to be enshrined in law

New retirement products innovation – tax exemption extended


Important points to take home Pre 30 June 2016 - still make concessional

contributions & pension withdrawals as normal Don’t make any non-concessional contributions

without checking first! Accumulation phase still only attracts 15% tax rate Majority of changes effective 1 July 2017 Changes dependent on outcome of Election Don’t panic! Planning opportunities will be available

DisclaimersThis document contains information in summary form and discusses proposed but not legislated rules and is therefore intended for general guidance only.

It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.

We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid.

© Hanrick Curran, 2016

All rights reserved


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