An Optima Partners overview of the Federal Budget 2016
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In the Lead up to this budget, the Government repeatedly emphasised the need for Australia to “live within its means” and the Government had to carefully examine its expenditures. That theme was confirmed last night in Treasurer Scott Morrisons 1st budget delivery speech. Anyone expecting the usual election year sweeteners would’ve been disappointed to say the least.

That the Government aims to reduce its expenditure and drive job growth is great news. However as Accountants / Advisors, it’s how the Government collects its revenues that’s of specific interest to us. We pride ourselves navigating through the tangled web of ever changing tax legislation, helping our clients to achieve the best possible outcomes.

To that end, we’ve assembled a list of the most significant tax changes arising from last night’s budget that we believe will affect the most people. If you’re unsure if these or any other changes affect you or your business, please call Optima Partners for advice tailored to your personal circumstances.

Antony Monaldi - Snr Accountant
The Australian Federal Budget 2016/17
BUDGET 2016/17 - An Overview


SMALL BUSINESS - The turnover threshold at which business can access the small business income tax concessions will increase from $2 million in annual turnover to $10 million effective 1 July 2016.

These concessions include:
•    Reduced tax rates (discussed below)
•    $20,000 instant asset write off
•    Simplified GST calculation
•    Simplified trading stock rules

But unfortunately exclude the Small Business Capital Gains Tax Concessions, with the eligibility tests for these remaining unchanged.

Reduced Tax Rates:
Incorporated small businesses (companies) will see their tax rates reduced from 30% to 27.5% effective from 1 July 2016. This will affect about 870,000 businesses and about 3.4 million workers.
This lower rate will be introduced to more and more companies progressively until it is applied to all businesses by 2024. By 2027, the rate for all companies will go down to 25%, which the Government hopes will make Australian companies more competitive internationally.
To complement the company tax rate reductions, the tax discount for unincorporated small businesses (sole traders, partnerships, trusts) will be increased from 5% to 8% effective 1 July 2016.
This discount will progressively increase to 16% by 2027, however the maximum value of the discount will remain at $1,000

Middle income earners – The middle income tax bracket upper limit has been raised from $80,000 to $87,000. This will keep 500,000 workers from entering the second highest tax bracket, which carries a 37% tax rate. Those who remain in the middle bracket will continue to pay 32.5%

Voluntary super contributions –The removal of the ‘10% rule’ will enable individuals who are partially employed and partially small business operators to contribute to superannuation and claim a tax deduction for doing so.

Low-earning Spouses -The government will increase access to a tax offset which provides a tax incentive for contributing to your spouse’s superannuation fund where your spouse earns below $40,000

Young job seekers- Jobseekers can look for a share in $840 million from the government’s youth employment package, with the program Youth Jobs Path – Prepare, Trial, Hire expected to help 120,000 young people find secure employment over the next four years


High income earners – Will be worse off under new, less generous superannuation measures, including:

•    Those earning $250,000 or more will now be subject to the 30% rate on employer superannuation contributions, doubling their current 15% rate, after the threshold was lowered from $300,000.

•    A new $500,000 lifetime cap on non-concessional contributions will reduce the ability of individuals to limit tax by placing larger sums in superannuation.

•    A new $1.6 million transfer balance cap will limit the amount of a members fund balance that can be transferred from accumulation to pension phase. $1.6 million being the cap amount.
  •  This applies retrospectively to fund members who are already over the cap amount, even to those already in pension phase who are required to reduce their balance to $1.6 million by 1 July 2017

•    And of course, it wouldn’t be a budget without tinkering with the concessional contribution caps. The cap will be $25,000 for all individuals regardless of age from 1 July 2017.
  •     The current concessional caps are $30,000 for those under 50 and $35,000 for those 50 and over.

In some good news for high income earners, the government confirmed that the 2% budget deficit levy on incomes over $180,000 would end on 30 June 2017.

Smokers – There will be a 12.5% increase in tobacco excise over the next four years, pushing up the price of cigarettes. Strict limits will also be applied to duty free cigarettes purchased on the way in to Australia

Multinational companies - The government has launched a range of measures it hopes will force multinational companies to pay tax on income earned in Australia. A Diverted Profits Tax will be imposed at a penalty rate of 40% on companies that seek to shift income overseas.

Penalties for companies that fail to meet disclosure obligations can now be fined $450,000, up from $4,500.

A 1000-strong taskforce will also be established to police and prosecute multinational companies

Working Parents -The Government has held off implementing the childcare subsidies, which were a major sweetener in last year's budget.
They are justifying the decision to defer this decision, which will save them $1.1 billion, as it was contingent on the passing of family tax benefit reforms that were rejected by the Senate.
The deferral is only for a year, indicating the Government is hoping it will have more success with a new Senate in the event it is re-elected in July.
The Australian Federal Budget 2016/17 - Jobs and Growth

The Government is keeping average full–time wage earners on a lower rate of tax for longer.

The Government will support small businesses to become larger businesses by backing them to invest in their growth by reducing their tax rate.

New export trade agreements and competition reforms will ensure Australia is able to adapt to a changing world and take advantage of the opportunities it provides.

The Government is investing over $50 billion in quality infrastructure, which will relieve passenger and freight congestion, improve safety and support growth.

The National Innovation and Science Agenda will facilitate innovative investment and collaboration between researchers and businesses across the country.

The Government is helping the transition into smart, high-value, export-focused industries. We will work to secure an advanced defence manufacturing industry here in Australia to drive new high–tech jobs in the decades to come.

Ensuring we have growth–friendly policies that put more Australians into employment is crucial to our nation’s ongoing success.

The Youth Employment Package will give vulnerable young people the skills they need and that employers want, delivering real work experience and real jobs.

A continued path to budget balance will ensure Australians are not burdened by increasing debt and are free to work, save and invest.

The Australian Federal Budget 2016/17 - Tax & Super

A tax and superannuation plan for Australia’s future

Better targeting superannuation tax concessions will improve the sustainability and integrity of the superannuation system.  The Government will crack down more heavily on multinational tax avoidance and introduce a responsible tax package that supports jobs and growth.


Better targeting of superannuation concessions

96 per cent of individuals with superannuation will not be adversely affected by these changes.

To ensure the superannuation tax arrangements support the objective of superannuation and are fiscally sustainable, the Government will better target tax concessions to those who need incentives to save by:

  • Introducing a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.

    This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation. A balance of $1.6 million could support an income stream in retirement of around four times the level of the single Age Pension.

    The transfer balance cap will affect less than one per cent of superannuation fund members and will be applied to both current retirees and to individuals yet to enter their retirement phase.
    •    requiring those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent..MORE

The Australian Federal Budget 2016/17 - Budget repair

Ensuring that the Government lives within its means

Balancing the budget and reducing the burden of long term debt.

Living within our means

Like any Australian family or business, the Government is focused on keeping expenses down to balance the Budget and pay down debt.

A stronger Budget supports jobs and growth and instils confidence as the economy transitions. Strengthening the nation’s finances is key to the Government’s economic plan. Working to balance the Budget will restore the buffers that protect Australia against the economic shocks and uncertainties that might otherwise threaten our future success. Importantly, the Government remains committed to balancing the Budget.

The Government’s plan is to balance the Budget over time by keeping expenditure under control, while creating the conditions for a stronger economy that will allow revenue to grow. As the Budget is repaired, we will create headroom to further ease the tax burden and invest in new priorities, including much needed infrastructure....MORE

What does this mean to me? has provided a handy tool to show you how the budget might effect you. Click the image below, scroll to the bottom of the page and enter your details.

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