May 2016 Client Newsletter:The Budget, Tax & Super Changes, Creative Workspaces, Financial Planning, New Team Members & New Qld Office.
- The 2016 Federal Budget: We share the key tax and super announcements below. Our Year End Tax Planning Checklist goes out next month, and by then we’ll have read the details more closely to identify key points of interest for our clients. The government has cautiously revealed some moderate changes. It will remain to be seen whether some announcements see the light of day pending the results of an uncertain election. Small to medium business are offered tax cuts. Low income earners see a nominal change to the low income Medicare levy thresholds. Significant changes to the superannuation system are given a thorough review below.
- Creative Workspaces: Located in Darlinghurst, at the groovy headquarters of Creative Plus Business. Electra enjoyed after work drinks with the C+B team last week and reckons with its lovely big windows, high ceilings and friendly creative vibe it’d be a great space to call ‘work’. Available now. More details below.
- Financial Planning Services: Electra Frost and Joe Sharpe completed their Diplomas in Financial Planning, with the aim of being able to provide Independent Financial Advice to our valued clients under their own Financial Services License. Joe’s license was granted by ASIC on May 2nd and he is now available for consultations on a range of services designed to help you understand financial products including insurance, superannuation, SMSFs and investments and more besides. Electra’s applying for a company licence shortly. To find out more about what financial advice can be provided, services offered, fees and other information you can contact us for a copy of Joe’s Financial Services Guide.
- We welcomed new team members, Lisa Wilson and Jerry Chen:
- Lisa is an experienced bookkeeper with a Bachelor of Accounting, and is completing her BAS Agent registration course. She helps create and maintain our clients’ online accounting systems in Xero, MYOB and Reckon, and provides training. Lisa works closely with Electra on BAS’s and accounting for businesses and sole traders, and enjoys the convenience of working with our clients over Skype video, and her favourite past-time is horse riding.
- Jerry holds a Bachelor of Business and a Master of Professional Accounting, and is completing the CPA program. He mainly assists us with tax return preparation before meetings, and attends tax seminars to keep our team’s knowledge library up to date. We look forward to seeing Jerry progress along his professional path with us. Jerry enjoys creating instructional videos on time management.
- Queensland Office: This year Electra has been busy establishing a second office in Queensland, with employees to support our Sydney customer services via online technologies. We call it ‘onshoring’. New software has been challenging to implement, and with lots of support from the wonderful people at Excelan, Reckon Elite, Nimbus and Xero it’s all coming together now! Electra continues to meet with clients every month in Sydney. Other times she does video meetings from the Qld office, and sometimes goes surfing at lunchtime.
Please read on about The Budget and Creative Workspaces.
If you have any questions we’d love to hear from you. Please email.
With the 15 May annual tax lodgment deadline approaching for most 2015 tax returns, we’re pretty frantic here, so we may take a bit longer than usual to reply. Thanks for your understanding at this busy time. Let us know if your matter is urgent.
Keep an eye out for our Year End Tax Planning Checklist in about 4 weeks!
Creative Plus Business
is an organisation dedicated to helping creative people and arts entrepreneurs work for themselves and become more professional in their practice. They also have a beautiful and friendly co-working space available in groovy Darlingurst, Sydney for rent to other creative or arts people, businesses and NFPs. There are eight co-working desks and a self-contained office, as well as a large meeting/workshop space available at very reasonable rates.Spaces include:
For more information, and to find out rates, please visit http://www.creativeplusbusiness.com/spaces/ or call 02 8091 2082.
The Budget 2016 – A Review
Tax cuts are a political hot potato which can easily be taken out of context, and indeed have already been by the media in the lead up to the budget. The key ones are summarised below.
Individual Tax Bracket Change
The first is for those on $80,000+ per year. The 37 percent tax bracket, which currently kicks in at $80,000, will now start at $87,000.
This modest increase that barely keeps up with the inflation based bracket creep of the last couple of years, and nets a grand total of $315 to someone over the $87,000 limit.
A major pillar of the tax reform proposed in the budget is to reduce the company tax rate progressively.
The current rate is 30 percent, with a concessional rate of 28.5 percent applying to business with a turnover of less than $2 million. The rate is being reduced to 27.5 percent for the 2017 year for those with a turnover of less than $10 million. The turnover threshold will be progressively increased until the 2023 income year, after which the tax rate will decrease by 1 percent per year to finally sit at 25 percent in the 2017 income year for all companies.
These are big cuts, but over a long timeframe. They are also in principle objected to by the opposition so will be key measures to watch over the election to see whether they will come to fruition.
Small Business Tax Discount
In conjunction with the company tax rate decrease, the tax discount on unincorporated business, currently at 8 percent, will be lifted to 16 percent for business with a turnover of less than $5 million. However, the discount is still limited to $1,000 per individual – a relatively minor incentive.
Small and Medium Business
One of the key small business policies in the 2015 federal budget, the $20,000 instant asset write-off scheme allows businesses to immediately deduct the full value of every asset purchased to the value of $20,000, instead of claiming the deductions over a number of years. The government has not extended the timeframe for the scheme, which is still due to end of 30 June 2017.
Businesses on the Medium end of the scale have missed out over the years, because the definition of a small business sits ar $2 million in turnover.
The government has proposed to increase this turnover threshold to $10 million, bringing many more businesses into this category. This measure was vehemently opposed by the shadow treasurer shortly after the budget was delivered.
The tax cuts come with a bill, and the government is targeting what they call generous superannuation tax concessions as one of the means of paying them.
The government is trying to incentivise those on low income and with small balances in super to invest, while progressively penalising those who are at the other end of the scale.
There are a lot of changes….. (which Electra will read up on later)
Simplifying Contribution Rules
From 1 July 2017, anyone will be able to make concessional superannuation contributions, regardless of employment circumstances.
This is a welcome change to the sometimes arbitrary and complex rules we are currently subject to, and ensures anyone, including the self-employed and those with employers who refuse to salary sacrifice, can gain the same benefits by contributing into super.
Concessional Contributions Caps
The concessional contributions limits are to be reduced to a flat $25,000 per year from 1 July 2017 (currently ranging between $30,000 and $35,000 based on your age).
In addition, the extra tax rate of 30 percent that applies to contributions by those with incomes of over $300,000 will now apply to those with incomes of more than $250,000.
Currently individuals can make contributions of their own, after-tax money into superannuation of up to $180,000 per year, in addition to the normal concessional or tax deductible contributions they might make. This system is being scrapped in favour of a single lifetime cap of $500,000, which will take into account all non-concessional contributions made since 1 July 2007.
The effect of this is immediate, as non-concessional contributions made after 3 May 2016 (budget day) which are in excess of this cap will be subject to a penalty tax rate.
Low Income Superannuation Tax Offset
Low income earners who are below the tax free threshold find that contributions made into superannuation incur a tax rate of 15 percent, so it actually costs them to put money into superannuation.
From 1 July 2017, up to $500 of this cost will be available as a tax offset for those with an adjusted taxable income of less than $37,000.
The Work Test
The government is simplifying the super rules substantially by removing the work test for those aged over 65. From 1 July 2017, this will allow people aged from aged 65 to 74 to freely contribute money into superannuation subject to the same rules as everyone else!
Taxation of TRAPs
Income on superannuation which is in a Transition to Retirement Income Stream (TRAP) is currently tax free. This tax-free status is being removed and so the income will subject to the normal superannuation tax rates.
Those with superannuation balances of less than $500,000 will be allowed to make catch up contributions where they have not fully utilised the available concessional caps from previous years.
It will only apply to unused amounts accrued from 1 July 2017, and will apply on a 5 year rolling basis. This essentially allows individuals to plan their contributions and make them in lumps in arrears, rather than utilising the maximum cap every year.
The government has promised to retain the tax-free status of superannuation withdrawals in retirement. However, amounts invested in the retirement phase (ie which is paid out as a pension) have been targeted.
Currently, income on the amounts invested are tax free (in addition to the pension payments themselves), but from 1 July 2017 the balance of these amounts will be capped at $1.6 million, reducing the generous concession on the income generated from investing these funds.
Jobs for Vulnerable Young People
The government says it has a large focus on jobs growth, as repeatedly quoted during the budget delivery. Part of delivering on this, it says, is through the reduction of company tax rates.
In addition, in an attempt to refine previous systems such as work for the dole, a new scheme is proposed which is designed to provide vulnerable young people with subsidised work experience. This will allow employers to design an internship placement of 4 to 12 weeks during which a job seeker will get unpaid work experience for 15 to 25 hours per week. Business will be incentivised with a $1,000 upfront payment while job seekers will receive an additional $200 per fortnight on top of their regular income support payments. Finally, a wage subsidy of up to $10,000 will be available where a job seeker is subsequently employed for at least six months.
(No thanks! I would never employ someone for $4 an hour to do anything, not even stack shelves, because as an Australian employer I respect my social contract to uphold our minimum wages and conditions for all Australians. – Electra Frost)
Other Items of Interest
There are a number of smaller measures, including:
GST on Imports
The government will now require overseas suppliers who sell more than $75,000 worth of goods in Australia to register for GST. While increasing tax revenue, this will also potentially increase the price of low-value goods bought through international ebay stores and the like. (but it does sound like a rather costly tax admin exercise)
From 1 July 2018, the government proposes to clarify the tax treatment of deferred payment and hire purchase arrangements. Currently these can be quite complex from a taxation point of view, where most just resort to a simply interest bearing loans. This could open up a new breed of financing arrangements in coming years that move away from the conventional chattels mortgage loans we are used to.
There are some incentives in the Budget for startup and innovation enterprises, but the reality is that these are obscure and hard to get, and will mean little for the average punter.
Thanks for reading our newsletter.
We’ll also send you a Year End Tax Planning Checklist in about 4 weeks, and welcome bookings in June for tax, business and financial planning.
We look forward to being of assistance to you in the new financial year.
The Team at Electra Frost Accounting
Office 22, 43-53 Bridge Road, Stanmore NSW 2048
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