2016 Budget — Personal taxation and superannuation measures
The 2016 Australian Government Budget provides modest tax cuts to middle and upper income earners by working to off-set the adverse impact on wage earners of bracket-creep. There are significant changes to the tax treatment of high income earners superannuation arrangements.
Personal tax cut —
The Australian Government will increase the 32.5 per cent personal income tax threshold from $80,000 to $87,000 from 1 July 2016.
This measure will reduce the marginal rate of tax on incomes between $80,000 and $87,000 from 37 per cent to 32.5 per cent, preventing around 500,000 taxpayers facing the 37 per cent marginal tax rate. This will ensure that the average full‑time wage earner will not move into the second highest tax bracket in the next three years. In the absence of this action, they would move into the second highest tax bracket in 2016‑17.
This measure has a cost to revenue of $3.95 billion over four years.
Medicare levy low‑income thresholds —
The Australian Government will increase the Medicare levy low‑income threshold for singles, families and seniors and pensioners from the 2015‑16 income year. The increases take account of movements in the Consumer Price Index so that low income taxpayers generally continue to be exempted from paying the Medicare levy.
The threshold for singles will be increased to $21,335. For couples with no children, the threshold will be increased to $36,001 and the additional amount of threshold for each dependent child or student will be increased to $3,306. For single seniors and pensioners, the threshold will be increased to $33,738. For senior and pensioner couples with no children, the threshold will be increased to $46,966 and the additional amount of threshold for each dependent child or student will be increased to $3,306.
This measure is estimated to have a cost to revenue of $280.0 million over the forward estimates period.
Superannuation (Personal Contribution Deductibility) —
From 1 July 2017, the Government will improve flexibility and choice in superannuation by allowing all individuals up to age 75 to claim an income tax deduction for personal superannuation contributions. This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Individuals who are partially self‑employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes. Prescribed funds will include all untaxed funds, all Commonwealth defined benefit schemes, and any State, Territory or corporate defined benefit schemes that choose to be prescribed.
This measure is estimated to have a cost to revenue of $1.0 billion over the forward estimates period.
Superannuation (Additional Catch-Up Contributions) —
From 1 July 2017, the Government will allow individuals to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
Annual concessional caps can limit the ability of people with interrupted work patterns — for example women or carers — to accumulate superannuation balances commensurate with those who do not take breaks from the workforce. Allowing people to carry forward their unused concessional cap provides them with the opportunity to 'catch‑up' if they have the capacity and choose to do so.
The measure will also apply to members of defined benefit schemes and consultation will be undertaken to minimise additional compliance impacts for these schemes.
This measure is estimated to have a cost to revenue of $350.0 million over the forward estimates period.
Superannuation (Harmonising Rules For Those Aged 65 to 74) —
To improve the flexibility of the superannuation system the current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. People under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.
This will simplify the superannuation system for older Australians and allow them to increase their retirement savings, especially from sources that may not have been available to them before retirement, including from downsizing their home.
This measure is estimated to have a cost to revenue of $130.0 million over the forward estimates period.
Superannuation (Low-income Spouses) —
The Government will, effective 1 July 2017, increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income spouse to $37,000 from $10,800. The low income spouse tax offset provides up to $540 per annum for the contributing spouse and builds on the Government's co‑contribution and superannuation splitting policies to boost retirement savings, particularly of women.
This measure is estimated to have a cost to revenue of $10.0 million over the forward estimates period.
Superannuation (Low-income Tax Off-set) —
From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce tax on superannuation contributions for low income earners. The LISTO will provide a non‑refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. Provision will be made to ensure the measure can be implemented to achieve the outcomes as intended. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
This will effectively avoid the situation in which low income earners would pay more tax on savings placed into superannuation than on income earned outside of superannuation.
The measure is estimated to have a cost to the Budget of $1.6 billion over the forward estimates period.
Superannuation (Concessional Contribution Reforms) —
From 1 July 2017, the Government will lower the Division 293 threshold (the point at which high income earners pay addition contributions tax) from $300,000 to $250,000. The Government will also reduce the annual cap on concessional superannuation contributions to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).
Reducing the Division 293 tax income threshold will improve sustainability and fairness in the superannuation system by limiting the effective tax concessions provided to high income individuals. Capping concessional contributions at $25,000 per year will still allow individuals to accumulate significant amounts of tax advantaged concessional superannuation.
The lower Division 293 income threshold will also apply to members of defined benefit schemes and constitutionally protected funds currently covered by the tax. Existing exemptions (such as State higher level office holders and Commonwealth judges) for Division 293 tax will be maintained.
From 1 July 2017, the Government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds. Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation funds. For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing grandfathering arrangements will continue.
This measure is estimated to have a gain to revenue of $2.5 billion over the forward estimates period.
This update was issued on 3 May 2016 and please note that changes in circumstances after the publication of material or information may impact upon its accuracy (including passage of the supporting legislation through the parliament) and also compliance obligations. It is recommended that expert advice be sought before taking action based upon the information presented here.
Member Engagement —
ADIA provides leadership, strategy, advocacy and support. Our members set our agenda, fund our activities and directly benefit from the results. With respect to the Association's work to ensure that the initiatives within the 2016 Australian Government budget support the dental industry, the team in the ADIA national office receive advice and guidance from members serving on the ADIA-BAC Business Affairs Committee.
Further Information —
To keep up to date with how ADIA is working to ensure that the Australian Government budget supports the dental industry, subscribe to the Twitter feed @AusDental or follow us on Facebook at www.facebook.com/dental.industry. Alternatively, you can contact the Association via email at email@example.com or by telephone on 1300 943 094.
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