By Dila Kharel, Tax Accountant
The Budget 2016-17 is Treasurer Scott Morrison’s clear statement about the social and political priorities of the Turnbull government. It sets out Australia’s economic and fiscal outlook and includes expenditure and revenue estimates for the current financial year.
The most exciting part of the budget is its 10-year enterprise tax plan which is aimed at boosting investment, creating and supporting jobs and increase wages. It starts with tax cuts and incentives for small and medium-sized enterprises. It is encouraging to see the government supporting the hard working small business owners who undoubtedly are the backbone of the Australian economy.
This year’s budget clearly depicts the small business company tax rate to 27.5 percent making it available to all small companies that have an annual turnover of less than $10 million. This measure is meant to encourage small businesses to grow and create jobs.
The threshold at which the 37 per cent marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016. This measure reduces the marginal income tax rate on taxable incomes between $80,000 and $87,000 from 37 per cent to 32.5 per cent from the 2016-17 income year. It should approximately 500,000 taxpayers facing the 37 per cent marginal income tax rate in the 2016-17 income year. It should also ensure that the average full-time wage earner will not move into the 37 per cent tax bracket in the next three years.
Nevertheless, the Budget 2016-17 is simple and just another regular budget eventhough it measures the election year from the part of taxation, superannuation, health, youth employment opportunities as well addressed.
The Budget’s 10-year enterprise tax plan announces a number of significant changes to small business turnover thresholds and tax rates, which came into effect from 1 July 2016 and will be progressively phased in until the 2026-27 income year.
Small business entity turnover threshold lifted to $10 million more businesses to benefit from a range of small business concessions and lowering of tax rate. However, $2m turnover threshold remains for small business CGT concessions. In conclusion, this budget will help small businesses for their growth and development.
What this year’s budget means for Individual Tax Payers
As an individual, the major point to be noted is the fac that the 32.5percent tax rate will now apply to taxable incomes of up to $87,000 instead of the current $80,000.
The threshold at which the 37 per cent marginal tax rate for individuals commences will increase from taxable income of $80,000 to $87,000 from 1 July 2016. This measure reduces the marginal income tax rate on taxable incomes between $80,000 and $87,000 from 37 per cent to 32.5 per cent from the 2016-17 income year. It should prevent approximately 500,000 taxpayers facing the 37 per cent marginal income tax rate in the 2016-17 income year. This should also ensure that the average full-time wage earner will not move into the 37 per cent tax bracket in the next three years.
Proposed tax rates for the 2016-17
The Medicare levy rate remains at 2 percent of taxable income.
Thresholds have been increased for the 2016-17 year, the Medicare levy low-income thresholds:
For Individuals $21,335 (increased from $20,896)
For Families $36,001 (increased from $35,261), with an additional $3,306 for each dependent child or student (increased from $3,238)
For single seniors and pensioners $33,738 (increased from $33,044),
For senior and pensioner couples $46,966 (increased from $46,000)
Corporate tax rate reduction for small business entities:
Accoding to this year’s budget , the company tax rate will decrease to 27.5 percent from the current 30 percent from 1 July 2016. This is the most fundamental move of this budget. Small business with an annual aggregated turnover of less than $10 million will directly benefit from this.
Currently 30 percent is the Tax Rate for all companies and 28.5 percent for small business entities whose turnover is less than $2 million.
The Organisation for Economic Cooperation and Development (OECD) proposals that are designed to ensure that profits are taxed where the underlying economic activity occurs and where value is created, this was truly focused on this budget.
The budget incorporates a smooth transition to around trend growth of three percent. With well coverage on areas of public life and nation development such as Infrastructure, Health, Education, Employment and Defence.
This article is written as a guide only and does not constitute professional advice. Concerned entity should obtain appropriate advice as per indivdual circumstances.
The writer can be reached at [email protected] or by telephone +61-02-92614378, Mobile 0434392347.