While there have been significant announcements of tax changes by the Government and in the budget, it is important to separate the actual changes that have received royal ascent and are now law from proposed changes that are yet to become law.
Reduction in the Company tax rate.
The most important change for small business is the reduction in the corporate tax rate from 28.5% to 27.5% for businesses with a turnover of less than $10 million. The main difference between this law and the original proposal of the Government is the number of entities impacted by the reduction. Effectively the law has restricted access to these reductions to entities with an aggregated turnover of less than $50 million.
This change will progressively apply to businesses with $25 million turnover in 2018 and then $50 million turnover by 2019. In addition, it is planned to reduce the company tax rate to 25% for businesses up to a $50 million turnover by 2027.
Table 1 is a schedule of the changes passed by the Senate
Company Tax Rate
< $2 million
< $10 million
< $25 million
< $ 50 million
2027 and later
Changes to the Franking Credits
As a consequence of the decrease in the tax rates, companies will now be limited to a maximum franking credit which is based on the tax rate. In the 2016 tax year companies were taxed at 28.5% but were able to frank dividends at 30%. From 1 July 2016 this is no longer the case. Distributions from companies will now only be franked in line with their tax rate for companies with aggregated turnover of < $10 million in 2017 and then progressively to businesses under $50 million in line with the above table.
Superannuation concessional contribution rates for the year ending 30 June 2017 have not changed. These contributions are tax deductible and take the form of Employer SGC contributions, salary sacrifice contributions and voluntary tax deductible contributions for self-employed business owners.
Individuals can make tax deductible concessional contributions up to $30,000 if they were under 49 years on 30 June 2016. For individuals 49 years and over a temporary increase in the concessional cap is available up to 30 June 2017 ($35,000). From 1 July 2017 a reduced concessional cap ($25,000) will apply to all individuals.
Non-concessional contributions are generally contributions made from after tax dollars and for which no tax deduction is claimed. These non-concessional contributions are not taxed when made to a super fund and are made to boost super balances. Currently up to $180,000 can be contributed in the year ending 30 June 2017.
In addition, individuals can make a carry forward contribution of 3 years or $540,000 before 30 June 2017 so long as they have not breached this non-concessional cap in the previous three year period. The government changes that are now law will result in the reduction of the annual non-concessional cap to $100,000 and also the carry forward contribution to $300,000.
There are now limits on making non-concessional contributions. Individuals with a super balance of more than $1.6 million will no longer be able to make a non-concessional contribution.
However, business owners can exclude non-concessional super contributions that arise from the small business 15 year exemption or the retirement exemption up to the CGT cap of around $1.4 million.
For more information on the above contact our office and speak to an accountant (03) 99992525