Planning for Tax and Super changes

Individuals and businesses should ensure the following list of issues are planned for from a tax and superannuation perspective given the various changes that will occur from 1 July 2017.

For any further assistance with the below matters, please feel free to contact your RCB Advisors team member to ensure no unintended consequences occur.

Superannuation Changes - individuals

Super contributions before 30 June.

Note that concessional contributions (including SG, salary sacrifice and deductible contributions) have a limit this financial year of $30,000 (or $35,000 if aged over 49 at 30 June 2016). Contributions received after 30 June count to the 2017/2018 financial year cap (where the cap is $25,000 regardless of your age).

Non-concessional contribution limits reduce from $180,000 per person in 2016/2017 to $100,000 in 2017/2018.

You should check you have not exceeded your limits and the contributions are correctly classified (Non-Concessional v Concessional) by the relevant super fund.

Review Salary sacrifice contributions for 17/18

You may need to advise your employer of the need to alter salary sacrifice contributions in 2017/2018 and to do so early in July to minimise risks. Note that as employers have until 28 July to make contributions for the quarter ending 30 June 2017, it is possible that your fund receives contributions after 30 June and they will count towards the contributions cap in the 2017/18 financial year, even if they relate to 2016/17.

Lodge personal tax-deductible notices (if applicable).

Those who wish to claim a deduction for personal super contributions must lodge a deduction notice, using the approved form, with the fund before the earlier of the day they lodge their tax return for the year in which the contribution was made; or the end of the financial year after the financial year in which the contribution was made.

Government co-contribution

A client could make a non-concessional contribution of up to $1,000 to super and receive a co contribution of 50 per cent of the contribution up to a maximum $500 for income below $36,021.

Contribution splitting with a spouse

A client can split up to 85% of their contributions with their spouse. The client has up until the end of the financial year after the financial year the contribution was originally made to implement this strategy.

The benefits include evening up the respective balances of a couple and in some cases providing earlier access to superannuation where one member of a couple is older than the other.

Recontribution strategy

Clients can derive tax benefits from an estate planning perspective where they have access to their super and either they or their spouse are eligible to contribute.

A strategy typically more applicable for those above the age of 60, clients need to be fully aware of the non-concessional contribution caps to prevent cap breaches.

Consider a spouse contribution tax offset

If a spouse’s assessable income reportable fringe benefits and reportable employer contributions is less than $13,800, the client can make a non-concessional contribution to their spouse's super fund and a tax offset calculated as 18% of the contribution applies, up to a maximum of $540 where the spouse's income is below $10,800.

Take minimum pension payments if not done so

Clients who have either Transition to Retirement of Account Based Pensions should ensure they draw their minimums before the end of the financial year. Minimums are generally based on the balance of your super accounts at 30 June the year before.

Failure to take the minimum will result in the account being treated as if it’s in Accumulation for the year whereby earnings will be taxed at 15% rather than be tax free.

Reconsider use of Transition to Retirement Income Stream

The benefits of a Transition to Retirement income stream are not as appealing in 2017/2018 whereby earnings will be taxed at 15% like an accumulation account.

Clients should review their circumstances to determine if their Transition to Retirement income stream should continue to revert to accumulation.

Tax Changes – Individuals

Travel deduction for residential rental property

2016/17 will be the last year an individual can claim a deduction for travel to their residential rental property.

This rule is still subject to being passed as legislation. However, to avoid any disappointment a landlord may look to move forward an inspection to before 30 June 2017 to be assured a deduction will be allowed. All regular rules still apply until 30 June 2017 regarding substantiation.

Plant and equipment deductions to be changed after 30 June 2017

Deductions for plant and equipment depreciation on residential property will only be allowed on actual purchases from 1 July 2017. That is, plant and equipment purchased with the property (i.e. remaining fixtures) will not be allowed a deduction, generally appearing on a Quantity Surveyor’s report.

For property held before 9 May 2017 (budget night), it is advised that a Quantity Surveyor’s report is prepared for the year ending 30 June 2017. Note: there are no changes to the current Division 43 capital works provisions.

Temporary budget repair levy

The 2016/17 income year is the final year of the Temporary budget repair levy, which is an additional 2% levy for individuals with taxable income over $180,000.

Following 1 July 2017, the highest marginal rate of taxation is 47% being the 45% marginal rate plus 2% Medicare levy. This also applies for Fringe benefits tax.

Main residence exemption still applies for foreign residents

Clients who are foreign residents may want to consider the change in capital gains tax rules that will apply from now until 30 June 2019.

For foreign residents who held a main residence (or “absence rule” main residence) at 9 May 2017, the exemption from capital gains tax will be removed after 30 June 2019. It is also worth noting that foreign residents do not get access to the general discount either. In a related matter, Non-resident property owners also pay additional land tax surcharge. In Victoria, this is 1.50% over $250,000 thresh hold value.

Tax Changes for Businesses

Simpler BAS

Small businesses will have a simpler BAS after 1 July 2017. Effect this date, a small business (under $10 Million in Gross Revenue including affiliate/associates) will only need to report the following on a BAS:

• GST on sales (1A)

• GST on purchases (1B), and

• Total sales (G1).

Change in thresholds for small businesses

During the year, the aggregated turnover threshold for small business entities was changed from $2m to $10m. For your business, the following changes can apply to your income tax calculation:

• the lower small business corporate tax rate (27.5% for the 2016/17 tax year)

• immediate deductibility for small business start-up expenses

• simplified depreciation rules (low value pools), including the instant asset write off threshold of $20,000 available until 30 June 2017

• simplified trading stock rules

• option to account for GST on cash basis and pay GST by instalments

• simplified method of paying PAYG instalments calculated by the ATO, and

• other tax concessions such as the extension of the FBT exemption for work-related portable electronic devices from 1 April 2016.

The increased $10m threshold will not be applicable for accessing the small business capital gains tax concessions.

Franked dividends

The imputation system for corporate tax entities will now be based on the company’s corporate tax rate for a particular income year. This is worked out in regard to the entity’s aggregated turnover for the previous income year.

Therefore, with the change in the definition of small business above, an entity with between $2m and $10m in the 2015/16 income year can fully frank a distribution based on the tax rate of 27.5%.