On 3 May 2016, the Commonwealth Treasurer delivered the Australian Federal Budget 2016-17.1 The Budget contains several measures related to individuals, some which reduce the personal tax burden for middle-income earners while others increase the tax burden in respect of superannuation contributions.
In this GMS Flash Alert, we describe the key measures in the Budget affecting individuals and their employers. (All dollar figures expressed are Australian dollars.)
Changes announced in this Budget impact the amount of tax paid by individuals as well as the interaction between employees and their superannuation accounts. In general, there is a trend toward limiting the amounts that individuals are able to contribute into concessionally taxed superannuation accounts.
International assignment cost projections and budgeting for assignments to Australia and for assignees outside Australia still subject to Australian taxation should take into account the changes announced in the Budget to the extent they become legislated. With the expansion of the 32.5-percent tax bracket up to $87,000 (from $80,000) to take effect from 1 July 2016, employers will need to make the necessary payroll adjustments and update hypothetical tax calculations for tax equalized assignees.
Taxable income thresholds for the year commencing 1 July 2016, will change slightly for those earning above $80,000 per annum, with the income threshold at which the 37-percent tax rate commences increasing from $80,000 to $87,000.
|Taxable income ($)||Rate|
|0 – 18,200||0|
|18,201 – 37,000||19c for each dollar over $18,200|
|37,001 – 87,000||$3,572 plus 32.5c for each dollar over $37,000|
|87,001 – 180,000||$19,822 plus 37c for each dollar over $87,000|
|180,001+||$54,232 plus 45c for every dollar over $180,000|
Note: Excludes 2.0 percent Medicare levy. An additional Temporary Budget Repair Levy of 2.0 percent is payable on taxable income above $180,000 until 30 June 2017.
From 1 July 2012, the Australian government introduced an additional 15-percent tax on concessional superannuation contributions for individuals with adjusted taxable income of more than $300,000. From 1 July 2017, this additional 15-percent tax will be payable by individuals who earn adjusted taxable income of more than $250,000.
This measure will mostly affect individuals who remain resident in Australia, and will increase the number of individuals who are affected by the additional 15-percent tax.
Employers should consider the impact of these changes on their tax equalization policies, especially where assignment allowances and benefits push an assignee’s annual income above the $250,000 threshold.
While this measure will also affect inbound temporary resident assignees in receipt of superannuation contributions in an administrative sense, there should be no overall total increase in tax on their superannuation contributions, as the additional 15-percent tax can be refunded where the assignee received a Departing Australia Superannuation Payment (“DASP”).
From 1 July 2017, concessional contributions to superannuation accounts will be capped at $25,000 per annum. Any concessional contributions in excess of the cap will be taxed as taxable income at the marginal rate of tax plus an excess concessional contributions charge. Any salary packaging arrangements regarding superannuation contributions should be revisited accordingly and adjusted to observe the caps as appropriate.
Prior to the budget announcements on Tuesday evening, individuals could contribute up to $180,000 per annum (or $540,000 every three years for individuals aged under 65) into superannuation as non-concessional contributions (i.e., contributions from after-tax funds). From 7:30pm on 3 May 2016, a lifetime cap of $500,000 will apply to non-concessional contributions to superannuation (which will also take into account all non-concessional contributions made on or after 1 July 2007). This will particularly impact Australians who repatriate from overseas and are looking to also repatriate foreign pensions at the same time.
There have been a number of discussions in the media and other forums regarding the types of tax measures that should be introduced, or repealed, in the lead-up to this Federal Budget. In the Budget, the majority of the changes for individuals and employers focus on limiting the balances that are able to be accumulated in concessionally taxed superannuation accounts, with some small measures included to combat “bracket creep.”
Employers should engage with employees to make sure that they are aware of the impact of the Budget announcements, particularly the changes relating to superannuation.
In relation to assignees, employers should consider how the announcements may impact their company policies, including tax equalization arrangements. Employers should communicate with assignees who are looking to repatriate to Australia and who have foreign pension accounts, as they may find it more difficult than before to repatriate those funds into a concessionally taxed superannuation vehicle in Australia.
The Budget will now be the subject of consideration and debate in the House of Representatives and Senate over the coming weeks and months.
Given its temporal proximity, it is currently uncertain the extent to which any of these Budget measures will be passed before the federal election on 2 July 2016.
1 For more on the budget, see: http://www.budget.gov.au/.
AUD 1 = USD 0.746
AUD 1 = GBP 0.515
AUD 1 = EUR 0.656
AUD 1 = JPY 80.13
For further information or assistance, please contact your local GMS or
People Services professional, or one of the following professionals with the
KPMG International member firm in Australia:
+61 2 9335 8655
+61 3 9838 4348
+61 8 8236 3378
+ 61 8 9278 2053
+61 7 3434 9176
The information contained in this newsletter was submitted by the KPMG International member firm in Australia.
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