Australia – 2016/17 Budget Has Key Measures Impacting Individuals

Australia – 2016/17 Budget Has Key Measures Impacting

This GMS Flash Alert reports on the key measures in the Budget affecting individuals and their employers, especially the personal income tax and superannuation measures.

Related content

Flash Alert 2016-056

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.)

WHY THIS MATTERS

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.

Personal Income Tax: Thresholds

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.  

2016-2017 Resident Tax Rates

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.    

Superannuation

Tax on Contributions for High-Income Earners (Division 293 Tax)

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.  

KPMG NOTE

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”).

Concessional Contributions Cap Reduced

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.

Non-Concessional Contributions Cap Reduced

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.

Other Measures

  • Allowing, from 1 July 2017, all individuals up to age 75 to claim an income tax deduction for personal superannuation contributions, regardless of their employment circumstances, up to the concessional cap.
  • The introduction of a new Low Income Superannuation Tax Offset up to $500 from 1 July 2017 which should reduce the taxes paid on superannuation contributions for low-income earners.
  • Limitation on the superannuation account balance that can be transferred into pension phase to $1,600,000.

Other Budget Measures

  • New incentives for businesses of $1,000 to host an intern under the age of 25 years who has been in employment services for at least six months and wage subsidies of up to $10,000 for hiring job seekers under 25 years with barriers to employment. 
  • The “backpacker tax” announced in last year’s Budget, which would see those on working holiday visas being taxed at 32.5 percent from the first dollar earned, is still expected to continue; however, the government has indicated that it is likely to postpone the changes pending a consultation phase.
  • There were no changes made to negative gearing or the taxation of discount capital gains.
  • The 2-percent Temporary Budget Repair Levy will remain in place and expire at the end of the 2016-17 income year.

KPMG NOTE

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. 

Next Steps

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. 

FOOTNOTE

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

RELATED RESOURCES

For coverage of last year’s budget, see GMS Flash Alert 2015-063, 19 May 2015.

For a complete summary of the Budget, see the Web page for the ‘Federal Budget 2016’ published by the Australian member firm of KPMG International. Also, see: http://www.kpmg.com/au/budget.

 

CONTACTS

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
:

 

Sydney  

Andy Hutt

+61 2 9335 8655 

ahutt@kpmg.com.au  

 

Melbourne

Mardi Heinrich

+61 3 9838 4348

meheinrich@kpmg.com.au

 

Adelaide 

Jacqui Tucker   

+61 8 8236 3378    

jtucker@kpmg.com.au  

 

Perth

Dan Hodgson

+ 61 8 9278 2053

dghodgson@kpmg.com.au

 

Brisbane

Hayley Lock

+61 7 3434 9176

hlock@kpmg.com.au

The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG's new digital platform