There weren’t many changes for individuals and families in the 2016 Federal Budget. The only new change of note is the change of the tax threshold before the 37% tax rate kicks in. Currently the tax rate changes from 32.5% to 37% once an individual’s income reaches $80,000. From 1 July 2016 this threshold will increase to $87,000.
The increase will result in a tax cut of $315 a year for those earning more than $87,000, or just over $6 a week. The change merely alleviates the effect of bracket creep, which is the effect of wages increasing over time with inflation resulting in paying a higher tax.
There have been some significant changes to the superannuation regime. The following considers the changes from an individual’s perspective:
Division 293 Tax threshold has been reduced from $300,000 to $250,000 from 1 July 2017. This tax charges 15% on superannuation contributions for those with combined income and superannuation contributions in excess of the lower threshold. More people will now be affected by tax.
The cap on contributions into superannuation from your employer or tax deductible contributions will be limited to $25,000 a year from 1 July 2017. Currently the cap is $30,000 and $35,000 for those over 50. The change will mean more of your income will be taxed at your normal marginal tax rate, rather than the lower superannuation tax rate of 15%.
The threshold for contributing into your spouse’s superannuation fund is being increased from $10,800 to $37,000. From 1 July 2017 you will be able to contribute into your spouse’s superannuation fund and receive a tax offset of $540 for contributions up to $3,000, as long as your spouse’s income is below $37,000. This change enables a small benefit to be extended for couples where the spouse receives a lower income.
From 1 July 2017 individuals will be able to contribute into superannuation and claim a tax deduction for their contribution irrespective of whether they partially work or are partially self-employed. This will give more planning opportunities prior to June each year for individuals.
There are other changes for families that were put in place in the previous Federal Budget, but are taking effect from 1 July 2016. These include:
Eliminate Family Tax Benefit Part B for families where the youngest child turns 13. This change can mean as much as $3,139 for a family.
Family Tax Benefit top up payments for lodging your income tax return will be reduced.
The Schoolkids Bonus and large family supplement will be scrapped.