Federal Budget Changes for Farmers and Rural Business Owners

budget-2016Tuesday 3rd of May saw the release of the Federal Budget for another year.  For those who missed it, this year’s theme is “Jobs and Growth”, which is slightly more appealing than “Fiddled with things”.

But what does it mean for farmers and small businesses in the rural community?  While there are many things to note, I’ve picked out a few key points that may be the most relevant.

Please note these proposals will depend on the outcome of the upcoming election before being legislated.

Tax savings

The tax rate on small businesses has been reduced from 28.5% to 27.5% for the 2017 financial year.  In addition to this, the definition of a small business has been extended from $2m to $10m in turnover.

Sole traders and partnerships will see an increase in the unincorporated tax discount from 5% to 8% for businesses with turnover less than $5m, capped at $1,000 per year.

The accelerated depreciation allowances introduced last year (which allow an asset up to $20,000 to be instantly written off) will be extended to include business with a turnover of up to $10m.  New accelerated depreciation rates will apply to farmers who make purchases above $20,000 at 15% in the first year and 30% each year thereafter.  These changes could be beneficial for regional businesses that are supported by farmers.

For individuals, the threshold for the 32.5% tax bracket has been moved from $80,000 to $87,000, which represents a modest $315 saving per year.  The 2% temporary debt levy for those on incomes of $180,000 and above will be removed from 1 July 2017.

Changes to Superannuation

The annual cap on tax deductible super contributions has been reduced to $25,000 for all age groups from 1 July 2017.  This still leaves opportunities to maximise contributions at the current higher rates for the current and next financial year.

There are also several positive changes which will make it easier for people to contribute.  Anyone under 75 will be able to make a tax deductible contribution into super, regardless of their employment status.  This will remove the restrictive ‘work’ test that applies for those aged between 65 and 74.

People with super balances under $500,000 who have not used their entire $25,000 deductible contribution cap will be able to be carry the unused amount forward on a rolling 5 year basis.  This may present opportunities for people to manager their tax in higher income years where they would have otherwise missed out.

Currently the tax applied to internal earnings from assets supporting ‘Transition to Retirement’ pensions is zero.  From 1 July 2017 this tax will be increased to 15%, which is in line with accumulation accounts.  Income streams from these pensions will still remain tax free for those over age 60.  People with these strategies in place should definitely have them reviewed to ensure they are still relevant.

Assistance to farmers

In addition to the increasing of Farm Management Deposits to $800,000 per person, the Government is providing an additional $7.1m in funding for Rural Financial Counsellors who will provide free financial advice to farmers in drought-affected areas.

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