BUDGET 2017: WHAT YOU NEED TO KNOW
Wish the budget papers were in dot points? Well, here it is:
- From 1 July 2017, first home buyers will be allowed to salary sacrifice an amount into their superannuation (above their compulsory employer contributions) to save for a deposit, accessing the concessional tax rates provided by superannuation funds. Up to $15,000 per year and $30,000 in total can be contributed, within existing caps (which sits at $25,000), with withdrawals allowed from 1 July 2018. Both members of a couple can take advantage of this measure to buy their first home together. Our view is this won’t have a huge take up and won’t achieve its purpose.
- From 1 July 2018, individuals aged 65 or older will be able to make non-concessional contributions into their superannuation funds of up to $300,000 using proceeds from the sale of their principal residence as long as they’ve owned it for at least 10 years. The non-concessional caps, work test and age test will not apply to this measure. It’s a way to encourage downsizing but not going to help those on the Age Pension much.
- From 1 July 2017, the government will disallow travel deductions for inspecting, maintaining or collecting rent for a residential rental property. Sorry Gold Coast apartment market!
- From 1 July 2017, Managed Investment Trusts (MITs) are able to invest in affordable housing at concessional tax rates (the housing must be available for rent for at least 10 years). The MIT will be able to acquire, construct or redevelop the property but must derive at least 80 per cent of its assessable income from affordable housing. Qualifying housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. With discounted income, we guess MIT’s will be counting on capital growth to make this viable.
- From 1 July 2018, the CGT discount for individuals investing in qualifying affordable housing will increase from 50% to 60%. At best that’s a 4.5% tax saving on the eventual capital gain if you’re willing to take the rental hit. Of course, if negative gearing is the aim, this might be for you.
- Medicare Levy will increase from 2% to 2.5% from 1 July 2019. This is to fund the National Disability Insurance Scheme. Low income earners will continue to receive the Medicare Levy exemption.
- Medicare Levy low-income thresholds will increase from 1 July 2017 to $21,655 for singles, $36,541 for families (plus $3,356 for each dependent child or student), $34,244 for single seniors and pensioners and $47,670 for seniors and pensioners couples (plus $3,356 for each dependent child or student).
- From 9 May 2017, there will be a 50% cap on foreign investment approvals for new developments.
- 457 Visas will be abolished and replaced with a new ‘Temporary Skill Shortage Visa’. If Australian businesses with a turnover of $10 million or less hire workers on these Visas, they will have to pay an upfront fee of $1,200 per visa per year for each such employee and $3,000 for each employee sponsored for a permanent Employer Nomination Scheme. If a business has a turnover of more than $10 million, the amount to be paid is $1,800 per visa per year for each employee on a Temporary Skill Shortage Visa and $5,000 for each employee sponsored for a permanent Employer Nomination Scheme.
- Foreign and temporary tax residents will not have access to the CGT main residence exemption from 9 May 2017 (or 30 June 2019 for existing properties).
- The CGT withholding rate for foreign tax residents will increase from 10% to 12.5% from 1 July 2017.
- The CGT withholding threshold for foreign tax residents will be decreased from $2 million to $750,000 from 1 July 2017 so more people will come into the net.
- Foreign owners of residential property will be charged an annual fee if their property is not occupied or genuinely available on the rental market for at least six months per year.
- Banks with licensed entity liabilities of $100 billion or more will have a levy calculated as 0.015% of the licensed entity liabilities from 1 July 2017. This hits the top five banks.
- Senior executives will have to be registered with APRA (the banking regulatory body), with some mandatory reporting requirements to improve transparency. This is the escape chute from a Royal Commission.
- University students will have higher student contributions of 7.5% to be phased in over four years (1.82% annually over 4 years) and the HECS-HELP threshold has decreased to $42,000 to be introduced from 1 July 2018. So more to pay and kicking in earlier.
- The $20,000 immediate deductibility threshold has been extended to 30 June 2018 for businesses with an aggregated turnover of less than $10 million.
- The company tax rate will be cut to 25% by 2026-27, if it gets through the Senate this time!
- The government will provide funding to incentivise state and local governments to lessen regulatory burden on small business. There is no indication on how this will work in practice.
- Plant and equipment deductions forming part of residential property investments will be limited to expenses investors have directly incurred themselves. The deductions will continue for properties owned prior to 9 May 2017 (including contracts already entered into at Budget night) until either the property is sold or the item reaches the end of its effective life. No more building depreciation reports needed!
- From 1 July 2017, the government will amend the small business CGT concessions to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business. We will need further details on this measure before we can understand its impacts.
- Job seekers on Centrelink payments will be subject to new tests where failure without reasonable excuse to attend interviews or obtain employment may result in the reduction or suspension of payments.
- The government is introducing a three strike procedure where the first strike results in an individual losing 50% of their fortnightly payment, second strike losing 100% of their fortnightly payment and third strike resulting in suspension of payments for 4 weeks.
- The use of limited recourse borrowing arrangements will be included in a member’s total superannuation balance and transfer balance cap. We’re concerned about the logic behind this when we’re talking about a debt to the super fund.
- Individuals on qualifying social security payments will be eligible for an energy assistance payment of $75 for single recipients and $125 per couple. This is a one off payment so not particularly useful for the monthly power bills!
- From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions must remit the GST directly to the ATO as part of the settlement. Apparently developers were taking the cash and forgetting to pass it on to the ATO!
Overall a bit lacklustre in the tax reform sphere but that seems to be a symptom of current politics in Australia right now. Let’s just hope it gets through the Senate at least, whether we think the changes are good, bad or ugly. Inertia is a killer!
If you have any questions about the 2017 Budget, give us a call.