2017-18 Federal Budget | A plan to boost the economy and help Australian households
12 May 2017
On Tuesday the 9th of May the Federal Treasurer, the Hon. Scott Morrison MP, delivered the Coaliation Government's national budget for the 2017-18 Financial year. Overall the stated focus of this budget is on "boosting the economy and helping households, to ensure all Australians can benefit from the nation's growth story". It is a fairly uneventful budget overall in terms of significant taxation reform, but some of the legislation changes outlined below may affect you and it is important to seek advice from your accountant regarding the potential impact.
There is a forecast deficit for the 2017-18 year of $29.4 billion. The overal impact of policy decisions in this Budget has improved the bottom line by $11.4 billion over the 4 year estimates and the budget remains projected to return to balance by 2020-21. Following is a summary of the main features of the budget, some of the wording in the budget announcement papers was quite vague in some areas, and expect more detailed information to come to light once they become closer to being legislated.
Small Business Related Measures
Tightening of Small Business CGT concessions
The government will amend the small business capital gains tax (CGT) concession to ensure that concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business, this will take effect from 1 July 2017.
These concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business. However, some taxpayers are able to access these concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million.
Instant asset write off extended
The Government will extend the 2015-16 Budget measure Growing Jobs and Small Business — expanding accelerated depreciation for small businesses by 12 months to 30 June 2018 for businesses with aggregated annual turnover less than $10 million.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Only a few assets are not eligible (such as horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.
Housing related tax and superannuation measures
Annual charge on foreign owners not utilising housing
The Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. This measure will apply to foreign persons who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017.
CGT changes for foreign investors
Foreign and temporary tax residents will be denied access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019.
The CGT withholding rate for foreign tax residents will be increased from 10.0 per cent to 12.5 per cent, from 1 July 2017.
The CGT withholding threshold for foreign tax residents will be reduced from $2 million to $750,000, from 1 July 2017.
The Government will also improve the integrity of the foreign resident CGT regime by applying the principal asset test on an associate inclusive basis from 7:30PM (AEST) on 9 May 2017, for foreign tax residents with indirect interests in Australian real property. This will ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property. The test is relevant to determine whether a foreign resident's asset is a taxable Australian property
Contributing proceeds on downsizing a home into superannuation
The Government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.
This measure will apply to sales of a principal residence owned for the past ten or more years and both members of a couple will be able to take advantage of this measure for the same home.
Removal of rental property travel deductions
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.
Increased CGT discount on affordable housing
From 1 January 2018, the Government will provide an additional ten percentage points capital gains tax discount, increasing the discount from 50 per cent to 60 per cent, to resident individuals who elect to invest in qualifying affordable housing.
To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.
Accessing superannuation for first home deposit
Under the measure individuals will be able to make voluntary contributions up to $15,000 per year and $30,000 in total into superannuation, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will then be allowed from 1 July 2018 onwards together with associated deemed earnings to be used for a first home deposit. Both members of a couple can take advantage of this measure to buy their first home together.
Limiting rental property depreciation deductions
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.
These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.
Managed investment trusts investing in housing
The Government will encourage investment into affordable housing by enabling Managed Investment Trusts (MITs) to invest in affordable housing. In order for investors to receive concessional taxation treatment through a MIT, the affordable 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. This measure will apply from income years starting on or after 1 July 2017.
GST related measures
Purchasers to remit GST on residential properties
From 1 July 2018, the Government will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or new subdivisions to remit the GST directly to the Australian Taxation Office (ATO) as part of settlement. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs.
Removing the double taxation of digital currency
The Government will align the GST treatment of digital currency (such as Bitcoin) with money from 1 July 2017.
Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST.
Further superannuation related measures
Integrity of limited recourse borrowing arrangements
From 1 July 2017, the Government will improve the integrity of the superannuation system by including the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap.
Limited recourse borrowing arrangements can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
Integrity of non-arm’s length arrangements
From 1 July 2018, the Government will further improve the integrity of the superannuation system by reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings.
The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
Extending tax relief for merging superannuation funds
The Government will extend the current tax relief for merging superannuation funds until 1 July 2020.
Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017.
General Tax related measures
Increase in the Medicare levy
The Government will increase the Medicare levy by half a percentage point from 2.0 to 2.5 per cent of taxable income from 1 July 2019 to ensure the National Disability Insurance Scheme (NDIS) is fully funded. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
Increase in the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2016-17 income year. The increases take account of movements in the CPI so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
The threshold for singles will be increased to $21,655. The family threshold will be increased to $36,541 plus $3,356 for each dependent child or student. For single seniors and pensioners, the threshold will be increased to $34,244. The family threshold for seniors and pensioners will be increased to $47,670 plus $3,356 for each dependent child or student.
Toughening multinational anti-avoidance law
From the date of its commencement on 1 January 2016, the multinational anti-avoidance law will be enhanced so that it applies to: corporate structures that involve the interposition of partnerships that have any foreign resident partners; trusts that have any foreign resident trustees; and foreign trusts that temporarily have their central management and control in Australia.
Interim report into black economy
The Black Economy Taskforce has delivered an interim report to the government and the government has accepted the following recommendations for immediate action:
- extending the taxable payment reporting system (TPRS) to two high-risk industries — cleaning and couriers — to ensure payments made to contractors in these sectors are reported to the ATO
- banning the manufacture, distribution, possession, use or sale of sales suppression technology. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system, and
- providing funding for ATO audit and lodgment activities to better target black economy risks.
HELP repayment thresholds and rates
A new set of repayment thresholds and rates under the higher education loan program (HELP) will be introduced from 1 July 2018.
A new minimum threshold of $42,000 will be established with a 1 per cent repayment rate and a maximum threshold of $119,882 with a 10 per cent repayment rate.
Skilling Australians Fund levy
From March 2018, businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will provide revenue for a new Skilling Australians Fund.
Businesses with turnover of less than $10 million per year will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa..
Restriction of foreign ownership in new developments
The Government will introduce a 50 per cent cap on foreign ownership in new developments through a condition on New Dwelling Exemption Certificates. The cap will be included as a condition on New Dwelling Exemption Certificates where the application was made from 7:30PM (AEST) on 9 May 2017.
If you have specific questions about how the 2017-18 budget may impact you or your business, please speak with your local Boyce accountant.