Overview
The key messages out of the 2017 – 2018 Federal Budget were “making the right choices to secure the better days ahead” through a “fair and responsible path back to a balanced budget” based on “the principles of fairness, security and opportunity”. As was the underlying sentiment of the previous year’s Budget, the choice is to “ensure the Government lives within its means” while still having a plan to:
- grow the economy to create more and better paid jobs;
- guarantee the essentials that Australians rely on; and
- reduce cost of living pressures.
A key summary of the 2017 -2018 Federal Budget announcements are summarised below. We note that these measures as announced still need to pass through the senate to become law.
Personal Income Tax
0.5% Increase in Medicare Levy – From 1 July 2019, the Medicare levy will increase by 0.5% to 2.5% of taxable income. This increase ensures that the National Disability Insurance Scheme (NDIS) is fully funded.
Increase to Medicare levy low income thresholds – The Medicare levy low-income threshold will be indexed for individuals and families. The threshold for singles will increase to $21,655 per annum (up from $21,335) and for couples with no children, increase to $36,541 per annum (up from $36,001).
Small Business
Extension of $20,000 immediate asset write-off – The $20,000 instant asset write-off for businesses with an aggregated annual turnover of less than $10m will be extended by 12 months to 30 June 2018. Software will continue to be excluded from these measures.
Restriction on accessing Small Business CGT Concessions – From 1 July 2017, access to the Small Business CGT Concessions will be tightened to deny eligibility for assets which are unrelated to a small business.
Superannuation
Access to superannuation for first home deposit – From 1 July 2017, individuals will be able save for their first home deposit by making voluntary contributions into their superannuation of up to $15,000 per year (to a maximum of $30,000 in total). The contributions and deemed earnings can then be withdrawn subsequently (from 1 July 2018) for a first home deposit.
The contributions can be made to an existing superannuation account and must be within an individual’s existing contribution cap. The contributions can be “salary sacrifice” contributions, or non-concessional contributions from after tax funds.
The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation. Salary sacrifice contributions will be taxed at 15%, as will the earnings by the fund. Withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.
This scheme does not replace the Super Guarantee Contributions (9.5%).
Super contributions from downsizing – From 1 July 2018, a person aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence where the property has been owned for more than 10 years. Accordingly, a couple that jointly owns their home can collectively contribute $600,000 to superannuation.
These contributions can be made in addition to the existing rules and caps and are not subject to the age or work test or the $1.6m limit applicable to other non-concessional contributions.
Limited Recourse Borrowing Arrangements (LRBA) included in super balance and transfer balance cap – The ability to use Limited Recourse Borrowing Arrangements (LRBA) will be restricted. For the purposes of the $1.6m superannuation limit, from 1 July 2017 the outstanding balance of a LRBA will be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
Social Security
Reinstatement of Pension Concession Card Entitlements – Pensioners who lost their Pensioner Concession Card entitlement due to the asset test changes on 1 January 2017 will have their card reinstated.
Those affected will receive the Pensioner Concessioner Card from 9 October 2017.
Energy Assistance Payment – The Government will make a one-off Energy Assistance payment of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who reside in Australia. The payment will automatically be paid in the week commencing 26 June 2017 and is non-taxable and will not be counted as income.
Qualifying payments include Age pension, disability support pension, parenting payment single, Veterans Service Pension and War Widow Pension.
Property
Travel expenses related to residential rental properties disallowed – From 1 July 2017 deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.
Depreciation deductions limited for residential rental properties – From 1 July 2017 plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential rental properties. Plant and equipment items are usually things which can be “easily” removed from the property such as dishwashers and ceiling fans. There will be no deduction for acquisitions of existing plant and equipment items by subsequent purchasers of the property.
Bank Levy
Major bank levy to be introduced – From 1 July 2017 a major bank levy will be introduced for authorised deposit taking institutions (ADIs) with licensed liabilities of at least $100b. This levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities equating to 0.06% annually. Liabilities subject to the levy include corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments. The levy will not apply to the deposits of individuals and mortgages.
The levy is budgeted to collect $6.2b over the forward estimates.
International Tax Measures
Capital Gains Tax changes for foreign investors – Foreign and temporary tax residents will no longer be eligible for the capital gains tax (CGT) main residence exemption from 7:30PM on 9 May 2017. However, existing properties held prior to this date will be grandfathered until 30 June 2019. Sales after this date will not be eligible for the main residence exemption.
Changes to withholding obligations for foreign tax residents – Currently, the foreign resident CGT withholding obligation applies to foreign tax residents disposing of Australian real property and related interests valued at $2m or more. This threshold will be reduced to $750,000 from 1 July 2017, therefore increasing the number of properties and interests subject to this withholding obligation. The CGT withholding rate will also be increased from 10% to 12.5% from 1 July 2017.
Annual charge on foreign owners of underutilised residential property – The Government will introduce an annual ‘levy’ 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 annual levy will be equivalent to the relevant foreign investment application fee (minimum fee is $5,000) imposed on the property when it was acquired.
Restrict foreign ownership in new developments to no more than 50% – The Government will impose a 50% cap on foreign ownership in new developments through a condition on new dwelling exemption certificates.