On 9 May 2017, the Treasurer, Mr Scott Morrison, handed down his second Federal Budget.
The Budget focuses on gradually returning to surplus over the medium term. It contains significant changes for small businesses, superannuation and the property market.
There are no changes to personal income tax rates for residents. The 2% Temporary Budget Repair Levy will not be expended beyond 30 June 2017.
However, The Treasurer announced that the Medicare levy will be increased by half a percentage point from 2 per cent to 2.5 per cent of taxable income from 01 July 2018. The increase will ensure that the National Disability Insurance Scheme is fully funded.
New Higher Education Loan Program (HELP) repayment thresholds from 01 July 2018 will affect all current and future HELP debtors. Currently the minimum repayment threshold is $55,874 at 4% repayment rate and the maximum repayment threshold is $103,766 at 8% repayment rate. From 01 July 2018 the minimum repayment threshold will be reduced to $42,000 with a 1% repayment rate. The repayment rate increases progressively with income. A maximum rate of 10% will apply from $119,882.
2. Small to Medium Businesses
The instant asset write off available to small business entities for eligible assets costing less than $20,000 will be extended for a further 12 months to 30 June 2018. To be eligible for write-off under the higher threshold, the asset must be first used or installed ready for use by 30 June 2018.
From 1 July 2018, the immediate deductibility threshold and the balance at which the pool can be immediately deducted will revert to $1,000.
The Taxable payment annual report (TPAR) was introduced in 2013 financial year. It required businesses in building and construction industry to report to the ATO all payments made to contractors by 28 August.
From 01 July 2018 the businesses in the courier and cleaning industries will be required to lodge the TPAR with the ATO.
3. Property market
The Government attempts to reduce pressure on housing affordability and introduces a number of changes affecting property investors, developers and non-residents.
From 1 July 2017 deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential property will be disallowed. Costs of engaging third parties for property management services will continue to be deductible.
Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors. This means that owners of a property will not be able to claim deductions for plant and equipment purchased by a previous owner of the property. The acquisition of these items will be reflected in the cost base of the property for CGT purposes.
The building write off (2.5% deduction) is unaffected.
From 1 July 2017 the Foreign resident capital gains withholding rate (FRCGW) will be increased from 10% to 12.5% and the Capital Gains Tax (CGT) withholding threshold will be reduced from $2 million to $750,000.
From 9 May 2017 Foreign and Temporary tax residents will not be able to access the CGT main residence exemption. Existing properties held prior to this date will still be eligible for the main residence exemption until 30 June 2019.
New Dwelling Exemption Certificates issued to the property developers will include a 50% cap on foreign ownership condition. It will apply to applications made from 9 May 2017.
The foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months each year will be subject to an annual levy.
Acquisition of new residential property
From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement. Under the current law — where GST is included in the purchase price and the developer remits the GST to the ATO — some developers are failing to remit the GST, despite having claimed input tax credits on their construction costs.
4. Superannuation measures
From 1 July 2017, individuals will be able to make voluntary contributions of up to $15,000 per year – and $30,000 in total — to their superannuation account to purchase a first home.
Concessional contributions and associated deemed earnings will be taxed at 15 per cent.
These voluntary contributions, along with associated deemed earnings, will be able to be withdrawn for a first home deposit from 1 July 2018.
Withdrawals of concessional contributions and earnings will be taxed at the individual’s marginal rate less a 30 per cent offset.
From 01 July 2018 a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home which they have owned for a minimum of 10 years. This contribution will be exempt from the age test, the work test and the $1.6 million total superannuation balance test, but will not be exempt from the $1.6 million transfer balance cap.
If you need any advice regarding the Federal Budget, the team at The Quinn Group can help. Call us on 02 9223 9166, or fill out an online enquiry.