Announced major changes in the budget

Major Changes Coming Into Effect
June 23, 2017
The Miracle of Compound Interest
August 10, 2017
  1. The removal of the ‘substantially self-employed’ rule meaning that anyone can make personal tax-deductible super contributions regardless of their work status (must still satisfy work test if over 65). Currently only people that are classed as ‘substatially self-employed’ can make personal tax-deductible super contributions, employees must salary sacrifice to get money into super.
  2. The ability to ‘carry forward’ unused concessional cap amounts for up to five financial years. Set to come into effect from 1 July 2018, this change will apply to people with super balance of less than $500,000.

 

Personal income tax

 

Increase in the Medicare levy

The Medicare levy will increase by half a percentage point from 2.0 to 2.5 per cent of taxable income from 1 July 2019. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased. Low-income earners will continue to receive relief from the Medicare levy through the low-income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.

The revenue generated by the Medicare levy increase will be used to support the National Disability Insurance Scheme (NDIS) and to guarantee Medicare.

Temporary Budget Repair Levy expiry

There is no announced change to cessation of the Temporary Budget Repair Levy (TBRL) on 30 June 2017. This means that the top marginal tax rate (where taxable income exceeds $180,000), including the Medicare levy, will reduce from 49.0 percent to 47.0 per cent from 1 July 2017, and increase to 47.5 per cent from 1 July 2019.

Medicare levy thresholds for 2016/17

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.

Disallow certain deductions for residential rental property

From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Investors will not be prevented from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Also from 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

This measure addresses concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

Expanding tax incentives for investments in affordable housing

From 1 January 2018, the CGT discount will increase from 50 per cent to 60 per cent for 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

Foreign residents

 

Lower threshold for withholding tax for residential property disposals

From 1 July 2016, foreign investors were subject to a withholding tax where they sold a residential property for $2 million or more. The obligation to withhold falls on the purchaser of the property.

From 1 July 2017, this threshold will reduce to $750,000. As median house prices in both Sydney and Melbourne exceeded $750,000 in the December 2016 quarter 1, a far greater number of purchasers will need to be conscious of these rules to avoid any penalties for failure to withhold.

This obligation to withhold applies where:

  • the purchaser knows or has reasonable grounds to believe the vendor is a foreign resident
  • the purchaser doesn’t reasonably believe the vendor is an Australian resident and
    • has a record about the purchase indicating that the vendor has an address outside Australia, or
    • is authorised to provide a financial benefit (eg make a payment) to a place outside Australia (whether to the vendor or to anybody else).

Other rules will be introduced to aggregate indirect property holdings of associates (related entities) in applying the foreign resident CGT regimes.

Business owners

 

Continuation of small business asset write-offs ($20,000 threshold)

Small businesses with an annual turnover of less than $10 million will be able to continue to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018, with some exclusions including in-house software.

Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. New depreciation pools can also be immediately deducted if the balance is less than $20,000 over this period.

This measure will only be extended for a further 12 months to 30 June 2018, at which time the immediate deductibility threshold and deductible pool balance will revert to $1,000.

Integrity measures limiting access to small business capital gains tax concessions

Measures will be introduced to ensure that taxpayers do not arrange their affairs in a way that means ownership interests in larger businesses do not count towards the small business CGT tests.

This will ensure that the small business concessions are available to the appropriate group of taxpayers.

Superannuation

 

First home super saver scheme

From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.

These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.

Features associated with this measure include:

  • Contributions will count towards existing concessional and non-concessional contribution cap
  • Earnings will be calculated based on the 90 day Bank Bill rate plus three percentage points.
  • The ATO will administer this scheme, calculate the amount that can be released and provide release instructions to superannuation funds.
  • The amount withdrawn (including the taxable component) will not flow through to income tests used for tax and social security purposes, such as for the calculation of HECS/ HELP repayments, family tax benefit or child care benefit.

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