2017-18 FEDERAL BUDGET: WHERE IS THE MONEY GOING?
This Budget delivers a series of measures to attempt to please as many people as possible. It tackles the issues currently in focus across the Australian community – gaps in healthcare, first home ownership, foreign workers, investment and bank accountability to name a few of the pressure points. It also delivers an economic ‘sugar hit’ in the form of $75 billion in infrastructure projects.
Key measures include:
• Extension of the $20,000 immediate deduction until 30 June 2018
• Contractors in the courier and cleaning industries face greater compliance
• Access to small business CGT concessions tightened
• Banks slugged with ‘major bank levy’
• Super concessions for over 65s to downsize – up to $300,000 per member
• The ability for would-be first home owners to salary sacrifice into super to save a deposit
• An array of housing affordability measures including: a CGT discount increase to 60% for investments in affordable housing, and Managed investment Trust investment opportunities in affordable housing
• Deductibility of investment property travel costs to end and restrictions on depreciation deductions
Individuals & Families
• Medicare levy increase to 2.5% from 1 July 2019
• Help with energy bills for some social security recipients
• Demerit system for jobseekers
$20k immediate deduction extended for another year
Date of effect Extended until 30 June 2018
The $20,000* immediate deduction threshold for assets purchased by businesses with an aggregated turnover of under $10 million will be extended until 30 June 2018. Assets will need to be used or installed ready for use by 30 June 2018 to qualify for the higher threshold.
Assets costing $20,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (ie, these are added back), is less than $20,000 at 30 June 2018 then the remaining pool balance can be written off as well.
The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify.
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.
From 1 July 2018, the immediate deductibility threshold will revert back to $1,000.
* $20,000 exclusive of GST for GST registered businesses. $20,000 inclusive of GST for businesses not registered for GST.
Banks slugged with ‘major bank levy’
Date of effect 1 July 2017
A major bank levy will be imposed on Authorised Deposit taking Institutions (ADIs), with licensed entity liabilities of at least $100 billion raising an estimated $6.2 billion over 4 years.
This levy impacts on Australia’s top 5 financial institutions: Commonwealth, Westpac, ANZ, NAB and Macquarie Bank.
Customer deposits of less than $250,000 and additional capital requirements imposed on the banks by regulatory authorities are excluded from their assessed liabilities for the levy.
The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities, excluding Additional Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme. Liabilities subject to the levy will, for example, include: corporate bonds; commercial paper; certificates of deposit; and Tier 2 capital instruments.
To prevent financial institutions affected by the changes from simply increasing interest rates on mortgages to fund the levy, the Australian Competition and Consumer Commission (ACCC) will undertake a residential mortgage pricing inquiry until 30 June 2018. As part of this inquiry, the ACCC will be able to require relevant ADIs to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates by those ADIs.
Levy on businesses employing foreign workers on skilled visa
Date of effect March 2018
Businesses that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. The new levies replace and increase the existing training benchmark financial obligations, generating an estimated gain of $1.2 billion over 4 years.
For businesses with a turnover less than $10 million p.a.
Businesses with turnover of less than $10 million per year will 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.
For businesses with a turnover of $10 million or more p.a.
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.
Who collects the GST on residential property & subdivisions
Date of effect 1 July 2018
Under new integrity measures, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.
It seems that under 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.
The Government expects that as most purchasers use conveyancing services to complete their purchase, they should experience minimal practical impact from these changes.
The practical effect for developers is that they will not have the GST they would have collected to assist with cashflow between the period between settlement and when they would normally remit it to the ATO.
Many new residential properties and subdivided lots are sold under the GST margin scheme which allows the developer to calculate the GST based on the difference between their purchase price and sale price rather than GST applying to the full sale proceeds. It is not clear how this will work under the proposed new rules and whether the purchaser will be able to rely on calculations performed by the developer to meet their obligations with the ATO.
Indexation returned to Medical Benefits Scheme
Date of effect From 2017-18
Indexation will be reintroduced for elements of the Medicare Benefits Schedule:
• bulk billing incentives for General Practitioners will be indexed from 1 July 2017;
• standard consultations by General Practitioners and specialist attendances will be indexed from 1 July 2018; and
• specialist procedures and allied health services will be indexed from 1 July 2019.
In addition, from 1 July 2020, indexation will be introduced for certain diagnostic imaging items on the MBS, including for computed tomography scans, mammography, fluoroscopy and interventional radiology.
Farm Business Concessional Loans Scheme extended
Eligibility to the Farm Business Concessional Loans Scheme will be extended to assist farmers and their partners who have received their full entitlement for the Farm Household Allowance (FHA) and who are not in receipt of any other form of Commonwealth income support.
Former FHA recipients will be eligible for loans of up to 50% of their current debt position to a maximum of $1 million for debt refinancing purposes only. Loan applications will be accepted on the basis of all existing eligibility criteria with the exception of the requirement to be in a rain deficient area.
Encouraging the over 65s to downsize
Date of effect 1 July 2018
If you are 65 or over, the Government will allow you to make a non concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018. This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).
Interestingly, the Government is enabling “both members of a couple” to take advantage of the concession for the same home. So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).
The measure will apply to sales of a principal residence owned for the past ten or more years.
Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.
SMSF trustees face bigger penalties from 2017/2018 year
Date of effect 1 July 2017
SMSF trustees can expect harsher fines from the next financial year (2017/2018 year) onwards with administrative penalties of up to $12,600 per trustee (including corporate trustee) for a breach of the super rules. A value of a penalty until will increase to $210 (from the current $180) from 1 July 2017.
First home owners to use super contributions to save for a deposit
Date of effect 1 July 2017 – contributions
1 July 2018 – withdrawals
Under the First Home Super Savers Scheme, would be first home owners will be able to withdraw voluntary contributions they make to super for a deposit. In practice, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions.
If the individual is self-employed or their employer will not allow contributions to be salary sacrificed the Government will allow these people to claim a deduction for voluntary contributions made under the scheme.
The Government will allow future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. The earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3 percentage points (the same way the Shortfall Interest Charge is calculated).
Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this is intended to provide an incentive that will enable first home buyers to build savings more quickly for a home deposit. In reality, the benefits of using the scheme could be relatively small for those on low income levels as salary sacrificing arrangements and additional deductions tend to be much more beneficial for those on higher incomes.
Under the measure, up to $15,000 per year and $30,000 in total can be contributed within existing caps. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.
It will be interesting to see how popular this scheme is with first home buyers. Some individuals may be wary of contributing additional funds into superannuation especially if they are not absolutely confident that they will be able to save a deposit for a home in the near future.
CGT concession for investments in affordable housing
Date of effect From 1 January 2018
The Capital Gains Tax (CGT) discount will be increased for individuals who choose to invest in affordable housing. The current 50% discount will increase by 10% to 60% for resident individuals who elect to invest in qualifying affordable housing. Non-residents are no longer eligible for the CGT discount.
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 3 years. The additional 10% discount will be pro-rated for periods where the property is not used for affordable housing purposes.
Deductibility of investment property travel costs to end
Date of effect From 1 July 2017
The days of writing-off the costs of travel to and from your residential investment property are about to end. The Government has moved to disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
It seems that policing this area to ensure taxpayers apportion expenses correctly (and don’t claim a deduction for their holidays), just got too hard.
Individuals & Families Details
Increase in the Medicare Levy
Date of effect 1 July 2019
From 1 July 2019, the Medicare Levy will increase to 2.5% of taxable income (up from 2%) raising an estimated $8.2 billion across the 3 years from introduction.
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 measure is to inject funds into a savings fund for the National Disability Insurance Scheme.
Medicare low-income threshold increased
Date of effect 2016-17 income year
The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase to take account of movements in the CPI:
Families $36,541 plus $3,356 for each dependent child or student
Single seniors and pensioners $34,244
Family threshold for seniors and pensioners $47,670 plus $3,356 for each dependent child or student
Child care subsidy limited
Date of effect From 2018-19 income years
The Child Care Subsidy will be limited to families with incomes below $350,000 per annum. This upper income threshold will be indexed annually from 1 July 2018.
Indexation paused on Family Tax Benefit payments
Date of effect 1 July 2017
The Family Tax Benefit payment rates will remain static for the next two years until indexation resumes on 1 July 2019.
Family Tax Benefit A changes
Date of effect 1 July 2018
A consistent 30 cents in the dollar income test taper for Family Tax Benefit Part A families with a household income in excess of the Higher Income Free Area (currently $94,316) will apply from 1 July 2018.
In addition, the increase to the Family Tax Benefit A announced as part of the 2015-16 Mid Year Economic review will not proceed.
Tougher residency requirements for pensioners
Date of effect 1 July 2018
The residency requirements will be strengthened for access to the Age Pension and the Disability Support Pension.
Claimants will be required to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP unless they have either:
• 10 years continuous Australian residence, with five years of this residence being during their working life (16 years of age to Age Pension age); or
• 10 years continuous Australian residence, without having received an activity tested income support payment for a cumulative period of five years.
Existing exemptions for DSP applicants who acquire their disability in Australia will continue to apply