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11 May 2017

Stewarts’ 2017-18 Federal Budget Summary

In a budget which some political commentators are referring to as “Labor-lite”, first impressions are that significant portions of the 2017-18 Federal Budget (the Budget) may be passed into law with less disruption than we have seen in previous years – although there’s no guarantee.

This Budget forecasts a surplus in the fourth year of the budget estimates.  This is the sixth budget in a row that has made this same prediction – so whether it actually becomes reality this time round remains to be seen.

Apart from some of the big picture items which are sure to get significant media attention, such as the levy on the Big 5 banks and certain infrastructure spending announcements, there are a large number of smaller changes that may affect you as an individual or business owner.

Learn more about the changes and what they mean for you:

Businesses | Individuals & Families | GST & Indirect Taxes Superannuation | Housing

 

Businesses

10-year business tax cut plan

The Federal Government has reaffirmed their intention to implement their 10-year tax cut plan for all businesses, previously announced in the 2016 Federal Budget.  At present, a tax cut down to 27.5% for businesses with an annual turnover of less than $10 million from 1 July 2016 has been passed by the Senate (and is expected to pass into law).  This is then to extend to businesses with an annual turnover of less than $25 million from 1 July 2017, and less than $50 million from 1 July 2018.

This Budget includes the projection to decrease the company tax rate for all companies to 25%, but this further decrease wouldn’t start until 2025 – so not something to bank on just yet.

Instant Asset Write-Off for Small Businesses

The current instant asset write-off for small business, where businesses with an annual turnover of less than $2 million can immediately write-off assets purchased up to $20,000, has been extended for a further 12 months until 30 June 2018.

Legislation to extend this to businesses with an annual turnover of less than $10 million for the 2017 financial year has already passed the Senate, and awaits consideration by Parliament (and is expected to pass and become law).

Small Business Capital Gains Tax (CGT) Concessions

The Government has announced a strengthening of integrity measures around small business CGT concessions, to ensure that the concessions are only available for capital gains resulting from the sale of business assets.

We await further detail of these measures; however, initial indications suggest that they will be focussed on ensuring ownership structures are not arranged in such a way as to avoid the inclusion of the value of ownership interests in larger businesses when testing eligibility for the concessions.

Payment Reporting Obligation for the Cleaning and Courier Industries

From 1 July 2018, additional reporting obligations will come into force for businesses making payments to contractors in the cleaning and courier industries.  This extends the current system which only applies to the building and construction industry.

Additional Funding for ATO ‘Black-Economy’ Audits and Investigations

The ATO has received additional funding for their compliance activities regarding the black-economy.  In particular, they have a focus on investigating businesses with a history of non-lodgement, omission of income in reporting and non-payment of employer obligations (such as employee superannuation).

 

Individuals and Families

Tax Rates Based on Current Legislation

The individual tax rates for individuals in the 2017 and 2018 financial years won’t change as a result of the 2017 Budget as announced.

2016/17

Taxable Income ($) Tax Payable ($)
0 – 18,200 Nil
18,201 – 37,000 19% of the excess over $18,200
37,001 – 87,000 3,572 + 32.5% of the excess over $37,000
87,001 – 180,000 19,822 + 37% of the excess over $87,000
180,001 + 54,232 + 47% of the excess over $180,000 (includes the 2% Deficit levy)

* PLUS the 2% Medicare levy

2017/18

Taxable Income ($) Tax Payable ($)
0 – 18,200 Nil
18,201 – 37,000 19% of the excess over $18,200
37,001 – 87,000 3,572 + 32.5% of the excess over $37,000
87,001 – 180,000 19,822 + 37% of the excess over $87,000
180,001 + 54,232 + 45% of the excess over $180,000

* PLUS the 2% Medicare levy

End of the 2% Deficit levy

As included in previous year budgets, the 2% Deficit levy on incomes over $180,000 will cease at 30 June 2017.

Medicare Levy Increase

From 1 July 2019, the Medicare levy will increase from 2% to 2.5%.  Other rates that are linked to this rate will also increase in 2019, such as the Fringe Benefits Tax rate.

In the 2017 financial year, the current Medicare levy of 2% will be payable on the total income for singles earning over $21,655 (up $320 from 2016), for couples with no children earning over $36,541 (up $540); for couples with children, this income level over which the Medicare levy applies is increased by $3,356 (up $50).

Higher Education HELP Changes

As previously announced by the Government, from 1 July 2018 HELP debt repayments will commence at an income level of $42,000.  This is a significant reduction from the current 2018/19 repayment threshold of $51,957, albeit with a lower repayment rate at that point.

Changes to the Family Tax Benefit – Part A

  • From 1 July 2017, the FTB Part A supplement payment will be reduced by $28 per fortnight for each child who does not meet the Government immunisation guidelines.
  • From 1 July 2018, families receiving FTB Part A payments, who have an income over the Higher Income Free Area (currently $94,316) will have their payment reduced by 30 cents for each dollar of household income in excess of this threshold.
  • The increase in the maximum rate of FTB Part A payments from 1 July 2017 will no longer occur; this increase was originally announced in 2015, but has been removed in this Budget.

 

GST and Indirect Taxes

GST on the Purchase of New Residential Premises

From 1 July 2018, purchasers of newly constructed residential properties (or new subdivisions) will pay the GST portion of the purchase price directly to the ATO, as part of the property settlement process.  Currently the GST portion of the purchase price is paid to the vendor, who then pays it to the ATO.

 

Superannuation

No major new changes to superannuation

The previously announced changes will still be coming into force from 1 July 2017 – see our previous update about these changes.

Inclusion of Limited Recourse Borrowing Arrangements (LRBAs) in Superannuation Balance

From 1 July 2017, the outstanding balance of LRBAs will be added to the superannuation account member’s balance and the $1.6 million pension transfer balance cap.  Importantly, in the initial 2016 announcement of this policy, the measure would only apply to borrowings that were entered into after the legislation became law; however, this Budget applies the measure to all superannuation fund LRBAs from 1 July 2017.

Extra Super Contributions from Home Downsizing Proceeds

From 1 July 2018, people aged 65 or over will be able to make an additional, non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their home.  However, the home must have been their principle residence and must have been owned by them for at least ten years.

Importantly, the proceeds from the sale of a home in this manner will not be exempt from the Age Pension assets test.

First Home Super Saver Scheme

Voluntary contributions into superannuation made after 1 July 2017 can be withdrawn for a first home deposit, along with the associated earnings.  These contributions are separate from an employee’s superannuation guarantee contributions from their employer.

The withdrawal of these contributions will be taxed at the individual’s marginal tax rate, less a 30% offset.  A maximum of $15,000 per year and $30,000 in total can be contributed in this way, within existing superannuation contribution caps.

 

Housing

Depreciation Restrictions

Depreciation deductions for plant and equipment purchased after 9 May 2017 for residential rental properties will be restricted to the actual funds outlaid to acquire the plant and equipment.

So, a rental property owner who purchases plant and equipment for their rental property can still depreciate these costs over the effective life of the asset.

However, the cost of plant and equipment which is included as part of the purchase of a property (i.e. plant and equipment that is already installed in the property when it is purchased) will be included in the CGT cost base for the property and will not be able to be depreciated.

This measure will not apply to purchases with a contract date before 9 May 2017, only to purchases entered into after this date.

Travel Expenses for Rental Properties

Travel expenses relating to inspecting, maintaining or collecting rent for residential rental properties will no longer be deductible from 1 July 2017.

Increased CGT Discount for Investments in “Affordable Housing”

Investments in qualifying affordable housing, which is managed through a registered community housing provider and held for a minimum of three years, will be eligible for a 60% CGT discount upon sale of the investment, up from the standard 50% CGT discount for regular investments held for twelve months or more.