The Federal Budget has been released and Team #PTAandM have completed out Budget Breakdown on some of the key points and features of this year’s announcement. Unlike recent years where there have been many initiatives dealing with Small Business and Superannuation, this year’s budget has focused on other issues, namely the Big Banks, Social Security and Foreigners. We highlighted some of the key points below:
What are the changes for Students & Education
- University fees will rise by an average of 8%;
- The income level at which graduates have to start repaying their HECS debt cut from $55,000 to $42,000 from July 1 2018. This new threshold is just 20% above the minimum wage of $35,000;
- Commonwealth funding for schools will increase by 75%, meaning an additional $18.6 billion over 10 years from 2018;
- The introduction of Commonwealth supported places in sub-bachelor programs like diplomas.
What are the changes for Housing
- First home buyers to receive a tax cut to deposit savings via salary sacrifice concessions to superannuation;
- $375 million extension to homelessness funding over 3 years from 2018-2019;
- $300,000 non-concessional superannuation contribution allowed for retirees downsizing their principal residence;
- Increased CGT discount from 50% to 60% for resident individuals investing in qualifying affordable housing. To qualify for the discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate.
What are the changes for Defence & Security
- Intelligence agencies will receive $75 million in funds previously dedicated to Foreign Aid;
- Australian Federal Police will receive an extra $321.4 million to hire up to 300 more specialist officers including negotiators, tactical response officers, bomb squad technicians and forensic specialists.
- $350 million in funding allocated to help prevent suicide among war veterans.
What are the changes for Income Tax
- Plant and equipment forming part of residential investment properties as of 9 May 2017 (Including contracts already entered into at 7:30pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life;
- Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be able to claim deductions for plant and equipment purchased by a previous owner of that property. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors;
- From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property. This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services;
- From 1 July 2019 the Medicare levy will increase from 2% to 2.5% of taxable income. 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 Government will increase the Medicare levy-low income thresholds for singles, families and seniors and pensioners from the 2017 income year;
- 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.
What are the changes for Business
- 0.06% tax to be levied on the Big 5 Banks to raise $6.2 billion over 4 years commencing 1 July;
- Under the new Temporary Skills Shortage, visa employers will have to pay a levy of up to $5,000 for each foreign worker they employee. This levy will be put towards a fund to train Australian apprentices and trainees;
- Businesses with an annual turnover of up to $10 million will enjoy the immediate write-off for assets up to $20,000 until June 30 2018. This means that small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018;
- The government will amend the small business CGT concessions with effect from 1 July 2017 to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business. The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million;
- Courier and Cleaning contractors are set to fall under the Taxable Payments Reporting System from 1 July 2018.
What are the changes for Health
- Public hospitals will receive a $2.8 billion funding increase;
- The Government is lifting the freeze on Medicare rebates and improving incentives for GP’s to bulk bill;
- Parents who don’t vaccinate their children will lose about $28 per child, per fortnight. This money will be withheld from Family Tax Benefit Part A.
What are the changes for Infrastructure
- Western Australia will receive a $2.3 billion road and rail package, the Federal Government will kick in $1.6 billion;
- $8 Billion has been committed to building an inland freight rail line from Melbourne to Brisbane;
- Construction of Western Sydney Airport to be bankrolled by the Government for $5.3 billion over the next 4 years.
What are the changes for Legal Centres
- Funding has been restored to 190 community Legal Centres Australia-wide. These centres had been due to lose $30.1 million from 1 July 2017. $55 million has been allocated over the next 3 years;
What are the changes for Social Security
- Random drug testing to be imposed for welfare recipients;
- Newstart and Sickness Allowance recipients will be moved to the new JobSeeker Payment, the rate remains the same;
- The pensioner concession card will be restored to those who lost it after the pension assets test change introduced earlier this year;
- Older Australians will receive a one-off power rebate, $75 for singles and $125 for couples;
What are the changes for Superannuation
- First home superannuation saver scheme will allow first home buyers to build a deposit inside their superannuation fund;
- Voluntary superannuation contributions of up to $15,000 per year, and $30,000 in total can be contributed by first home buyers from 1 July 2017. The contribution must be within existing concessional and non-concessional caps. Concessional contributions are taxed at 15% in the fund and earnings on contributions are taxed at 15% in the fund;
- These contributions can then be withdrawn, along with associated deemed earnings, for a first time home deposit, from 1 July 2018 onwards. Concessional contributions and earnings that are withdrawn will be taxed at the taxpayer’s marginal rate less a 30% offset. When non-concessional contributions (‘NCCs’) are withdrawn, they will not be taxed;
- Individuals aged 65 or over able to contribute the proceeds of downsizing into superannuation. From 1 July 2018 the Government will allow a person aged 65 or over to make a NCC of up to $300,000 from the proceeds of selling their home. These NCC’s will be in addition to those currently permitted under existing rules and caps and the will be exempt from the existing age test, work test and the $1.6 million balance test for making NCCs;
- The government will extend the current tax relief for merging superannuation funds until 1 July 2020. Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017.
What are the changes for foreign Investors
The government will extend Australia’s foreign resident CGT regime by:
- Denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30pm (AEST) on 9 May 2017. Note that existing properties held prior to this date will only be grandfathered until 30 June 2019;
- Applying the principal asset test on an associate inclusive basis for foreign tax residents with indirect interests in Australian real property from 7:30pm (AEST) on 9 May 2017. This will ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.
- The government will introduce a charge of at least $5,000 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. This measure will apply to foreign persons who make a foreign investment application for residential property from 7:30pm (AEST) on 9 May 2017;
- This charge will be levied annually and will be equivalent to the relevant investment application fee imposed on the property at the time it was acquired by the foreign investor;
- The Government is also restricting foreign ownership in new developments to 50%.
What are the changes affecting the GST regime
- Improvement on the integrity of GST on property transactions. From July 1 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of the settlement. (Under the 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. As most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes;
- From 1 July 2017, the Government will align the GST treatment of digital currency (e.g Bitcoin) with money. Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST. This measure will ensure purchases of digital currency are no longer subject to the GST.
Black Economy Taskforce
- The government will extend the taxable payments reporting system (‘TPRS’) to contractors in the courier and cleaning industries with effect from 1 July 2018. The TPRS is a transparency measure and already operates in the building and construction industry where it has resulted in improved contractor compliance. Under the TPRS, businesses are required to report payments they make to contractors (Individual and total for the year) to the ATO. This measure brings payments to contractors in the courier and cleaning industries into line with wages, which are reported to the ATO;
- The Government will provide $32 million for one year of additional funding for ATO audit and compliance programs to better target black economy risks. This funding was set to expire on the 30 June 2017.
What are the changes affecting the Higher Education Loan Program (HELP)
- The Government will revise the income thresholds for repayment of HELP debt, repayment rates, and the indexation of repayment thresholds from 1 July 2018. A new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate. By way of background, for 2017/2018, the minimum threshold is $55,874 and the minimum repayment rate is 4%. The maximum threshold for 2017/18 is $103,766 with an 8% repayment rate.
Budget Wrap
This is a general overview of the key points discussed in Tuesday’s Federal Budget. Of course, the budget will need to be passed by the Parliament before it will become law. Team PTAandM will keep you informed of any major developments as they unfold.
If you have any questions about how the budget may impact you please feel free to contact us or Join the conversation... on Facebook.