Australian Federal Budget Review – 2017/18
Write off for Small Business – Instant $20,000 extended for further 12 months to 30 June 2018
The threshold amount was due to return to $1,000 on 1 July 2017. As a result of this announcement, SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2018 and first used or installed ready for use by 30 June 2018 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off such as horticultural plants and in-house software.
The suspension of the “lock out” rules for simplified depreciation have also been extended by 12 months.
Increase in the Medicare levy from 1 July 2019
From 1 July 2019, the Government will increase the Medicare levy 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.
No deduction for travel expenses for residential rental properties
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.
First home superannuation saver scheme
The Government will encourage home ownership by allowing first homebuyers to ‘build a deposit’ inside their superannuation fund, as follows:
- Voluntary superannuation contributions of up to $15,000 per year, and $30,000 in total, can be contributed by first homebuyers 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.
- Theses contributions can then be withdrawn, along with associated deemed earnings, for a first home deposit, from 1 July 2018 onwards.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.
Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first homebuyers to build savings more quickly for a home deposit. Note that, both members of a couple can take advantage of this measure to buy their first home together.
Improving the integrity of GST on property transactions
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 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.
Extension of the taxable payments reporting system to contractors in the courier and cleaning industries
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. Businesses in these industries will need to ensure that they collect information from 1 July 2018, with the first annual report required in August 2019.
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 2017/18, the minimum threshold is $55,874 and minimum repayment rate is 4%. The maximum threshold for 2017/18 is $103,766 with an 8% repayment rate.
From 1 July 2018, people aged 65 and over will be able to make non-concessional superannuation contribution up to $300,000 from the proceeds of the sale of their home. Both members of a couple will be able to apply this measure allowing up to $600,000 per couple to be contributed to superannuation.
Contributions made under the downsizing cap will be in addition to any other voluntary contributions a person is able to make under the existing contribution rules and caps.
This measure will only apply following the sale of a principal place of residence held for a minimum of 10 years.
The Government has confirmed that downsize sale proceeds contributed to superannuation will be counted under the Age Pension Assets Test.
It is important to note that while an amount may be able to be contributed to superannuation under the downsizing cap, the measure does not extend to amounts transferred into the retirement phase of superannuation under the $1.6 million transfer balance cap. A person will only be able to transfer up to their $1.6 million transfer balance cap into a retirement phase income stream.
Please contact your local McFillin & Partner’s Advisor tax agent should you have any queries regarding the federal budget.