This year’s federal Budget handed down last night, 9 May 2017 did not contain the hefty measures of last year’s Budget especially those relating to superannuation. Many of this year’s announcements relate to rectifying existing laws.
The most substantive change is the ability for first home buyers to contribute a maximum of $15,000 per year (to a maximum of $30,000 in total) to a superannuation fund. The money may be withdrawn from the superannuation fund when needed to purchase a property; the withdrawal will be concessionally taxed.
The $20,000 instant asset write-off remains until 30 June 2018, the Medicare levy increases from 2% to 2.5% and pleasingly, the 2% Budget Repair disappears on 30 June 2017. Tax deductions for travel costs to a rental property cease on 1 July 2017, purchasers (instead of developers) of new homes must remit the GST to the ATO (this measure is sure to be an administrative disaster) and the general discount on capital gains made on the sale of affordable housing will increase from 50% to 60%.
Lastly, the ATO has more money to chase the black (cash) economy and international tax avoidance.
Budget Guide Contents
Contents: Individuals / Businesses / GST / Superannuation / Other / International
How can Nexia Edwards Marshall NT help you?
To discuss the budget in more detail and how it may impact your personal or business situation, contact Sarah McEachern or your Nexia Edwards Marshall NT Advisor for a consultation to get your tax affairs in order by 30 June.
Individuals
1. Deductions for travel to Investment Properties
What is the proposal?
Travel expenses incurred for inspecting, maintaining or collecting rent for a residential rental property will no longer be allowed. This measure has been brought about by some landlords combining private trips with their rental property management and not correctly apportioning their costs attributable to their property.
What does this mean for you?
This is the last financial year that travel expenses associated with residential property management will be tax deductible. Therefore, an inspection trip planned after July should be undertaken before 30 June to achieve tax deductibility for the trip.
This measure does not apply to commercial property landlords or to residential landlords who engage real estate agents to perform property management services.
This proposal applies from 1 July 2017
2. Plant and Equipment Depreciation Restrictions on Residential Rental properties
What is the proposal?
The Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties. Plant and equipment items are usually mechanical fixtures or those that can be ‘easily’ removed from a property (e.g. dishwashers and ceiling fans). This proposal has been introduced to address concerns that some plant and equipment items are being depreciated in excess of their actual value by subsequent owners of the property.
The changes apply on a prospective basis with existing investments being grandfathered. Plant and equipment of a residential investment property including contracts entered into before 7:30PM (AEST) on 9 May 2017 will continue to give rise to deductions for depreciation until the asset reaches the end of its useful life or the investor no longer owns the asset.
Investors that purchase plant and equipment for their residential property after 9 May 2017 will be able to claim the depreciation deduction over the effective life of the asset. However, subsequent owners of the property will not be allowed to claim deductions for plant and equipment purchased by the previous owner. The plant and equipment costs will be reflected in the cost base for capital gains tax purposes.
What does this mean for you?
This new proposal will not affect investors who already hold residential properties prior to 7:30PM (AEST) 9 May 2017. However, this proposal will affect the depreciation deductions allowed for investors of residential real estate after 9 May 2017. All plant and equipment in place after 9 May 2017 in the residential property will be added to the cost base of the property and used to reduce capital gains tax when the residential property is sold.
The proposal applies from 1 July 2017
3. Increase in Medicare levy – National Disability Insurance Scheme
What is the proposal?
The Government will increase the Medicare levy from 2% to 2.5% of taxable income to fund the National Disability Insurance Scheme (NDIS) and to guarantee Medicare. Other taxes linked with the top personal tax rate, such as the FBT rate, will also be increased.
What does this mean for you?
Taxpayers who pay the Medicare levy will be affected by the increase in tax rates from 2% to 2.5% of taxable income. 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 Medicare levy exemptions will remain in place.
This proposal applies from 1 July 2019
4. Increase in Medicare levy – Income Thresholds
What is the proposal?
The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased for the 2016-2017 year.
The thresholds for singles will be increased to $21,655 (increased from $21,335 for the 2015-16 income year). For families, the threshold will be increased to $36,541 plus $3,356 for each dependent child or student. This has been increased from $36,001 plus an additional $3,306 per dependent child or student in the 2015-16 income year.
The threshold for single seniors and pensioners will be increased to $34,244 (increased from $33,738 in the 2015-16 income year) and the family threshold for seniors and pensioners will be increased to $47,670 plus an additional $4,356 for each dependent child or student.
What does this mean for you?
The CPI increase in the Medicare levy low-income thresholds will generally allow low income earners to continue to be exempt from paying the Medicare levy. The increase in the low-income thresholds will mostly affect those singles, families, seniors and pensioners that would not have received relief based on the 2015-16 thresholds.
This proposal applies from 1 July 2017
5. Foreign Investors: CGT Main Residence and CGT Withholding Tax Rate
What are the proposals?
Foreign and temporary tax residents will be denied access to the CGT main residence exemption for properties acquired after 9 May 2017. Existing properties held prior to that time will be grandfathered until 30 June 2019.
The CGT withholding tax rate for foreign investors selling Australian property will increase from 10% to 12.5%.
The CGT withholding tax threshold for foreign tax residents selling Australian property will reduce from $2 million to $750,000.
What does this mean for you?
The valuable main residence exemption will not be available to foreign and temporary tax residents but properties currently owned by such residents will remain CGT free until 30 June 2019; this is likely to lead to a sell-off of some Australian properties before 30 June 2019.
Australian buyers of property will need to be aware of these changes because they may be required to withhold tax at the new rate on a significantly reduced purchase price.
Integrity measures will ensure that indirect holdings of property by foreign tax residents will be subject to the new measures.
Proposal 1 applies from 7.30pm (AEST) on 9 May 2017. Proposals 2 and 3 apply from 1 July 2017.
6. Increase in Medicare levy – Income Thresholds
What is the proposal?
The Government will introduce a charge 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. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time the property was acquired by the foreign investor.
This proposal is expected to increase the number of dwellings available for Australians to live in.
What does this mean for you?
This measure is intended to encourage foreign owners of residential property to make their properties available for rent where they are not used as a residence. Foreign investors will need to make genuine efforts to ensure that their properties are available for rent if their properties are vacant.
This measure will apply to foreign persons who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017.
7. Increased CGT discount for Investments in Qualifying Affordable Housing
What is the proposal?
The CGT discount will be increased from 50% to 60% on capital gains made on the disposal of investments in qualifying affordable housing. In order to be eligible for the increased CGT 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 of three years. Low to moderate income tenants will be determined on household income thresholds and household composition.
If the property was used for affordable housing purposes before being purchased, this prior time will count towards the buyer’s qualifying investment period provided the previous owner did not claim the additional discount. The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.
Importantly, the increase in the CGT discount is not limited to investments in new affordable housing.
The higher CGT discount will also flow to resident individuals investing in qualifying affordable housing Managed Investment Trusts (another measure proposed in the 2017 Budget).
What does this mean for you?
The increased discount will result in less capital gains tax to be paid on the sale of qualifying investments.
Investors who have existing properties can also elect to supply their housing for affordable housing provided the investment meets the eligibility criteria. Allowing investors to use existing properties allows more taxpayers to access the increased CGT discount.
Further details will be provided by the Government on the definition of affordable housing and tenant eligibility and what qualifies as rent charged below market rate.
The proposal applies from 1 January 2018
Contents: Individuals / Businesses / GST / Superannuation / Other / International
Businesses
1. Extending the $20,000 instant asset write-off by another 12 months
What is the proposal?
The government will extend the current $20,000 instant asset write-off available for small business entities by 12 months to 30 June 2018.
The small business entity threshold is proposed to be increased from $2 million to $10 million for the 2017 income tax year and is proposed to be $25 million for the 2018 income tax year.
What does this mean for you?
Small business entities1 will now be able to immediately deduct the cost of most new or 2nd hand depreciating assets bought and used or installed ready for use in the business before 30 June 2018 – provided the asset cost less than $20,000.
Whether GST should be included in working out whether the threshold is met depends on whether the purchaser is registered for GST or not:
- If the purchaser is registered for GST – the GST exclusive amount is the cost of the asset; and
- If the purchaser is not registered for GST – the GST inclusive amount is the cost of the asset.
However, assets costing $20,000 or more can be pooled in a general small business pool, treated as a single depreciating asset and depreciated at:
- 15% for such assets acquired in the first income tax year; or
- 30% each income year thereafter.
If the balance in the pool is less than $20,000, the pool can be immediately deducted.
After 30 June 2018 (i.e. from 1 July 2018) the immediate deductibility threshold will revert back to $1,000 (as opposed to the current $20,000) and the so-called “lock-out”2 rules will apply again.
This proposal applies from 1 July 2017
2. Integrity measures for small business CGT concessions
What is the proposal?
The Government will amend the small business CGT concessions to ensure the concessions can only be used in relation to assets used in a small business or ownership interest in a small business.
What does this mean for you?
Currently, the small business CGT concessions can be applied to assets that are unrelated to their small business – for example if affairs are arranged to ensure the ownership interests in larger businesses are not counted towards the small business thresholds (e.g. the $2 million turnover test or $6 million net asset value test). With this new integrity measure the Government intends to put a stop to this.
This proposal applies from 1 July 2017
3. Extension of taxable payments reporting system to contractors in the courier and cleaning industries
What is the proposal?
The Government proposes to extend the taxable payments reporting system (TPRS) – that currently applies only to the building and construction industry – to contractors in the courier and cleaning industries.
What does this mean for you?
Businesses affected by these measures will have to report payments they make to contractors (individual and total for the year) to the ATO – thereby bringing payments to contractors in line with wages (which are reportable).
This proposal applies from 1 July 2018 and first annual is due in August 2019
1 – For the 2016 income tax year only businesses with an aggregated turnover of less than $2 million were small business entities. The threshold is proposed to increase to $10 million for 2017 income tax year and to $25 million for the 2018 income tax year.
2 – The lock-out rules apply to prevent a small business entity from using these favourable small business depreciation rates for a period of 5 years form the time they elected to no longer use the small business depreciation regime rates.
Contents: Individuals / Businesses / GST / Superannuation / Other / International
Goods and Services Tax (GST)
1. Removing the double taxation of digital currency
What is the proposal?
The government proposes to align the GST treatment of digital currency (e.g. Bitcoin) with that of money from 1 July 2017.
What does this mean for you?
Currently digital currency is treated as intangible property for GST purposes – which means that consumers who use digital currencies as payments can effectively bear GST:
On the purchase of the digital currency; and
On the use of the digital currency in exchange for other goods and services subject to GST.
By affording digital currency the same GST treatment as money, purchases of digital currency will no longer be subject to GST.
This proposal applies from 1 July 2017
2. Purchasers of newly constructed residential properties to remit GST directly to ATO
What is the proposal?
The government proposes to require purchasers of newly constructed residential properties or new subdivisions to remit the GST directly to the ATO (as opposed to the developer) as part of the settlement.
What does this mean for you?
These proposed changes should have minimal impact on purchasers – however, the measure should increase the ATO’s GST revenue because the ATO will no longer have to wait for the developer to remit the GST to the ATO.
This proposal applies from 1 July 2018
Contents: Individuals / Businesses / GST / Superannuation / Other / International
Superannuation
1. First Home Super Saver Scheme
What is the proposal?
The Government intends to allow first home buyers to make additional voluntary concessional superannuation contributions towards a deposit for their first home to a maximum of $30,000. Such contributions can subsequently be withdrawn from the superannuation fund to fund their home deposit.
What does this mean for you?
First home buyers will be allowed to salary sacrifice superannuation contributions to a maximum of $15,000 per year to a superannuation fund but this must be within the concessional superannuation contribution limit of $25,000.
Currently, withdrawals usually cannot be made from a superannuation fund until a person has reached 55 to 60 years of age, depending on date of birth. These concessional contributions and the associated earnings (calculated on the 90 day Bank Bill rate plus 3%) can subsequently be withdrawn from the superannuation member’s account. On withdrawal, these funds will be taxed at marginal tax rates less a 30% tax offset.
First home buyers can contribute a maximum of $30,000 to the scheme in total. The overall net tax benefit achieved for a first home buyer who contributes and withdraws the full $30,000 and who has a marginal tax rate of 39% including Medicare levy will be $4,500 better off.
Both members of a couple can utilise the First Home Super Saver Scheme to buy a home together. Self-employed individuals and employees who are not able to access salary sacrifice will be able to claim a tax deduction on personal contributions.
This proposal applies to contributions from 1 July 2017. Withdrawals from superannuation funds may only be made from 1 July 2018.
2. Super Contribution on Downsizing your Home
What is the proposal?
Individuals over 64 years of age will be able to make a non-concessional superannuation contribution of a maximum of $300,000 from the proceeds of selling their home. The principal residence must be owned for at least 10 years. Both members of a couple will be eligible for this measure.
What does this mean for you?
Individuals aged over 64 years of age will be able to sell their principal residence and each make a $300,000 non-concessional superannuation contribution from the proceeds of the sale of the home. The existing age and work tests do not apply when making this non-concessional contribution.
Such a non-concessional contribution will also be unaffected by the $1.6m member balance test, the $100,000 per annum non-concessional contribution cap or the $300,000 bring-forward cap applicable from 1 July 2017.
This measure will allow eligible people to downsize their home and make a contribution to their superannuation fund when the law may have otherwise denied then from doing so. This will allow such eligible people to bolster their superannuation savings and thereby improve their retirement.
This proposal applies from 1 July 2018
3. Limited Recourse Borrowing Arrangements in Superfunds
What is the proposal?
Limited Recourse Borrowing Arrangements (LRBAs) in a superannuation member’s account will be included within the $1.6 million caps which were introduced in the 2016 Budget as part of the wider changes to superannuation.
What does this mean for you?
The 2016 Budget changes to superannuation did not include LRBAs within the member’s $1.6 million superannuation balance and pension transfer balance caps. This measure will include the outstanding balance of the LRBA within those caps.
The repayment of the principal and interest of the LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account. Many members of self-managed superannuation funds will want to review their LRBAs prior to 1 July 2017, as a result of these proposed measures.
This proposal applies from 1 July 2017
4. Non-arm’s length arrangements
What is the proposal?
The Government intends to reduce the ways in which members of superannuation funds can use related party transactions on non-commercial terms to increase their superannuation savings.
What does this mean for you?
In particular, the non-arm’s length income rules will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis. The reasoning for this change appears to be that the non-arm’s length income rules could have potentially been abused, artificially increasing the earnings on funds held in account based pensions, following the introduction of the $1.6 million pension balance cap.
This proposal applies from 1 July 2018
5. Extending Tax Relief for Merging Superannuation Funds
What is the proposal?
Since December 2008 relief from tax consequences has been available to merging superannuation funds on the transfer of capital and revenue losses. They have also been able to defer the tax consequences on gains and losses from transferring revenue and capital assets. This relief was due to expire on 1 July 2017. The Government intends to extend the current tax relief for merging superannuation funds to 1 July 2020.
What does this mean for you?
Currently, superannuation funds benefit from an automatic transfer of capital and revenue losses when superannuation funds merge or are consolidated. If this measure did not exist, member balances in superannuation funds would be reduced by income tax and capital gains tax triggered by the merger of superannuation funds.
Tax relief continues to apply until 1 July 2020
Contents: Individuals / Businesses / GST / Superannuation / Other / International
Other
1. Affordable Housing in Managed Investment Trusts
What is the proposal?
The Government intends to change the law so that affordable housing (i.e. for tenants on low to moderate incomes) held by investors through Managed Investment Trusts (MITs) will benefit from the tax advantages of an MIT.
Currently, income from investment in residential property is viewed by the ATO as an active investment and thus is not eligible for the MIT tax concession benefits.
What does this mean for you?
This proposal will encourage investment in affordable housing through MITs because the MIT concessions will apply provided that certain conditions are met (e.g. at least 80% of income is from affordable housing and must be let for at least 10 years).
An MIT is a form of fixed trust with special tax advantages for income tax purposes for both resident and non-resident investors. These tax advantages include:
Resident investors are taxed at their marginal rates and are able to access the Capital Gains Tax discount.
Non-resident investors are only charged a 15% final withholding tax rate on fund payments from the MIT (rather than 30%).
This proposal applies from 1 July 2017
2. Streamlining and changes to the foreign investment framework
What is the proposal?
The government proposes to introduce a range of amendments to Australia’s foreign investment framework.
What does this mean for you?
Currently there is no restriction on the amount of sales that may be made to foreign purchasers in new developments.
The Government proposes to introduce a 50% cap on foreign ownership for all new developments by imposing this ownership restriction as a condition before granting New Dwelling Exemption Certificates1 to property developers.
Furthermore, below are some of the changes proposed to streamline Australia’s foreign investment framework:
- Refining the type of developed commercial property subject to the lower $55 million threshold;
- Improving the treatment of residential applications by allowing failed off-the-plan purchases to be considered as “new”
- Streamlining and simplifying foreign investment business application fees; and
- Introducing a new exemption certificate that applies to low risk foreign investors.
Applies from either 9 May 2017 (for applications for New Dwelling Exemption Certificates) or 1 July 2017 (for all the other measures).
1 – A type of pre-approval granted to property developers allowing the sale of new dwellings to foreign person without each foreign purchaser having to obtain their own foreign investment approval.
3. More ATO compliance & investigations
Proposed
$28.2m to ATO to address serious and organised crime in the tax system to 30 June 2021
$32 million to ATO to investigate businesses (with turnover below $15 million) that have disengaged with the ATO (e.g. no longer lodges tax returns, does not include all income in their tax returns or does not pay their employees)
Government to prevent the use of point of sale suppression technology and software that allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records.
Contents: Individuals / Businesses / GST / Superannuation / Other / International
International
1. Multinational Anti-Tax Avoidance Law Enhanced
What is the proposal?
The multi-national anti-avoidance laws (MAAL) will be amended to negate the circumventing of the MAAL through the use of foreign trusts and partnerships in corporate structures.
What does this mean for you?
In 2015 new legislation was enacted in the form of the multi-national anti-avoidance law (MAAL). The MAAL will strike at corporate structures that involve the interposition of foreign partnerships and foreign trusts; including those entities that temporarily have their central management and control in Australia. This change is to reflect the Government’s original intentions when the MAAL was introduced.
This proposal applies from 1 January 2016
2. Skilling Australian Fund Levy
What is the proposal?
Businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will be appropriated to the new Skilling Australians Fund.
Businesses with a turnover of less than $10 million per year will be required to 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 sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
Businesses with a turnover of more than $10 million per year will be required to make an upfront payment of $1,800 per visa per 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.
The new levy has been introduced to replace the current training benchmark financial obligations for workers on Temporary Work (Skilled) (subclass 457) visas which are being abolished and permanent Employer Nomination Scheme (subclass 186) Direct Entry stream visas.
What does this mean for you?
Businesses that employ foreign workers on Temporary Skill Shortage visas, sponsor permanent Employer Nomination Scheme (subclass 186) visas or a permanent Regional Sponsored Migration Scheme (subclass 187) visas will be required to pay levies for employing these workers. This means increased costs to an employer for a foreign worker. Businesses need to factor in the increased costs for foreign workers before these workers are employed.
This proposal applies from March 2018
3. Temporary Sponsored Parent Visa
What is the proposal?
The Government will introduce a new temporary sponsored parent visa with 15,000 visas to be made available each year. This visa will allow parents of Australian citizens, Australian permanent residents and eligible New Zealand citizens to stay in Australia for periods up to 3 or 5 years. The visas can be renewed outside Australia to allow a cumulative stay of up to 10 years. Temporary sponsored parent visa holders are not eligible to apply onshore for a permanent parent visa.
Legal liability for public health expenditure incurred by the visa holder is the responsibility of the visa holder’s sponsor, the Australian child.
What does this mean for you?
The introduction of the temporary sponsored parent visa means the cost to the Government of health services for the temporary sponsored parent will be reduced.
The proposal applies from November 2017
