2017’s budget is a model of political creativity that essentially increases taxes regressively while pacifying more conservative elements. In past years, many changes to superannuation and small business taxation were implemented, but this year’s budget only amended these areas slightly. Below is a summary of what the Ganrid Team believes are the key changes affecting most of our clients.
Instant tax write-off
The government has granted an extension of 12 months (to 30 June 2018) the ability for practices with aggregated annual turnover less than $10 million to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pools, allowing for depreciation at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the closing balance of the pool at 30 June 2018 is less than $20,000 (including existing pools). From 1 July 2018, the immediate deductibility threshold will reduce back to $1,000.
Company tax reduction and franking credits from private companies
The restoration of the 47% top marginal tax rate from 1 July 2018 will increase the need to carefully assess if pre-sale franked dividends in comparison to a discounted capital gains. Companies benefiting from the reduction in the corporate tax rates at 27.5% will need to be mindful of the reduction in the franking credits which may be funnelled to their individual tax returns.
Increase in Medicare levy
From July 2019, the Medicare levy will increase by half a percentage point from 2.0 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.
Lower threshold for HELP debt repayments
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.
Disallow certain deductions for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining, or collecting rent for residential rental properties. Also, plant and equipment depreciation deductions will be limited to outlays incurred by the investors in residential real estate properties. These changes will apply on the prospective basis, with existing investments grandfathered. 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 an investor no longer owns the asset or the asset reaches the end of its effective life. Subsequent owners will no longer be able to claim deductions for plant and equipment purchased by its previous owner.
Capital gains tax changes for foreign investors
From 7:30PM (AEST) on 9 May 2017, Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption. However, existing properties held prior to this date will be grandfathered until 30 June 2019.
From 1 July 2017, there will be an increase in the CGT withholding rate foreign tax residents from 10% to 12.5%, and a reduction of the CGT withholding threshold from $2 million to $750,000.
Taxable payments reporting
From 1 July 2018, the courier and cleaning industries will join the building and construction industry to complete taxable payments reporting each year. More red tape!
Cash economy crack-down
The ATO now have an additional $32 million to target the cash economy. Expect more ATO audits with the data matching capabilities. Cafés, restaurants and other businesses that accept cash should ensure their point of sale systems have proper audit trails that match their cash deposits.
GST on new residential property and sub-divisions
In an approach designed to crack down on some property developers failing to make GST payments to the ATO, 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.
Contribute the proceeds of downsizing to superannuation for older Australians
From 1 July 2018, a person aged 65 or older will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently allowed under the existing rules and caps and will be exempt from the existing age, work, and the $1.6 million balance test for making non-concessional contributions.
* This measure will apply to sales of a principal residence owned for the past 10 or more years, and both members of a couple will be able to take advantage for the qualifying home. *
First Home Super Save Scheme
To encourage home ownership, voluntary contributions to superannuation made by first home buyers from 1 July 2017 can be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Under the measure, up to $15,000 per year and $30,000 in total can be contributed (within existing contribution caps). Contributions can be made from 1 July 2017. 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.
There has been lots of news recently about the removal of the 457 visa program. Medical practices that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. From 1 March 2018, practices 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.
Book in your End of Financial Year Meeting!
The above is only a general summary of how 2017 Budget may affect you. If you haven’t met with us yet, now is the time to arrange an End of Financial Year meeting, so we can help you limit your tax payments, discuss your goals and plans for the next year, and grow your wealth. Remember, we both need time to implement any appropriate tax savings strategies for you well before 30 June 2017.
General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.