Sinclair Wilson has worked diligently to analyse the Federal Budget handed down by the Treasurer Scott Morrison. While the budget covers a broad range of areas, these are some of the matters we think you need to be aware of.
Budget Highlights
Housing Matters
- Changes to the deductibility of travel expenses and depreciation of plant and equipment
- Incentives around increasing the affordability of housing
- Purchasers required to remit GST to the ATO on new residential properties or new subdivisions
- Changes to the foreign resident CGT withholding rate and value to $750,000
Small Business/ Business Matters
- The $20,000 instant write-off for businesses with a turnover less than $10 million has been extended for 12 months
- The taxable payment reporting system has been extended to contractors in the courier and cleaning industries
Individuals
- Individuals will be able to access their super to pay their first home deposit
- There will be a Medicare Levy increase from 2.0% to 2.5% from 1 July 2019. This is accompanied by changes to the Medicare Levy low-income thresholds in the current financial year.
- There have also been changes to the Higher Education Loan Program (HELP)
Housing Matters
Travel Expenses
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 measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.
Source: Budget Paper No.2 page 29
Plant and Equipment Depreciation
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property, such as dishwashers and ceiling fans.
These changes will apply on a prospective basis, with existing investments grandfathered. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.
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 unable to claim deductions for plant and equipment purchased by a previous owner of that property.
Source: Budget Paper No.2 page 30-31
Expanding Tax Incentives for Affordable Housing
From 1 January 2018, there will be an increase in the CGT discount from 50% to 60% for investors who elect to invest in qualifying affordable housing.
To qualify for the discount, the housing must satisfy the following:
- Be provided to low to moderate income tenants
- Rent charged at a discount below the private rental market rate
- Managed by a registered community housing provider
- Held for a minimum period of three years
The higher discount would flow through to resident individuals investing in qualifying affordable housing Managed Investment Trusts
Source: Budget Paper No.2 page 29
Requirement to remit GST on Purchasers of New Residential Properties
From 1 July 2018, the Government will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or new subdivisions, to remit the GST directly to the Australian Taxation Office (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.
Source: Budget Paper No.2 page 38
Reduction in the CGT withholding threshold for foreign tax residents
The Government has proposed the reduction in the CGT withholding threshold for foreign tax residents from $2 million to $750,000, from 1 July 2017. This measure is also accompanied by an increase in the withholding rate from 10% to 12.5%.
This greatly increases the number of properties affected by the obligation, which will require the purchaser to withhold foreign resident capital gains from the sale of taxable Australian real property, unless they receive a clearance certificate from the vendor.
Source: Budget Paper No.2 page 27
Small Business/ Business Matters
Extension of the immediate deductibility threshold for Small Business
The $20,000 immediate deductibility threshold has been extended for 12 months for businesses with a turnover of less than $10million.
From 1 July 2018, the immediate deductibility threshold and the balance at which the pool can be immediately deducted, will revert back to $1,000.
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.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
Source: Budget Paper No.2 page 21-22
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. The measure will have 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.
Source: Budget Paper No.2 page 35
Individuals
Accessing Super for first home deposit
The Government will encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to 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. Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.
Under the measure up to $15,000 per year and $30,000 in total can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards.
Source: Budget Paper No.2 page 30
Medicare Levy Changes
The Government will increase the Medicare Levy by half a percentage point from 2.0 to 2.5% of taxable income from 1 July 2019 to ensure the National Disability Insurance Scheme (NDIS) is fully funded.
Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
The Government will increase the Medicare Levy low-income thresholds for singles, families and seniors and pensioners from the 2016-17 income year.
- The threshold for singles will be increased to $21,655 (up from $21,335)
- The family threshold will be increased to $36,541 (up from $36,001) plus $3,356 (up from $3,306) for each dependent child or student.
- For single seniors and pensioners, the threshold will be increased to $34,244 (up from $33,738).
- The family threshold for seniors and pensioners will be increased to $47,670 (up from $46,966). plus $3,356(up from $3,306) for each dependent child or student.
Source: Budget Paper No.2 page 24-25
Changes to the Higher Education Loan Program (HELP)
The Government has revised 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.
Currently, the minimum repayment threshold for the 2017/18 year is $55,874 with a repayment rate of 4% and the maximum repayment threshold for the 2017/18 year is $103,766 with a repayment rate of 8%.
Source: Budget Paper No.2 page 83
Questions?
We are here to help if you have any questions, or would like individual advice about how proposed budget measures will affect you. If you are already a Sinclair Wilson client, you can contact your Accountant or Financial Planner directly. Otherwise please call (03) 5564 0555 to arrange a consultation.