The Treasurer has presented the Federal Budget proposals for 2017 to Parliament, and the Business Wise team have been busy breaking it down. In this article are the key changes that we feel may affect a large number of our clients.

Keep in mind however, that any changes outlined in the Federal Budget must be passed by both the House of Representatives and the Senate, where proposed expenditures are subject to examination within Senate estimates hearings. This means any proposed cuts or changes outlined may not necessarily become law.

Taxation impacts of the budget

Extending small business depreciation

The Government will extend by 12 months (to 30 June 2018) the ability for businesses 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 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 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.

Further, the current ‘lock out’ laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.

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 to ensure that the National Disability Insurance Scheme 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.

Low-income earners will continue to receive relief from the Medicare levy through increased low-income thresholds for singles, families, seniors and pensioners. From the 2017 financial 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

Lower threshold for HELP debt repayments

The Government will revise the income thresholds for repayment of HELP debt from 1 July 2018, when 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 the minimum repayment rate is 4%. While the maximum threshold for 2017/18 is $103,766 with an 8% repayment rate.

No deduction for residential rental property travel expenses

From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting maintaining or collecting rent for 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.

Limiting plant and equipment deductions for residential rental property

Plant and equipment depreciation deductions will be limited to outlays actually incurred by the investors in residential real estate properties. Such items are usually mechanical fixtures, or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

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 the 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.

Taxable payments reporting

The Government will extend the taxable payments reporting system (‘TPRS’) to contractors in the courier and cleaning industries with effect from 1 July 2018. This will see them join the building and construction industry in needing to complete taxable payments reporting each year.

Information will need to be collected by businesses in these industries from 1 July 2018, with the first annual report required in August 2019.

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.

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.

Superannuation impacts of the budget

Older Australians can contribute the proceeds of downsizing to superannuation

From 1 July 2018, a person aged 65 or over 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 test, work test 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.

This is just a general summary of how the Budget may affect you. If you haven’t met with us yet, now is the time to contact us 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 saving strategies for you well before 30 June 2017.

More detail regrarding the Australian Government’s economic and fiscal outlook for Australia, its social and political priorities, and how the Government intends to achieve these can be found on their official website.

General advice disclaimer

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.

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