2017 - 2018 Federal Budget Summary
Treasurer Scott Morrison has handed down his second Federal Budget and, as predicted, the major focus was on tackling housing affordability, healthcare and foreign workers. Budget targets included Foreign Resident investors and the major banks. While significant tax reform was noticeably absent, the Treasurer did remain committed to the company tax reform measures announced last year.
Our Tax Consulting Partners,Terry Brauer and Cameron Allen, have poured over the Budget measures and have highlighted the following items they expect will be most relevant to our clients. Don't forget that most of the superannuation reforms announced in last year's Budget come into effect on 1 July and we encourage all those with Super concerns to seek advice as soon as possible.
If you prefer a more comprehensive analysis we've also prepared a more detailed document which can be downloaded here.
Collection of GST on residential property & subdivisions
From 1 July 2018, 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 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.
The Government expects that as most purchasers use conveyancing services to complete their purchase, they should experience minimal practical impact from these changes.
Contractors in the courier and cleaning industries face greater compliance
The building industry has faced enhanced compliance and reporting for some time through the taxable payments reporting system. Now it’s the turn of contractors in the courier and cleaning industry.
Under the taxable payments reporting system, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO.
Businesses in these industries will need to collect information from 1 July 2018, with the first annual report required to be lodged in August 2019. Details required to be maintained by the business include:
· Gross amount you paid for the financial year (this is the total amount paid including GST)
· Total GST included in the gross amount you paid
Encouraging the over 65s to downsize
If you are 65 or over, the Government will allow you to make a non‑concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018. This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).
The Government is enabling “both members of a couple” to take advantage of the concession for the same home. So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).
The measure will apply to sales of a principal residence owned for the past ten or more years.
Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.
First home owners to use super contributions to save for a deposit
The Government will allow 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. The earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3 percentage points (the same way the Shortfall Interest Charge is calculated).
Depreciation deductions limited
The Government is concerned that some plant and equipment items in residential rental properties are being depreciated by successive investors in excess of their actual value.
This integrity measure will limit plant and equipment depreciation deductions to outlays actually incurred by residential rental property owners. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.
Investors who directly purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim depreciation deductions 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. The portion of the purchase price that reflects the value of these items will simply form part of the cost base of the property and will reduce capital gains made on future disposal of the property.
These changes apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties at 9 May 2017 (including contracts already entered into) 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.
Plant and equipment items are usually mechanical fixtures or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
Foreign resident CGT withholding rate increased and threshold reduced
From 1 July 2017 the CGT withholding rate under these rules will increase by 2.5% to 12.5%.
Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.
Individuals and Families
Child care subsidy limited
Increase in the Medicare Levy
From 1 July 2019, the Medicare Levy will increase to 2.5% of taxable income (up from 2%) raising an estimated $8.2 billion across the 3 years from introduction.
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.
The measure is to inject funds into a savings fund for the National Disability Insurance Scheme.