The 2017/2018 Federal Budget was released on Tuesday night, with key themes focusing on housing affordability, changes for the major banks and some new superannuation measures. The Government has aimed this budget at infrastructure spending, and sought to tighten the rules around foreign owned property.
As with each year, it is important to note that these changes are proposed, and still need to pass through parliament before becoming law.
Below is a summary of the main points.
Tax Rates & Discounts
- With no changes to the Ten Year Enterprise Tax Plan, the company tax rate for businesses with an annual turnover of less than $10M will remain at 27.5% for the 2016/2017 financial year (down from 28.5%).
- The tax discount for unincorporated small businesses (such as sole traders and partners in a partnership) with an annual turnover of less than $5M has increased to 8% from 5% in the 2016/2017 financial year. The current discount will remain capped at $1,000 per individual per income year.
Small Business Thresholds & Concessions
- The SBE instant asset write-off concession on assets costing less than $20,000 will be extended by 12 months to 30 June 2018:
- Applies to businesses with an aggregated annual turnover of less than $10M.
- The current ‘’lock out’’ laws that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out has been suspended. From the 1 July 2018, the immediate deductibility threshold, and balance at which the pool can be immediately deducted will revert to $1,000.
- Access to the small business CGT concessions will be tightened from 1 July 2017 to deny eligibility for assets, which are unrelated to the small business.
- The small business CGT concessions will continue to be available to small business taxpayers with an annual turnover of <$2M or business assets of less than $6M.
Goods & Services Tax
From the 1 July 2018, purchasers of newly constructed residential properties or new subdivisions are required to remit the GST payable directly to the ATO at settlement.
New Levy on Employers of Foreign Workers
The Government has proposed the introduction of a new levy for businesses with foreign workers on certain skilled visas, with application from March 2018.
Businesses with a turnover of less than $10M per year will be required to pay:
- Upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa.
- One-off payment of $3,000 for each employee sponsored on a permanent Employer Nomination Scheme visa or a permanent Regional Sponsored Migration Scheme.
- From the 1 July 2019, the Medicare Levy will be increased from 2% to 2.5% of taxable income. Other taxes linked to the top personal tax rate, such as the fringe benefits rate will also be subject to this increase.
- The Medicare Levy low-income thresholds for singles, families, seniors and pensioners will increase from 2016/2017 financial year.
- Higher Education Loan Program (HELP) – A new set of repayment thresholds and rates will be introduced from 1 July 2018:
- A new minimum repayment threshold of $42,000 will be established with a 1%repayment rate. Currently, the minimum repayment threshold for the 2017/2018 year is $55,874 with a repayment rate of 4%.
Housing Affordability Measures
- Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn subsequently for a first home deposit:
- Contributions can be made from 1 July 2017 and must be made within an individual’s existing contributions cap.
- From 1 July 2018, the individual will be able to withdraw these contributions for a first home deposit. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.
- From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.
- Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 9 May 2017:
- This means new owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.
- Acquisitions of existing plant and equipment will be reflected in the cost base for CGT purposes for subsequent investors.
- The CGT discount for Australian resident individuals, investing in qualifying affordable housing will be increased from 50% to 60% from 1 January 2018.
- Foreign and temporary tax residents will be denied access to the CGT main residence exemption from 9 May 2017.
- The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July 2017:
- The CGT withholding obligation currently applies to Australian real property and related interests valued at $2M or more. This threshold will be reduced to $750,000 from 1 July 2017.
- From 9 May 2017, foreign owners of vacant residential property, or property that is not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5000.
- Due to the extensive changes proposed and implemented last year, there has been minimal changes to superannuation in this year’s budget.
- The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer cap from 1 July 2017.
- From 1 July 2018, a person aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence:
- The individual must have owned their principal residence for at least 10 years.
- These contributions are in addition to existing rules and caps, and are exempt from the age test, the work test and the $1.6M total superannuation balance test for making non-concessional contributions.
- As part of the Government’s tax integrity measures, $28.2M will be provided to the ATO in order to target serious and organised crime within the tax system.
For more information on how this budget affects you and your business, please contact our office on 8543 6800.