The federal budget was delivered on Tuesday night, with the government announcing fewer ‘big ticket’ changes this year. While housing affordability has been a hot topic, no changes were announced to the current negative gearing and capital gains tax discount regimes.

The main taxpayers affected by the budget announcements include:

– Individual taxpayers – 0.5% medicare levy increase from 1 July 2019
– Taxpayers over 65 years of age – can contribute up to $300,000 each into super following the sale of their main residence
– Students – lower bottom HELP threshold and increased maximum repayment percentage for compulsory repayments from 1 July 2018
– Non-resident taxpayers – no longer access the CGT Main Residence exemption

Other key budget announcements relate to:

– PERSONAL TAXATION
– SUPERANNUATION
– BUSINESS TAXATON
– TAX COMPLIANCE & INTEGRITY
– GST
– HOUSING AFFORDABILITY

PERSONAL TAXATION

Medicare levy increase by 0.5% from 1 July 2019

The Medicare levy will increase from 2.0% to 2.5% of taxable income from 1 July 2019, with revenue generated used to fund the National Disability Insurance Scheme (NDIS). The fringe benefits tax rate and other tax rates linked to the top personal tax rate will also be increased.

Higher Education Loan Program (HELP) changes from 1 July 2018

Taxpayers with a HELP debt will start repaying their debt sooner. A new minimum repayment threshold of $42,000 with a 1% repayment rate will be introduced from 1 July 2018 (decreasing from a 4.0% rate on the minimum rate of $55,874 in 2017/18).

The maximum threshold and repayment rate will also increase, from an 8.0% rate for taxpayers earning over $103,766 in 2017/18, to a 10% rate on income exceeding $119,882 from 1 July 2018.

This will affect all taxpayers with a HELP debt earning over $42,000, including non-residents, who are required to register and start making HELP repayments for the first time, based on their 2016/17 worldwide income.

2% budget repair levy to end on 30 June 2017

No changes were announced to the cessation date for the 2% budget repair levy, with the levy to disappear from 1 July 2017, reducing the highest tax rate (including medicare levy) from 49% in 2016/17 to 47% in 2017/18.

SUPERANNUATION

Contributing $300,000 to super from downsizing a home from 1 July 2018

Taxpayers aged 65 or over will be able to make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence. As long it has been their principal residence for at least 10 years, this contribution is in addition to existing contribution caps, the $1.6m total super balance test for non-concessional contributions and not subject to work or age tests.

It is not proposed the proceeds will be exempt from the Age Pension assets test.

First home super saver scheme from 1 July 2017

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. The contributions can be made from 1 July 2017 and must be made within an individual’s existing contribution caps.

From 1 July 2018 onwards, the individual will be able to withdraw these contributions and the associated earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.

Super borrowings included in $1.6m pension cap from 1 July 2017

The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.

LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the $1.6m transfer balance cap.

The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

Super fund related-party transactions amended from 1 July 2018

Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.

The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.

For example, a commercial property owned by the super fund is leased to a business owned by a related party. The business pays expenses or capital outlays that a landlord (the super fund) would normally pay under a commercial lease agreement.

If considered to be non-arm’s length income, the super fund is taxed at 47% instead of the 15% concessional rate.

BUSINESS TAXATION

$20,000 asset write-off threshold for SBEs extended to 30 June 2018

Good news for business owners with the $20,000 instant asset write-off for small business will be extended by 12 months to 30 June 2018, for businesses with an aggregated annual turnover of less than $10m.

From 1 July 2018, the immediate deductibility threshold, and the balance at which the pool can be immediately deducted, will revert to $1,000.

CGT small business concessions tightened from 1 July 2017

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 government indicated some taxpayers accessed these concessions for assets unrelated to their small business, for example, by arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions. This ‘loophole’ will be closed moving forward.

No changes were announced to the eligibility thresholds with access available to small business deriving aggregated turnover of less than $2m or business assets of less than $6m.

Business levy on certain visas from March 2018

Businesses that employ foreign workers on certain skilled visas will be required to pay a levy, either $1,200 per temporary skill shortage visa per year or a one-off $3,000 per employee under a sponsorship visa from March 2018. The levy will replace the current training benchmark financial obligations for employers.

TAX COMPLIANCE AND INTEGRITY

Taxable payments reporting system extended to couriers and cleaners from 1 July 2018

The government will extend the taxable payments reporting system (TPRS) which currently operates in the building and construction industry, to courier and cleaning contractors, from 1 July 2018.

The TPRS is a measure introduced to reduce the risk of undeclared ‘cash economy’ income in certain industries.

GST

New residential property purchasers to pay GST direct to ATO from 1 July 2018

Purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement from 1 July 2018.

The new measures will ensure the ATO are not left as the final creditor following a property development.

GST treatment of digital currency from 1 July 2017

The GST treatment of digital currency will be aligned with that of money from 1 July 2017. Purchasing digital currency, such as bitcoin, will no longer be subject to GST, removing double taxation under the GST rules.

HOUSING AFFORDABILITY

60% CGT discount for investments in affordable housing from 1 January 2018

The CGT discount will be increased from 50% to 60% for Australian resident individuals investing in qualifying affordable housing from 1 January 2018.

The conditions to access the 60% discount are:

– the housing must be provided to low to moderate income tenants
– rent must be charged at a discount below the private rental market rate
– the affordable housing must be managed through a registered community housing provider, and
– the investment must be held for a minimum period of three years.

The higher discount will flow through to resident individuals investing in affordable housing via managed investment trusts.

CGT main residence exemption not available to foreign residents from 9 May 2017

Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm (AEST) on 9 May 2017.

Existing properties held before this date will be grandfathered until 30 June 2019.

This will affect Australian residents who become non-residents by moving overseas who continue to own their Australian main residence.

CGT withholding rate on foreign resident property sales increased from 1 July 2017

Currently, the foreign resident CGT withholding obligation 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 and the CGT withholding rate will be increased from 10% to 12.5%.

Annual charge on foreign owners of underutilised residential property from 9 May 2017

Foreign owners of residential property that is vacant or not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5,000.

The measure will apply to persons who make a foreign investment application for residential property from 7.30pm (AEST) on 9 May 2017.

Restriction on rental depreciation deductions from 1 July 2017

Plant and equipment depreciation deductions will be limited to costs directly incurred by investors in residential real estate properties from 1 July 2017.

When purchasing a residential investment property after 9 May 2017 (including contracts already entered into at 7:30pm (AEST) on 9 May 2017), costs for plant and equipment incurred by previous owners will be reflected in the cost base for capital gains tax purposes. Existing investments will be grandfathered.

Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

Obtaining depreciation reports on a newly purchased investment property will become less advantageous in the future as the depreciation deduction on plant and equipment will no longer be available.

Travel expenses relating to residential rental properties not deductible from 1 July 2017

Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.

Expenses paid to third parties such as real estate agents for property management services will remain deductible.

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