The 2017-2018 Federal Budget is in and you’re all wondering what to make of it, we’re sure. But, here at Knox Taxation & Business Advisory in Boronia, we’re available to help you navigate through what the new Federal Budget directives are. Do take the time to read through the following summary and don’t hesitate to give us a call, or make an appointment, to ensure you’re on the right path to either maximising the new benefits of the Budget, or avoid any pitfalls that might potentially hit you if you’re not on the ball with the looming changes.
In Summary, here’s what was announced:
Federal Budget 2017-18 – What it means for you:
- Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (levied at 2% of taxable income in excess of $180,000) will cease on 30th June this year, as planned.
- The $20,000 immediate write-off for small businesses is being extended for one year, to 30th June, 2018.
- The Medicare levy is being increased from 2% to 2.5%, effective from the 2019-20 income year.
- A number of measures have been announced to reduce the pressure on housing affordability, including:
- an annual charge on foreign owners of underutilised residential property
- various CGT changes for foreign investors, including denial of the main residence exemption
- an option for individuals aged 65 or over to contribute the proceeds of downsizing their home to superannuation
- denial of deductions for expenses related to inspecting, maintaining or collecting rent for a residential investment property
- access to a higher CGT discount of 60% (as compared to the 50% available in other circumstances) for investments in qualifying affordable housing, and
- the introduction of a first home super saving scheme.
If You’re an individual:
1. And you pay tax
- You may not have to pay the Medicare levy this year. From the 2016-17 income year (this year), the Government will increase the Medicare levy low‑income threshold for singles to $21,655 (from $21,335), for families to $36,541 (from $36,001), for single seniors and pensioners to $34,244 (from $33,738), and for senior and pensioner families to $47,670 (from $46,966). The additional amount of threshold for each dependent child or student will also be increased to $3,356 (from $3,306). This means that you can earn more before triggering a liability to pay the Medicare levy.
- BUT, if you are required to pay the Medicare levy you will have to pay more from the 2019-20 tax year, as the Medicare levy is being increased from 2% to 2.5%.
2. Earning more than $180,000 per annum
- You will pay less tax next year. Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (an additional 2% on taxable income in excess of $180,000) will cease on 30th June, 2017 as planned. It is not being extended.
3. As a home owner
- If you are aged 65, or over, and have owned that home for at least 10 years, from 1st July, 2018, you will be able to make a non-concessional (after tax) contribution of up to $300,000 from the proceeds of selling your home. You will be able to do this regardless of the existing age test, work test and soon to be introduced $1.6 million cap on after tax contributions.
- If you are a foreign or temporary resident, you will not have access to the CGT main residence exemption from 7.30pm on Budget night (although existing properties held prior to this time will be grandfathered until 30th June, 2019).
4. With a wish to own a home
- You will be able to withdraw on or after 1st July, 2018, voluntary superannuation contributions you make from 1st July, 2017, along with associated deemed earnings, for a first house deposit. You will be taxed at your marginal rate, less a 30% offset, on concessional (before-tax) contributions you withdraw. You will be able to contribute up $15,000 per year, and up to $30,000 in total.
5. Undertaking Studies
- Repayments on your Higher Education Loan Programme (HELP) debts will be subject to revised income thresholds – 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.
6. With an SMSF
- The use of limited recourse borrowing arrangements by your fund will be included in your $1.6 million total superannuation balance and transfer balance cap, thereby reducing your scope to make non-concessional contributions from other sources.
- You can expect greater focus on the use of related party transactions on non-commercial terms to increase your superannuation savings.
For Residential Property Investors:
1. If you invest in residential property and are a foreign resident
- Where the property is not occupied, or genuinely available on the rental market (for at least six months per year), you will be charged an annual ‘penalty’ of at least $5,000. The new charge applies to applications to acquire property from 7:30pm on Budget night.
- You may find yourself barred from buying into a new development, as the Government will introduce a 50% cap on foreign ownership in such developments.
2. If you invest in residential property and incur travel expenses related to inspecting, maintaining or collecting rent for the property
- From 1st July, 2017, you will no longer be able to claim deductions for those expenses. The cost of engaging a Real Estate Agent for Property Management services will remain deductible.
3. If you invest in residential property that qualifies as ‘affordable housing’
- On or after 1st January, 2018, you will benefit from a higher CGT discount – 60% instead of 50%. To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent 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 held for a minimum period of three years.
- You will be able to access concessional tax treatment, by investing in a Managed Investment Trust that, itself, invests in affordable housing, provided the affordable housing is available for rent for at least ten years.
4. If you invest in residential property that contains plant and equipment
- You will not be able to claim depreciation deductions for assets purchased after 9th May, 2017, by a previous owner of the property.
5. If you invest in residential property that is newly constructed or a new subdivision
- On or after 1st July, 2018, you will be required to remit GST on the purchase directly to the ATO as part of settlement, as opposed to the developer being required to remit the GST (as is currently the case).
If You’re a Business:
1. And you’re planning to employ foreign workers
- From March, 2018, you may be required to pay a levy. Businesses will be required to make an upfront payment of $1,200 (for businesses with turnover of less than $10 million), or $1,800 (for businesses with turnover of $10 million or more) per visa, per year, for each employee on a Temporary Skill Shortage visa, and make a one-off payment of $3,000 (for businesses with turnover of less than $10 million), or $5,000 (for businesses with turnover of $10 million or more), for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa, or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
2. With a plan to invest in a depreciating asset or two (or more)
- If you are a small business (which you are if your turnover is less than $10 million for the year), you will be able to immediately deduct purchases of eligible assets costing less than $20,000 through to 30th June, 2018. This was initially planned to cease on 30th June, 2017. From 1st July, 2018, the immediate deductibility threshold will revert back to $1,000.
3. And you’re in the courier or cleaning industry
- The taxable payments reporting system (TPRS) that operates in the building and construction industry will apply to you from 1st July, 2018. You will be required to report payments you make to contractors (individual and total for the year) to the ATO.
4. And you are intending to dispose of your business, or CGT assets used in your business
- Your Accountant may need to take a second look at whether the small business CGT concessions will be available to you, as the Government is planning to make changes to those rules from 1st July, 2017, designed to restrict their availability.
And no matter who you are . . .
If you operate in the black economy
- Your affairs are more likely to be picked up by the ATO, as the Government will be extending the provision of additional funding for ATO audit and compliance programs, to better target black economy activities, such as non-lodgement, omission of income, and non-payment of employer obligations.
- The Government will act to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software, which apparently allows businesses to understate their incomes, by untraceably deleting selected transactions from electronic records in POS equipment, so that income earned from these transactions (and tax owing from this income) is not reported to the ATO..
Mmmmmm… are you affected by any or all of the above?
Don’t stress. Give us a call on (03) 9762 7344
We’ll set you straight about the new Federal Budget implications, at Knox Taxation & Business Advisory, in Boronia. There’s a lot to take in, but we’ll be happy to help you ascertain what the positives are for you, and/or your business, and make sure that:
A. You’re on the right path to being compliant with the ATO,
B. You’re able to understand your obligations on-the-go, and,
C. As always with us, you’re kept in-the-know!
Because that’s what we’re here for! We’re all about making sure you’re in good hands…