Another year and another budget, whether or not there was much thought that went into this one is certainly up for debate, summary below:
Super
Contributing Proceeds from Sale of HomeÂ
EFFECTIVE 1 JULY 2018
Individuals aged 65 and over will be able to contribute up to $300,000 into super from the proceeds of the sale of their principal place of residence. This measure will apply to a principal place of residence held for a minimum of 10 years.
These contributions will be treated as non-concessional contributions and will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
The existing contribution restrictions for people over age 65 and the restrictions on making non-concessional contributions where a person’s total superannuation balance is over $1.6M will not apply. However, these contributions will not be exempt from the transfer balance cap and will only be able to be used to commence a retirement phase pension where the member has remaining transfer balance cap space. The amount contributed will also be fully assessable under the age pension assets test.
First Home Saver SchemeÂ
Individuals will be able to make voluntary superannuation contributions in excess of super guarantee of up to $15,000 per year up to a total of $30,000 to purchase their first home. These voluntary contributions, which will be taxed at 15%, along with deemed earnings, can be withdrawn for a deposit on a person’s first home. Withdrawals will be taxed at marginal tax rates less a 30% tax offset and will be allowed from 1 July 2018.
First home savers will be able to salary sacrifice an amount from their pre-tax income directly into super. Individuals who are self-employed or whose employers do not offer salary sacrifice will be able to claim a tax deduction on personal contributions. However, any pre-tax contributions made under these rules must be within the concessional cap.
First home savers will also be able to make non-concessional contributions under this scheme. However, these contributions will not be taxed when they are withdrawn.
The amount of deemed earnings that can be released under these rules will be calculated based on the 90 day Bank Bill rate plus 3% – currently equivalent to a deemed rate of return of 4.77%.
The Government has confirmed that the ATO will have the primary responsibility for administering the scheme, including:
- eligibility of the person seeking a release
- calculation of the release amount
- compliance mechanisms to ensure the released monies are used for the intended purpose.
The Government has also confirmed that while the concessional part of a release amount will be included in a person’s taxable income, it will not flow through to other income tests used for other purposes, such as for calculation of HECS/HELP repayments, family tax benefit or child care benefit.
First Tech Comment
While the tax concessions available on contributions made under the First Home Saver Scheme may allow a first home buyer to save a larger deposit, many first home buyers may be unwilling to use the scheme if their additional contributions cannot be accessed until retirement if they don’t end up buying a home.
It should also be noted that a person using the scheme will not be able to invest for growth to try and maximise their deposit, as the release amount will be calculated using a deemed rate of return.
To assist people to understand the advantages of the scheme the Government has provided an online estimator at www.budget.gov.au/estimator.
OWS is please to announce no changes to the borrowings in super legislation which appears to remain available to all eligible SMSFs.
Individual
Medicare Levy IncreaseÂ
EFFECTIVE 1 JULY 2019
The Medicare levy will be increased from 2% to 2.5% of taxable income.
The increase will be used to ensure the National Disability Insurance Scheme (NDIS) is fully funded.
The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase from the 2016/17 financial year.Â
An increase in Medicare Levy may also result in an increase in many tax rates linked to the top personal tax rate including:
- fringe benefits tax
- excess non-concessional contributions tax
- taxable Employer Termination Payment in excess of whole of income cap and ETP cap
- no TFN tax on superannuation contributions.
Certain lump sum payments from superannuation also attract Medicare levy and hence may be affected by this change:
- lump sum super benefits for people under preservation age (i.e. disability benefits)
- lump sum super benefits for people between preservation age and age 60 in excess of the low rate cap
- lump sum death benefits paid to non-dependents directly from the super fund.
Extending the Immediate Deductibility Threshold for Small BusinessesÂ
The Government will extend the existing accelerated depreciation for small businesses by 12 months to 30 June 2018.
Small businesses with aggregated annual turnover less than $10 million will be able to immediately deduct the purchase of eligible assets costing less than $20,000 where they are first used or installed ready for use by 30 June 2018. After this date, the immediate deductibility threshold will revert back to $1,000.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation 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 balance is less than $20,000 over this period (including existing pools).
Major Bank Levy
EFFECTIVE 1 JULY 2017
A major bank levy will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100B (indexed to GDP).
The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities as at each quarterly reporting date mandated by APRA. This equates to an annualised rate of 0.06%. For example, on a bank deposit of $500,000 the levy is going to be approximately $300 pa.
Superannuation funds and insurance companies will not be subject to the levy.
It is unclear at this stage how this is going to work and what the impact on the clients might be. However any customer of the bank will pay for the additional levy at the end of the day.
Additional Capital Gains Tax Discount for Investment in Affordable Housing
EFFECTIVE 1 JULY 2018
Resident individuals who invest in qualifying affordable housing will be eligible for an additional 10 percentage point CGT discount, increasing from 50% to 60%.
To qualify for the higher discount, the residential property must be:
- rented to low to moderate income tenants, and
- rented at a discounted rate, and
- managed through a registered community housing provider, and
- held for a minimum period of three years.
The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.
Residential Property Plant and Equipment Depreciation Deductions
EFFECTIVE 1 JULY 2017
Deductions relating to the depreciation of plant and equipment (i.e. dishwashers and ceiling fans) in residential properties will be limited to investors who actually incur the outlay. This change is to ensure subsequent owners of a property will not be able to claim deductions for plant and equipment purchased by a previous owner.
Under this measure, the acquisition of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.
Grandfathering applies to plant and equipment that forms part of a residential investment property as at 9 May 2017 and will continue to give rise to deductions for depreciation under current rules.
Disallowing Deduction of Travel Expenses for Residential Property
EFFECTIVE 1 JULY 2017
The Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property. This measure is 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.
First Tech Comment
This measure impacts all property investors including SMSFs, family trusts and companies.
Reducing The Corporate Tax RateÂ
The legislation to reduce the corporate tax rate has passed both houses, but is not yet law.
The Bill was amended so that the reduced company tax rate will progressively apply to companies with an aggregated annual turnover of less than $50 million only.
Capital Gains Tax Changes For Non-ResidentsÂ
The Government will make the following changes to capital gains tax rules applicable to foreign tax residents:
- Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption on properties acquired after 7:30pm (AEST) on 9 May 2017. Existing properties held before this date will be grandfathered and can continue to claim the exemption until 30 June 2019.
- The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July 2017.
- The property value threshold where the CGT withholding obligation applies will reduce from $2m to $750,000 from 1 July 2017.
Changes to Repayment of HELP DebtÂ
EFFECTIVE 1 JULY 2018
The Government will revise the income threshold for the repayment of HELP debt, repayment rates and the indexation of repayment 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. Currently, the maximum repayment threshold for the 2017-18 year is $103,766 with a repament rate of 8%.
Annual Levy for Foreign Owned Vacant Residential Properties
EFFECTIVE 9 MAY 2017
Foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year will be subject to an annual levy of at least $5,000.
This measure will apply to foreign persons who make a foreign investment applications for residential property from Budget Night.
Family Tax BenefitÂ
EFFECTIVE 1 JULY 2017
As previously announced, Family Tax Benefit (FTB) rates will no be indexed for two years from 1 July 2017. This applies to the standard base rate and approved care organisation rate of FTB Part A and the maximum rate of FTB Part B.
Child Care SubsidyÂ
EFFECTIVE 1 JULY 2018
A new upper income threshold will apply to child care subsidy.
From 1 July 2018, families with income above $350,000 pa will not be eligible for child care subsidy.
You can contact the Oncore Wealth Solutions team by calling 1300 654 484 or emailing wealth@oncoreservices.com