Budget 2017 Round-Up

Fortis Accounting Partners has with the help of Thomson Reuters put together this brief but informative list of budgetary and tax changes that we believe are most likely to affect our clients.  Please keep in mind that the following information has been cut down and in some places simplified in order to give our clients a better understanding of how the upcoming changes may affect them and their businesses.

If you would like to speak with one of our knowledgeable and experienced accountants following the release of the Australian Government’s 2017 Budget – please do not hesitate to get in touch with us!  You can reach us on 02 9267 0108, or info@exemplary-financial.flywheelsites.com if you’d prefer to reach out via email.

Don’t let yourself get into a spiral of confusion, especially if you know that one or more of these changes are going to alter the way that you do business; call Fortis Accounting Partners today.

0.5% Increase To Medicare Levy

Rates for the 2016-17 year (incl. 2% temporary budget deficit levy/excluding 2% Medicare levy)

Rates for the 2017-18 year (excluding 2% Medicare levy) are:    

Please be aware that the Gov has proposed to increase the Medicare levy 0.5% from 2% to 2.5% from 1 July 2019.

20K Asset Write Off extension (Higher Instant Asset Write-Off Threshold For SBEs Extended)

The Gov will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2018.

The threshold amount was due to return to $1k on 1 July 2017. As a result of this announcement, SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20k that are acquired between 1 July 2017 & 30 June 2018 & first used or installed ready for use by 30 June 2018 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off (or other simplified depreciation rules), for example horticultural plants & in house software.

Assets valued at $20k or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) & depreciated at 15% in the first income year & 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20k over this period (including existing pools).

The instant asset write-off threshold & the threshold for immediate deductibility of the balance of the pool will revert to $1k on 1 July 2018.

Note that when the SBE changes in the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 receive assent, the aggregated turnover threshold for a SBE will increase to $10m (as from 2016-17): see 2017 14 WTB [408]. Accordingly, SBEs with aggregated turnover between $2m & $10m will benefit from the $20,000 instant asset write-off concession.

Taxable Payments Reporting System Extended To Couriers & Cleaners

The Gov will extend the taxable payments reporting system (TPRS) to contractors in the courier & cleaning industries.

The reporting & identification verification system in Pt 5-30 in Sch 1 to the TAA imposes reporting obligations in relation to supplies specified in the TA Regs. Currently, the system only covers supplies of building & construction services to a purchaser who is carrying on a business that is primarily (over 50%) in the building & construction industry.

The purchaser is required to give the Commissioner a report (the “Taxable payments annual report”) that specifies the supplier, the supplier’s ABN (if known by the purchaser) & the total payments made to the supplier: s 405-10 of Sch 1 to the TAA. Failure to give a report attracts a penalty of 20 penalty units: s 420-5 of Sch 1 to the TAA.

The legislation requires quarterly reporting, although the Commissioner has varied this to annual reporting by the purchaser.  These changes were recommended in an interim report by the Black Economy Taskforce, which was released on Budget night. The final report is expected to be delivered in October 2017.

The measure is to commence from 1 July 2018. The first annual report for affected couriers & cleaners will be required in August 2019.  The net gain to revenue is estimated to be $318m over the next 4 years.

300K Downsizer Non-Concessional Contributions For Over 65’s

The Gov will allow a person aged 65 or over to make a non-concessional contribution of up to $300k from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules & caps & they will be exempt from the existing age test, work test & the $1.6m total superannuation balance test for making non-concessional contributions (which applies from 1 July 2017).

The measure will apply to sales of a principal residence owned for the past 10 years or more. Both members of a couple will be able to take advantage of this measure for the same home. The measure seeks to reduce a barrier to downsizing for older people to enable more effective use of the housing stock by freeing up larger homes.  The date of effect will be 1 July 2018.

Two important things to note here are that:

• The proceeds from downsizing a home in this manner are not proposed to be exempt from the Age Pension assets test.
• Older couples may find difficulty in buying a new house if they are to sell their current residence in order to put $600k into their superannuation.

Vacancy Tax Of $5,000 For Foreign Homebuyers

The Gov will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least 6 months per year. The charge will be levied annually & will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor.

The Gov said that this measure is intended to encourage foreign owners of residential property to make their properties available for rent where they are not used as a residence & so increase the number of dwellings available for Australians to live in.

This measure will apply to foreign persons who make a foreign investment application for residential property from 7:30 pm (AEST) on 9 May 2017.

Small Business CGT Concessions

The Gov will amend the small business CGT concessions to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

Division 152 of ITAA 1997 provides 4 concessions to eliminate, reduce and/or provide a roll-over for a capital gain made on a CGT asset that has been used in a “small” business.   These concessions are:

• The “15-year exemption” (Subdiv 152-B);
• The “50% reduction” (Subdiv 152-C);
• The “retirement exemption” (Subdiv 152-D);
• The “roll-over” concession (Subdiv 152-E).

The concessions are designed to assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest & grow, as well as contribute to their retirement savings through the sale of the business.

However, the Budget papers state that some taxpayers are able to access these concessions for assets which are unrelated to their small business, e.g. through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2m or business assets less than $6m.  The measure is proposed to start on 1 July 2017.

It is stated to be an integrity measure & has no impact on revenues, i.e. it is not anticipated to raise any additional funds.

No Travel Expenses On Residential Rental Property

Travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.  The Gov said that this is an integrity measure aimed at addressing concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. The Gov hopes that this measure will provide confidence in the tax system by ensuring tax concessions are better targeted.

This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will continue to be deductible.

We are yet to find mention of travel expenses linked to commercial properties being affected.

HECS Threshold Down To $42K & 10% Repayment If earning Over $110K – How It will Affect Individual Tax Returns

The Higher Education Reform Package – to take effect generally from 1 January 2018. The measures include:

• • The maximum student contribution will increase from 1 January 2018.
  • No up-front fees, or deregulation of fees.
  • A new set of repayment thresholds will be introduced from 1 July 2018, affecting all current & future Higher Education Loan Program (HELP) debtors by changing the timing & quantity of their repayments.
    • The 2017-18 Budget confirmed the setting of the minimum repayment threshold at $42,000 from 1 July 2018 with a lower 1% repayment rate, & a maximum threshold of $119,882 with a repayment rate of 10% (see table below).
  • Phasing in increased maximum student contributions by 1.8% each year between 2018 & 2021 cumulating to a 7.5% increase.
  • From 1 July 2019, the indexation of HELP repayment thresholds, currently linked to Average Weekly Earnings (AWE), will be changed to align to the Consumer Price Index (CPI).
  • From 1 January 2018, Commonwealth support will be available to students at public universities in approved sub-bachelor courses. To be eligible for a Commonwealth Supported Places (CSPs), the student must not have completed another higher education qualification & the course must have been developed with a focus on industry needs & fully articulate into related bachelor programs.

• Restricting subsidies to Australian citizens only & certain Special Visa Category Permanent Residents from New Zealand & Humanitarian refugees. From 1 January 2018, subsidies for most Australian permanent residents & most New Zealand citizens enrolling in a CSP will be withdrawn, making them fee-paying students.

HELP Repayment Rates & Thresholds

The current and proposed repayment rates and thresholds for 2018-19 & 2019-20 are as follows:

No Plant & Equipment Depreciation On Second-hand Properties

From 1 July 2017, the Gov will limit “plant & equipment” depreciation deductions to outlays actually incurred by investors in residential real estate properties.

The Budget Papers state that plant & equipment items are usually mechanical fixtures or those which can be “easily” removed from a property such as dishwashers & ceiling fans.

Acquisitions of existing plant & equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

Investors who purchase plant & equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant & equipment purchased by a previous owner of that property.

This measure is estimated to have a gain to revenue of $260.0m over the forward estimates period.

Existing Investments Grandfathered

These changes will apply on a prospective basis, with existing investments grandfathered.

Plant & equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30 pm (AEST) on 9 May 2017) 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.

$30K Salary Sacrifice For First Homebuyers

The Gov will encourage home ownership by allowing 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.

Concessional contributions & earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions & earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.

Under the measure up to $15,000 per year & $30,000 in total can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure & combine savings for a single deposit to buy their first home together.

This measure is expected to have a cost to revenue of $250m over the forward estimates. The Tax Office will be provided with $9.4m to implement the measure.  The date of effect will be 1 July 2017.

Reduction In Corporate Tax Rate

Legislative amendments already passed by the Senate will see the corporate tax rate reduced for companies with a turnover less than $50 million.  The company tax rate changes, as amended by the Senate, are summarised in the following table. The changes have to be approved by the House of Reps.