10/05/2017

By Mark Chapman, Director of Tax Communications, H&R Block Australia

The Treasurer, Scott Morrison, has unveiled his much anticipated federal budget for 2017-2018. With a speech that was heavy on new investment in roads, railways and power infrastructure, the Treasurer also outlined his tax plans for the year ahead. Here are the key topics from the 2017 budget announcement and an assessment of the impact of these for both individuals and small businesses.

The key headlines are:

  • no changes to personal tax rates (except debt levy, see below)
  • 2% deficit reduction levy on taxpayers earning more than $180,000 will end as scheduled at 30 June 2017
  • Medicare levy to increase to 2.5% from 1 July 2019
  • no changes to rules around work-related deductions
  • tougher repayment terms for HELP loans
  • one year extension of $20,000 instant asset write-off deduction for capital assets acquired by small businesses. The scheme will end on 30 June 2018, after which the threshold will revert to $1,000.
  • new scheme to allow first home buyers to make voluntary contributions to superannuation to be used to fund a home deposit
  • restriction on depreciation deductions for plant and equipment installed by previous property owners
  • removal of deductions for travel costs associated with visiting investment properties
  • removal of the main residence CGT exemption for foreign and temporary residents

No changes to personal tax rates

There are no changes to personal tax rates or thresholds except that the 2% budget deficit levy on incomes over $180,000 will cease at 30 June 2017.

Tax rates for the current 2016-17 year (including the 2% temporary budget deficit levy, but excluding the 2% Medicare levy) are:

2016-17

Taxable income $

Tax payable $

0 - 18,200

18,201 - 37,000

37,001 - 87,000

87,001 - 180,000

180,001+

Nil

Nil + 19% of excess over 18,200

3,572 + 32.5% of excess over 37,000

19,822 + 37% of excess over 87,000

54,232 + 47% of excess over $180,000


The rates for 2017-18 year (excluding the 2% Medicare levy) will be:

2017-18

Taxable income $

Tax payable $

0 - 18,200

18,201 - 37,000

37,001 - 87,000

87,001 - 180,000

180,001+

Nil

Nil + 19% of excess over 18,200

3,572 + 32.5% of excess over 37,000

19,822 + 37% of excess over 87,000

54,232 + 45% of excess over $180,000


Tax rates for foreign residents (including the 2% temporary budget deficit levy) for 2016-17 are:

2016-17

Taxable income $

Tax payable $

0 - 87,000

87,001 - 180,000

180,001+

32.5%

28,275 + 37% of excess over 87,000

62,685 + 47% of excess over $180,000

There will be no change to tax rates for foreign residents for 2017-18, except that the top marginal rate will fall to 45% because of the removal of the 2% temporary budget deficit levy.

Medicare levy to increase…but not yet

The Medicare levy will increase by 0.5% to 2.5% from 1 July 2019 (currently 2%) in order to fund the National Disability Insurance Scheme (NDIS).

Tougher repayment conditions for HELP debtors

From 1 July 2018, a new set of repayment thresholds will be introduced which will affect all current and future Higher Education Loan Program (HELP) debtors.  

Currently, HELP debtors must pay back their loans once their annual incomes reach $55,874. Repayments are 4% of repayment income, rising to 8% for people with incomes above $101,900.

From 1 July 2018, the minimum repayment threshold falls to $42,000. A new 1% repayment rate will be introduced together with a higher maximum threshold of $119,882 with a repayment rate of 10%.

HELP repayment rates and thresholds

Repayment rate

Current 2018-19 thresholds

Proposed new 2018-19 thresholds

Proposed new 2019-20 thresholds

1%

-

$42,000

$42,840

1.5%

-

$44,520

$45,410

2%

$51,957

$47,191

$48,135

2.5%

-

$50,022

$51,023

3%

-

$53,024

$54,084

3.5%

-

$56,205

$57,329

4%

$57,730

$59,577

$60,769

4.5%

$64,307

$63,152

$64,415

5%

$70,882

$66,941

$68,280

5,5%

$74,608

$70,598

$72,377

6%

$80,198

$75,215

$76,719

6,5%

$86,856

$79,728

$81,323

7%

$91,426

$84,512

$86,202

7.5%

$100,614

$89,852

$91,374

8%

$107,214

$94,957

$96,857

8.5%

-

$100,655

$102,669

9%

-

$106,694

$108,829

9.5%

-

$113,096

$115,358

10%

-

$119,882

$122,279

 

Cuts to Family Tax Benefit for unimmunised children

From 1 July 2017, Family Tax Benefit Part A supplement payments will be reduced by $28 per fortnight for each child who does not meet the Government immunisation requirements.

No changes to work-related expenses deduction rules

Contrary to some pre-budget speculation, the Treasurer has made no changes to the rules regarding the tax deductibility of work-related expenses.

$20,000 instant asset write off extended for small businesses

In a welcome move, the current instant asset write-off scheme for small businesses is to be extended by 12 months to 30 June 2018.

As a result of this announcement, businesses with a turnover of less than $10 million can continue to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired up to 30 June 2018 and first used or installed ready for use by that date.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business 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).

The instant asset write-off threshold and the threshold for immediate deductibility of the balance of the pool revert to $1,000 on 1 July 2018.

Minor changes to small business CGT concession rules

The rules for the small business CGT concessions  are to be tightened up 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.

There are 4 concessions available to small businesses to eliminate, reduce and/or provide a roll-over for capital gains made on business assets: 

  • the 15-year exemption
  • the 50% reduction
  • the retirement exemption
  • replacement asset roll-over relief

The government is concerned that that some taxpayers are able to access these concessions for assets which are unrelated to their small business, eg through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

First home super saver scheme introduced

The government introduced a major package of measures aimed at improving the affordability of housing, with a particular focus on first home buyers.

From 1 July 2017, first home buyers will be able to make voluntary contributions to superannuation which can then be withdrawn to put towards a first home deposit, along with associated deemed earnings.

Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and 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 and $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 and combine savings for a single deposit to buy their first home together.

Restriction on depreciation deductions for investment properties

From 1 July 2017, plant and equipment depreciation deductions will be restricted to expenditure actually incurred by investors in residential real estate properties.

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

This measure is designed to address concerns that some plant and equipment items are being depreciated multiple times by successive investors. Under the new rules, acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

Investors who purchase plant and 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 and equipment purchased by a previous owner of that property.

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

Plant and 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.

No more travel deductions for visiting your investment  

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

This measure has been introduced as a result of concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.

Increased capital gains tax discount for investors in affordable housing

From 1 January 2018 the capital gains tax (CGT) discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.

To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount to the private rental market rate. Tenant eligibility will be based on household income thresholds and household composition.

The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of 3 years.

The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.

The increased discount is also available to investors who supply their existing properties for affordable housing, provided the investment meets the eligibility requirements.

Tighter rules for foreign resident capital gains

The foreign resident capital gains tax regime will be extended by:

  • denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30 pm (AEST) on 9 May 2017 (with existing holdings being grandfathered until 30 June 2019);
  • increasing the CGT withholding rate for foreign tax residents from 10% to 12.5%  from 1 July 2017; and
  • reducing the CGT withholding threshold for foreign tax residents from $2m to $750,000 from 1 July 2017.

Superannuation incentives for elderly down-sizers

From 1 July 2018, if you are aged 65 or over, you will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling your home. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and 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.

 

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We're here for you year-round. We can help you get your maximum tax refund and provide advice to help you manage your taxes. Find an office near you and book an appointment online.

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