The 2017-18 Federal Budget attempts to please as many people as possible. It tackles the issues currently in focus across the Australian community – gaps in healthcare, first home ownership, foreign workers, investment and bank accountability to name a few of the pressure points. It also delivers an economic ‘sugar hit’ in the form of $75 billion in infrastructure projects.
But as author John Lydgate says:
“You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.”
As always, it is the detail that tells the real story. Here are some of the key measures:
- $20k immediate deduction extended until 1 July 2018 – The $20,000 immediate deduction threshold for assets purchased by businesses with an aggregated turnover of under $10 million will be extended until 30 June 2018 (see Why 90,000 more businesses can access the $20k instant asset write-off this year)
- Contractors in the courier and cleaning industries face greater compliance – The building industry has faced enhanced compliance and reporting for some time through the taxable payments reporting system. Now it’s the turn of contractors in the courier and cleaning industry.Under the taxable payments reporting system, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO.
- Small business CGT concessions tightened
- Banks slugged with ‘major bank levy’ – a new tax on Westpac, Macquarie Bank, Commonwealth Bank, NAB and ANZ. The ACCC will oversee the transition to the new tax to prevent the banks simply increasing rates on residential mortgages to fund the levy.
- Levy on businesses employing foreign workers on skilled visa – new levies starting from $1,200 per annum will apply for each employee on a Temporary Skill Shortage visa and a one-off payment starting at $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
- Who collects the GST on residential property & subdivisions – Under new integrity measures, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.
- Indexation returned to Medical Benefits Scheme
- Large multinationals laws tightened further
- Removing double tax on Bitcoin – amends to GST Act to prevent consumers paying GST twice.
- Encouraging the over 65s to downsize – If you are 65 or over, the Government will allow you to make a non‑concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018. This non-concessional contribution will be excluded from the existing age test, work test and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).
- First home owners to use super contributions to save for a deposit – Under the First Home Super Savers Scheme, would be first home owners will be able to withdraw voluntary contributions they make to super for a deposit. In practice, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions.
- Tax relief extended for merging super funds
- Crackdown on related party transactions – The Government is concerned that related party transactions on non-commercial terms are being used to increase superannuation savings.
The Government is very keen for private investors – including large scale investors and superannuation funds – to be a part of the solution to Australia’s housing affordability crisis. A series of new measures target investment opportunities to expand the availability of affordable rental properties.
- CGT concession for investments in affordable housing – an increase in the CGT discount increased for individuals who choose to invest in affordable housing. 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 3 years.
- Investment opportunities for Managed Investment Trusts in affordable housing – Managed Investment Trusts (MIT) will be able to set up to acquire, construct or redevelop property to hold as affordable housing. In order for investors to receive concessional taxation treatment through a MIT, the affordable housing must be available for rent for at least 10 years. This is one area of the property market where the Government is actively encouraging rather than discouraging foreign investors.
- Deductibility of investment property travel costs to end – The days of writing-off the costs of travel to and from your residential investment property are about to end. The Government has moved to disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
- Depreciation deductions limited – The Government is concerned that some plant and equipment items in residential rental properties are being depreciated by successive investors in excess of their actual value. This integrity measure will limit plant and equipment depreciation deductions to outlays actually incurred by residential rental property owners.
- Foreign investors targeted
- Foreign investors charged for leaving properties vacant – Foreign owners of residential Australian property will incur a charge if their property is not occupied or genuinely available on the rental market for at least 6 months per year.
- Capital gains tax changes imposed on foreign and temporary residents – Foreign and temporary residents will be excluded from the main residence exemption. The main residence exemption excludes private homes from capital gains tax.
- Foreign resident CGT withholding rate increased and threshold reduced – When someone buys Australian real property (i.e., land and buildings) they are currently required to remit 10% of the purchase price directly to the ATO as part of the settlement process unless the vendor provides a certificate from the ATO indicating that they are an Australian resident. These rules do not currently apply if the property is worth less than $2 million. From 1 July 2017 the CGT withholding rate under these rules will increase by 2.5% to 12.5%. Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.
- Australian property held through companies and trusts – a measure to ensure that foreign residents cannot avoid an Australian CGT liability by splitting indirect interests in Australian real property.
- Foreign ownership in new dwellings restricted – A 50% cap will be imposed on foreign ownership in new developments. In effect, any new development will need to ensure that less than 50% of the purchasers are foreign residents.
- Foreign investment framework changes
Individuals & Families
- Increase in the Medicare Levy – From 1 July 2019, the Medicare Levy will increase to 2.5% of taxable income (up from 2%)
- Medicare low-income threshold increased
- Help with energy bills – As part of the deal to pass the Enterprise Tax Bill containing the business tax reductions and other measures for small business, the Government agreed to assist with energy bills. A one‑off Energy Assistance Payment will be made in 2016‑17 of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who are resident in Australia.
- Child care subsidy limited – The Child Care Subsidy will be limited to families with incomes below $350,000 per annum.
- Indexation paused on Family Tax Benefit payments
- Family Tax Benefit A changes – A consistent 30 cents in the dollar income test taper for Family Tax Benefit Part A families with a household income in excess of the Higher Income Free Area (currently $94,316) will apply from 1 July 2018.
- Tougher residency requirements for pensioners – The residency requirements will be strengthened for access to the Age Pension and the Disability Support Pension. Claimants will be required to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP unless certain conditions are met.
- Penalties introduced for Work for the Dole and jobseekers
- Working Age Payments consolidated
- Regional and rural scholarships
- Previously announced measures include higher education fees increased and funding mix for schools
Infrastructure & Investment
- $1bn National Housing Infrastructure Facility established – A $1 billion National Housing Infrastructure Facility will be established to provide financial assistance to local government from 2018‑19 for infrastructure that supports new housing, particularly affordable housing.
- Advanced Manufacturing Fund established – A $101.5 million Advanced Manufacturing Fund will promote research and capital development for high technology manufacturing businesses.
- Unlocking Commonwealth land – The Government is disposing of land suitable for residential housing and no longer required by the Commonwealth, beginning with surplus Defence land at Maribyrnong in Melbourne (127 hectares and large enough to develop 6,000 new homes less than 10kms from Melbourne CBD).
- Major investment in infrastructure projects – The Government has allocated a raft of funding for major infrastructure projects focused predominantly on transport connections.
- Regional Growth Fund established
- Improved competition in banking
- Disaster relief extended
Regulation & Administration
- More money for the ATO – In his Budget speech, Treasurer Scott Morrison was keen to point out that the Australian Taxation Office (ATO) has, “…already raised $2.9 billion in tax liabilities this year against a group of just seven large multinational companies, and expects to raise more than $4 billion in total this financial year from large public companies and multinationals.” So, more funding to chase down tax evaders, tax cheats and general recalcitrants is in order.
- APRA targets the behaviour of financial institutions – Banking executives will be required to be registered with the Australian Prudential Regulation Authority (APRA), APRA’s powers will be strengthened to remove and disqualify senior executives, and new penalty provisions and deferral of remuneration for senior executives will apply under new measures to improve integrity within the banking system.
- Sales suppression technology banned
- Fines increased for breaching consumer law – The penalties under consumer law will increase to match the penalties under competition law. For companies, this involves the greater of the maximum penalty ($10 million) or three times the value of the benefit received by the company from the act or omission, or if the benefit cannot be determined, 10% of the annual turnover in the preceding 12 months.
- Farm Business Concessional Loans Scheme extended
- Visa charges increase
- Agricultural levy changes
- Tax on cigars and roll your own cigarettes goes up – The way tax applies to cigars and roll your own (RYO) cigarettes will be brought into line with other manufactured tobacco products
For assistance with any of the Budget measures and what they might mean to you, your business or your investments, talk to the Hayes Knight team today