Below is a quick summary of the measures. Remember as always, these are not legislation until the Bill passes in Parliament. As history has proven we may not know until Christmas if this legislation is going to eventuate. The main areas affected this year are as follows:
- Individual Tax Payers
- Investment property owners
- First Home Owners
- Individuals with HELP Debt
- Small Business
- Retirees downsizing their homes
Individual Tax Payers
The biggest change for individual tax payers is the change to the Medicare Levy. This will be increasing from the 1st July 2018 by 0.05% to help fund the National Disability Insurance Scheme.
It is important to note that this will affect the majority of tax payers as it is the base levy that was increased two years ago from 1.5% to 2%, now proposed to go up to 2.5%. It is not the Medicare Levy Surcharge which you can reduce if you have Private Health Insurance.
By way of example, if you have taxable income of $80,000 you will be paying an additional $400 in tax each year from 1 July 2018.
Investment property owners
Rumours of the government changing negative gearing of property, has once again not come to fruition.
The main change that will affect property owners is that from 1st July 2017 there will be no ability to claim travel expense related to inspecting, maintaining or collecting rent for a residential rental property. It is important to note that this does not mean that you won’t be able to continually claim a deduction for engaging third parties, such as real estate agents, for property management services.
There are some additional CGT benefits for those who invest in affordable housing through a Registered Community Housing Provider with the CGT discount increasing from 50% up to 60%.
First Home Owners
The Government will encourage home ownership by allowing first homebuyers to ‘build a deposit’ inside their superannuation fund, as follows:
Voluntary superannuation contributions of up to $15,000 per year, and $30,000 in total, can be contributed by first homebuyers from 1 July 2017. The contribution must be within existing concessional and non-concessional caps. Concessional contributions are taxed at 15% in the fund and earnings on contributions are taxed at 15% in the fund.
These contributions can then be withdrawn, along with associated deemed earnings, for a first home deposit, from 1 July 2018 onwards. Concessional contributions and earnings that are withdrawn will be taxed at the taxpayer’s marginal rate less a 30% offset. When non-concessional contributions (‘NCCs’) are withdrawn, they will not be taxed.
Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first homebuyers to build savings more quickly for a home deposit. Note that, both members of a couple can take advantage of this measure to buy their first home together. The only downside of this legislation is that if you decide not to purchase the property the funds will not be able to be withdrawn from Superannuation. We await further details of who will or won’t qualify as this will also be important as it is the ATO who determines if you can withdraw the funds. It will be important therefore if you are going to put additional contributions over a few years into Superannuation that you ask for advice prior to make sure you will be eligible to withdraw.
Individuals with HELP Debt
From 1st July 2018 the government will revise the new minimum threshold for repayment of HELP Debt to $42,000 (incurring a 1% repayment rate) and a maximum threshold of $119,882 (incurring a 10% repayment rate).
For reference the current rate for the 2017/18 year is a minimum threshold of $55,874 and the minimum repayment rate is 4%. The maximum threshold is $103,776 with an 8% repayment.
Under current law, the $20,000 immediate write-off ends on 30 June 2017. However, the Government has proposed to extend the concession by 12 months to 30 June 2018 for businesses with an aggregated annual turnover less than $10 million.
This means small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if the balance is less than $20,000 over this period.
Further, the current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.
From 1 July 2018, the immediate deductibility threshold and the balance at which the pool can be immediately deducted will revert back to $1,000.
Retirees downsizing their homes
Effective from 1st 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 (contributions you don’t pay contributions tax on) 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.
If you would like more detailed information on any area please feel free to contact our office and we can assist you.