On 9 May 2017 the Federal Treasurer, Mr Scott Morrison, handed down his second Budget.
As always, the budget speech is not law and ultimately all proposed measures are subject to political debate before parliament. Recall last year’s budget whereby significant changes were announced to the superannuation system – those proposed changes were ultimately amended before being passed as law. It is a timely reminder that a number of these new superannuation laws have effect from 1 July 2017 and will no doubt be a key consideration for taxpayers leading up to this date.
The Government’s 2017–18 Budget papers reveal the following issues particularly relevant to businesses:
INSTANT ASSET WRITE-OFF EXTENDED FOR 12 MONTHS
Small business owners will welcome an extension to the instant asset write-off laws. The $20,000 instant asset write-off for small business will be extended by 12 months to 30 June 2018, for businesses with an aggregated annual turnover of less than $10 million.
Small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 provided they are first used, or installed ready for use, by 30 June 2018. Note that a few assets including horticultural plants and in-house software are ineligible.
Depreciating assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year, and 30% for 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).
Access to the small business Capital Gains Tax (CGT) concessions will be tightened from 1 July 2017 to deny eligibility for assets unrelated to the small business. There is some ambiguity in the proposed change and the devil will be in the detail when draft legislation is released, however the proposed change appears to be an integrity measure aimed at discouraging taxpayers from arranging their affairs to gain access to the concessions when in fact their interest is in a large business.
Generally, the small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or on the sale of business assets where the taxpayer satisfies the $6 million net asset test.
The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.
The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
In relation to other superannuation issues, any perceived opportunities for superannuation members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.
Housing affordability measures
A number of changes to the Tax Act are proposed which are aimed at housing affordability. Announcements made include the following:
- A limited amount of an individual’s superannuation contributions made from 1 July 2017 may be withdrawn from 1 July 2018 onwards for a first home deposit.
- A person aged 65 or over can contribute up to $300,000 from the proceeds of the sale of their home as an additional non-concessional contribution into superannuation, from 1 July 2018.
- Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.
- Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017.
- Managed investment trusts will be able to invest in affordable housing, allowing investors to receive concessional tax treatment, provided certain conditions are met, including that the properties are let as affordable housing for at least ten years.
- The CGT discount for Australian resident individuals investing in qualifying affordable housing will be increased from 50% to 60% from 1 January 2018.
- Foreign and temporary tax residents will be denied access to the CGT main residence exemption.
- The foreign resident CGT withholding rate will be increased to 12.5% and will apply to Australian real property and related interests valued at $750,000 or more.
- An annual levy of at least $5,000 will be imposed on foreign owners of under-utilised and vacant residential property.
- A 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates.
- The principal asset test in Div 855 of the Income Tax Assessment Act 1997 will be applied on an associate inclusive basis for foreign tax residents with indirect interests in Australian real property.
MEDICARE LEVY TO INCREASE FROM 2.0% TO 2.5%
The Medicare levy will be increased from 2.0% to 2.5% of taxable income from 1 July 2019. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
Low income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.
NEW HELP REPAYMENT THRESHOLDS AND RATES TO BE INTRODUCED
A new set of repayment thresholds and rates under the higher education loan program (HELP) will be introduced from 1 July 2018.
A new minimum repayment threshold of $42,000 will be established with a 1% repayment rate. Currently, the minimum repayment threshold for the 2017–18 year is $55,874, with a repayment rate of 4%.
A maximum threshold of $119,882 with a 10% repayment rate will also be introduced. Currently, the maximum repayment threshold for the 2017–18 year is $103,766 with a repayment rate of 8%.
PURCHASERS OF NEW RESIDENTIAL PROPERTIES TO REMIT GST
Purchasers of newly constructed residential properties or new subdivisions will be required to remit the Goods and Services Tax (GST) directly to the Australian Taxation Office (ATO) as part of settlement from 1 July 2018. This is an integrity measure aimed at improving GST collection.
DOUBLE TAXATION OF DIGITAL CURRENCY REMOVED
The GST treatment of digital currency (such as Bitcoin) will be aligned with that of money from 1 July 2017.
DIPLOMATIC CONCESSIONS UNDER INDIRECT TAX CONCESSION SCHEME EXTENDED
Access to refunds of indirect tax (including GST, fuel and alcohol taxes) under the Indirect Tax Concession Scheme has been extended.
Tax integrity measures
- The multinational anti-avoidance law will be amended to prevent the use of foreign trusts and partnerships in corporate structures for tax minimisation, with retrospective effect from 1 January 2016.
- Hybrid mismatch rules used by banks to minimise tax in cross border transactions will be prohibited from 1 January 2018.
- The government will provide $28.2 million to the ATO to target serious and organised crime in the tax system.
- The Black Economy Taskforce has delivered an interim report to the government and the government has accepted some recommendations for immediate action.
- The taxable payments reporting system will be extended to contractors in the courier and cleaning industries from 1 July 2018.
- Sales suppression technology and software, used to understate business income by deleting electronic transactions, will be prohibited.
- Funding for the ATO’s Black Economy Taskforce audit and compliance activities will be extended until 30 June 2018.
- A two-year public information campaign from 2016–17 will highlight the government’s key tax integrity measures.
Other tax changes
- The foreign investment framework will be clarified and simplified with effect from 1 July 2017.
- A major bank levy will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100 billion, from 1 July 2017.
- Businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will provide revenue for a new Skilling Australians Fund from March 2018.
- The taxation of “roll your own” (RYO) tobacco and other products (for example, cigars) will be adjusted so that manufactured cigarettes and RYO tobacco cigarettes receive comparable tax treatment.
- The government will provide additional funding to Treasury and the Office of Parliamentary Counsel to ensure dedicated drafting resources for relevant legislation.
Like to know more?
The full Budget papers are available at here and the Treasury ministers’ media releases are available here.
Should you have any questions about the Federal Budget and how these changes may impact you or your business, please contact your Fordham Partner for a discussion about your specific circumstances.
Download Tax Alert-Federal Budget-May 2017
This publication has been prepared by Fordham Business Advisors Pty Ltd and Perpetual Trustee Company Limited ABN 42 000 001 007, AFSL 236643 (PTCo). Fordham is part of the Perpetual Limited Group. Perpetual Private advice and services are provided by PTCo. This information is believed to be accurate at the time of compilation and is provided in good faith. However, it contains general information only and is not intended to provide you with advice or take into account your personal objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. It is important to remember that this material relates merely to proposals which have not yet been legislated, and our analysis should be viewed in that context. We recommend that you do not take any specific action until the Government provides greater detail in any relevant draft legislation.