The Federal Treasurer, Mr Scott Morrison handed down the 2017/2018 Federal Budget on 9 May 2017.
As expected, it had a focus on housing aﬀordability, education and the health system, but also included a significant infrastructure spend including $8.4 billion to develop an inland Melbourne to Brisbane freight rail network, plus significant spending on other transport infrastructure.
The Government, however, again missed the opportunity to provide real tax reform, although committed to passing the reduction in company tax rates announced in last year’s budget for all companies.
While the 2017-18 budget forecasts a deﬁcit of $29.4 billion, the Treasurer is predicting the Budget will return to a small surplus by 2020-21.
This Budget Tax Brief reﬂects the tax related major measures announced in the Budget that we expect will be of relevance to Hanrick Curran clients. Please note that the budget brief summarises our understanding of the Government announcements that have not been introduced into law.
Accordingly, this report should not be relied upon to make decisions without taking further detailed advice.
Should you have any queries in relation to how the Budget announcements will aﬀect you or your business and superannuation, please contact Jamie Towers, Clive Todd or your usual Hanrick Curran advisor on 07 3218 3900.
Alternatively, further details can be found on the Government’s Budget website: www.budget.gov.au
There are no newly announced individual tax rate changes for 2017/2018. However, the Budget Deﬁcit Recovery Levy, which has stood for the past three years, will end on 30 June 2017 as legislated. Therefore, the top marginal tax rate including Medicare Levy will be 47% from 1 July 2017. The rates will change on 1 July 2019 when the Medicare Levy will increase to 2.5% (currently 2%). This measure has been brought in to help fund the National Disability Insurance Scheme (NDIS).
The Medicare Levy low-income threshold for single individuals will increase to $21,655 and for couples from $36,541 plus $3,356 per dependent child from 1 July 2017.
The HELP education loan repayment threshold reduces to $42,000 from 1 July 2018 (currently $51,957), so new graduates should expect to commence paying back their HELP debts much earlier.
Investment into aﬀordable housing will become more attractive from 1 July 2018 with the availability of a 60% Capital Gains Tax (CGT) concession on certain properties sold. This will apply where housing is provided to low income tenants via a registered community housing provider with rent discounts applied.
Similarly, managed investment trusts (MIT) will be allowed to invest in aﬀordable housing. Where a property is held by a MIT for more than 10 years, the CGT discount on sale will be increased to 60%. As distributions from MITs are taxed at 15% to foreign investors, this may encourage foreign investors to invest in aﬀordable housing.
For older Australians, while not tax related, pensioner concession cards will be reinstated for recipients who lost these entitlements when the asset test measures came into eﬀect in January 2017. While the pension will not be reinstated, access to the valuable concession cards will be.
Foreign and Temporary residents will be denied access to the Main Residence tax exemption on their Australian properties. This will signiﬁcantly disadvantage New Zealand citizens who have not applied for Australian permanent residency and are currently considered temporary residents. Existing properties will be grandfathered until 30 June 2019.
The CGT Withholding tax rate on real property sold by non-residents will increase from 1 July 2017 to 12.5% (currently 10%) and will apply to properties worth more than $750,000 (currently $2 million). Due to the lower threshold, this will be of signiﬁcant interest to developers as these measures can apply to Australians who do not register to conﬁrm their residency.
A levy equivalent to the Foreign Investor Application fee (currently $5,000 p.a.) will be imposed on foreign owners of a property that is not occupied, nor made available for rent for more than six months of the year. This will apply to new purchases of residential investment properties by foreign persons after 9 May 2017. A 50% cap on foreign ownership will be imposed on vendors of new property developments to ensure suﬃcient supply remains for Australians.
Residential Rental Properties
Travel Expenses relating to inspecting, maintaining or collecting rent from investment properties, will no longer be allowed as a tax deduction from 1 July 2017.
Depreciation deductions for residential rental properties will be limited to plant and equipment expenditure actually incurred by the investor. Plant and Equipment purchased by a prior owner will no longer attract a tax deduction. Instead, it will form part of the cost base of the property. This may negate the need to acquire a ‘depreciation schedule’ if acquiring second hand property.
These rules will only apply to properties purchased after budget night. Existing properties held as at 9 May 2017 will continue to attract deductions for depreciation on plant and equipment.
Small Business (Aggregated turnover of up to $10M)
An immediate deduction for the cost of an asset costing less than $20,000 (excl GST) will continue to be available until 30 June 2018 (was due to ﬁnish 30 June 2017).
After this date, the deduction will only be available for assets costing less than $1,000.
Certain loopholes to access small business CGT discounts will be tightened from 1 July 2017 to ensure they only apply to assets used in a small business.
The Government has again committed to its 2016/2017 budget measure of reducing the company tax rate for all companies to 25%. This measure was passed by the Senate, but only for businesses with turnover of less than $10 million (rising to $50 million).
The Government plans to extend these measures to all companies and eventually lower the company tax rate to 25%.
Foreign Worker Levy
The Government recently announced changes to the 457 Visa System making it more diﬃcult for businesses to bring foreign workers into the country.
From March 2018, additional levies will apply to businesses who do employ foreign workers. Small Business will pay an up-front fee of $3,000 for employees on a 186 visa, plus $1,200 per foreign worker per year for employees on a temporary skill shortage visa. Large Business (>$10M turnover) will pay$5,000 up front plus $1,800 per foreign worker per year from March 2018. These rules replace the current training / levy obligations.
Taxable Payments Reporting
The taxable payments reporting system, which currently applies to the building industry, will be extended from 1 July 2018 to apply to the courier and cleaning industries. This will impose more compliance obligations on businesses contracting people in these industries.
Purchasers of new residential properties will be required to remit GST to the ATO as part of a property settlement from 1 July 2018. This will create additional conveyancing costs and will no doubt create diﬃculties where a property is sold under the Margin Scheme.
The GST will be extended to apply to Bitcoin and other digital currency transactions in the same way as cash.
Further Funding for ATO
A further $32 million of funding will be provided to the ATO for audit and compliance work targeting businesses with turnover between $2 million and $15 million. This will focus on non-lodgement, omission of income and paying employer obligations.
A further $28 million will also be provided to the ATO to continue targeting organised crime.
Crowd Sourced Equity Funding
Crowd Sourced Equity Funding will be extended to Proprietary Companies. However, the eﬀected companies will be subject to additional obligations to protect investors including:
- Minimum of 2 directors
- Financial reporting in accordance with accounting standards
- Audit requirements
- Related party transactions restricted
- Minimum shareholder rights on exit
These initiatives should be applauded to reduce the costs of raising funds for small companies.
Increased levies and export charges will apply to Bananas, Avocados, Seed cotton, Tee Tree Oil, and Thoroughbreds. The levies will assist with Research and Development and pest eradication in these industries.
Multinational Tax Avoidance
The Government has done a lot over the past couple of years around this area including aligning Australia’s laws with OECD best practice and going beyond that by introducing Multinational Anti-Avoidance Laws (MAAL) including a Diverted Proﬁts Tax to apply from 1 July 2017. The MAAL will be further strengthened by applying to structures involving partnerships and trusts, not just companies.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.