In case you missed it, last night’s budget contained a number of measures aimed at stimulating the economy particularly through infrastructure spending. This spending will be in the vicinity of $75 billion. Despite these spending measures, the government is predicting that the budget will return to surplus in 2020-21.
An “honest budget” as described by Treasurer Scott Morrison focused on health, home and housing. Keeping healthcare available to all Australians in the long term and living the dream of owning one’s home will be central issues for many Australians.
As is usual at budget time there was a range of taxation measures announced. A highlight for Small business is a reprieve on the $20,000 write off on capital expenditure. Here’s our summary of impacting measures;
- Extension of the small business instant asset write-off scheme allowing businesses with turnover up to $10 million to immediately write off expenditure up to $20,000 for a further year (originally due to finish on June 30, 2017).
- Through the National Partnership on Regulatory Reform, the Government will provide up to $300 million over two years to States and Territories that reduce red tape for small business.
- Amending the small business capital gains tax concessions 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.
- Increase the capital gains tax (CGT) discount by 10% from 50% to 60% for affordable housing. As most people will be aware the CGT discount applies to most CGT assets disposed of by individuals and some trusts where the assets have been owned for more than 12 months.
- An annual charge of at least $5,000 on residential property owned by foreign residents where the property has been vacant or not available for rent for at least six months of the year.
- Foreigners and temporary residents will be denied the main residence exemption applying under the CGT law.
- There is a range of other measures affecting foreign tax residents.
- First home buyers will be able to save for a deposit through investing funds in superannuation. These amounts they will be able to withdraw when the deposit is required. To the extent that the withdrawn funds were contributed as concessional contributions thee will be some (reduced) taxation on the amount withdrawn. Withdrawals under this scheme may be made after 1 July 2018.
- Form 1 July 2018, persons over 65 who downsize their home (held for more than ten years) may make an additional non-concessional contribution of up to $300,000 from the proceeds of the disposal of the home. A couple can contribute $300,000 each. This contribution will not be subject to the contribution and superannuation balance caps introduced earlier this year.
- From 1 July this year, deductions for travel expenses to inspect, maintain or collect rent on investment properties will not be allowable deductions against the rental income. So the trip to the Gold Coast to check on the investment property will no longer be deductible.
- Deductions for depreciation plant and equipment such as hot water systems and dishwashers installed in residential investment properties after 1 July 2017 will only be available to the owner who had them installed and not for any successive purchaser of the property.
Fringe Benefits Tax
- The FBT rate will increase to 47.5% to take account of the increase in the Medicare levy. It is not clear when this will take effect but it will probably be in place by at least 1 April 2020.
- A corresponding increase in the gross-up rate will be required for calculating the taxable value of fringe benefits.
- The temporary budget repair levy of 2% for taxpayers earning more than $180,000 will expire on 1 July 2017. This means that ignoring Medicare the top marginal rate will drop from 47% to 45%.
- However, the Medicare levy will rise from 2 to 2.5% from 1 July 2019. From 1 July 2017 thee will be modest increases in the Medicare low income threshold.
- No changes were announced in the Federal Budget in relation to personal income rates. Personal income tax rates for the 2017-18 year will therefore remain the same as for the 2016-17 year (see table below).
- Aside from the changes identified above, the Treasurer has confirmed the proposal applying from 1 July 2017 to ignore the amount of non-recourse borrowing by a self-managed superannuation fund in calculating a superannuation balance. This means that the member’s balance will be the gross and not the amount net of the borrowing.
- There are some other changes to superannuation applying from 1 July 2018 in relation to related party dealings.
- From 1 July 2018 purchasers of new residential property will be required to withhold the GST payable on the transaction and remit it to the ATO. It will be interesting to see how this will work in cases where the margin scheme applies to the sale resulting on GST applying on a reduced amount. This will require the purchaser to determine their liability based on information provided by the developer. What if it is wrong?
- From 1 July 2017 digital currencies like bitcoin will be treated as money and no longer subject to GST. Arguably it always was but the ATO had said that it was not money as defined.
- For those who still light up, there will be changes to the tax treatment of roll your own and cigars to bring them into line with manufactured cigarettes. This will be phased in over the next four years.
Company Tax Rate
- The government is committed to pushing for a reduction in the corporate tax rate to 25% with the objective of making Australian businesses globally competitive.
- The major banks are targeted for levy in respect of some of their liabilities such as corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments. This will take effect from 1 July this year.
The tax position described in this blog is a general statement and for guidance only. It is important to note the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.