The housing affordability crisis is being addressed with a package of tax, superannuation and other measures as the centre-piece of the Budget. The Budget also introduces a new tax – the levy on banks. The Budget also includes a range of integrity measures to enhance the integrity of the tax and superannuation system.
Some of the main measures that are likely to affect you are outlined below, together with information about other measures that may be of interest to you. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax advisor or call the team today on 4304 8888 or visit us at www.fortunity.com.au.
Support through the superannuation system
§ For first home buyers – first home super saver scheme
Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to subsequently be withdrawn and used for a first home deposit. The contributions can be made from 1 July 2017 and must be made within an individual’s existing contribution caps.
From 1 July 2018 onwards, the individual will be able to withdraw these contributions and their associated deemed earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.
Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation.
Changes for owners of residential rental properties
§ Travel expenses related to residential rental properties disallowed
Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.
This is an integrity measure to address concerns that many taxpayers have been claiming deductions for travel costs without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.
This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.
§ Changes to depreciation claims
Effective from budget night, depreciation for plant & equipment can only be claimed by the person actually incurring the expense.
This is a significant change as previously, an investor buying a property could gain a tax benefit by claiming depreciation for assets acquired as part of the purchase.
Medicare levy increasing from 2.0% to 2.5% in 2019
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.
All revenue generated by the Medicare levy will be used to support the National Disability Insurance Scheme (NDIS) and to guarantee Medicare. For example, $9.1 billion will be credited over the forward estimates period to the NDIS Savings Fund Special Account when it is established.
This measure is estimated to have a gain to tax revenue of $8.2 billion over the forward estimates period (across all heads of revenue, not just the Medicare levy).
Small business CGT breaks to be tightened
Access to the small business CGT concessions will be tightened from 1 July 2017 to deny eligibility for assets which are unrelated to the small business.
Small business CGT concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business.
However, some taxpayers have been able to access these concessions for assets which are unrelated to their small business by, for example, arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets of less than $6 million.
Instant asset write-off and other depreciation measures from 2015-16 Budget extended
To improve cash flow for small businesses and provide a boost to small business activity and investment, the Government is extending the $20,000 instant asset write-off for small business by 12 months to 30 June 2018. Businesses with an aggregated annual turnover of less than $10 million will be eligible for this concession.
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. Only a few assets are ineligible (such as horticultural plants and in-house software).
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).
The current “lock out” laws from the simplified depreciation rules will also continue to be suspended until 30 June 2018. These rules prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out.
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.
Should you be impacted by any of the above changes please contact our team of Business Advisors today on 02 4304 8888 to make an appointment.