May 2017 7 Minutes
Federal Budget 2017-18
The Treasurer has handed down the Government’s 2017-18 Federal Budget, which has a strong focus on housing affordability. There were no major changes to the fundamentals of the tax system. However, a number of important and targeted measures were introduced as outlined below.
Extending the immediate deductibility threshold for small businesses
The Government will extend the accelerated depreciation for small businesses by 12 months to 30 June 2018 for businesses with aggregated annual turnover less than $10 million. 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. Only a few assets are not eligible (such as horticultural plants and in-house software).
Personal income tax — increase in the Medicare levy
The Government will increase the Medicare levy by half a percentage point from 2.0 to 2.5 per cent of taxable income from 1 July 2019 to ensure the National Disability Insurance Scheme (NDIS) is fully funded. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
Personal income tax — increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2016-17 income year. The threshold for singles will be increased to $21,655. The family threshold will be increased to $36,541 plus $3,356 for each dependent child or student. For single seniors and pensioners, the threshold will be increased to $34,244. The family threshold for seniors and pensioners will be increased to $47,670 plus $3,356 for each dependent child or student.
Annual charge on foreign owners of underutilised residential property
The Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year.
Capital gains tax changes for foreign investors
The Government will extend Australia’s foreign resident capital gains tax (CGT) regime by:
- denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019;
- increasing the CGT withholding rate for foreign tax residents from 10.0 per cent to 12.5 per cent, from 1 July 2017; and
- reducing the CGT withholding threshold for foreign tax residents from $2 million to $750,000, from 1 July 2017.The Government will also improve the integrity of the foreign resident CGT regime by applying the principal asset test on an associate inclusive basis from 7:30PM (AEST) on 9 May 2017, for foreign tax residents with indirect interests in Australian real property. This will ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.
Contributing the proceeds of downsizing to superannuation
The Government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.
Disallow the deduction of travel expenses for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
Expanding tax incentives for investments in affordable housing
From 1 January 2018, the Government will provide an additional ten percentage points capital gains tax discount, increasing the discount from 50 per cent to 60 per cent, to resident individuals who elect to invest in qualifying affordable housing.
First home super saver scheme
The Government will encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30 per cent offset.
Limit plant and equipment depreciation deductions to outlays actually incurred by investors
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.
Superannuation — integrity of limited recourse borrowing arrangements
From 1 July 2017, the Government will improve the integrity of the superannuation system by including the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap.
Superannuation — integrity of non-arm’s length arrangements
From 1 July 2018, the Government will further improve the integrity of the superannuation system by reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings. The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
Extension of the taxable payments reporting system to contractors in the courier and cleaning industries
The Government will extend the taxable payments reporting system (TPRS) to contractors in the courier and cleaning industries. The measure will have effect from 1 July 2018.
Improving the integrity of GST on property transactions
From 1 July 2018, the Government will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or new subdivisions to remit the GST directly to the Australian Taxation Office (ATO) as part of settlement.
Improving the small business capital gains tax concessions
The Government will amend the small business capital gains tax (CGT) 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. This measure will take effect from 1 July 2017. Some taxpayers are able to access these concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
Toughening the multinational anti-avoidance law
The Government will negate the use of foreign trusts and partnerships in corporate structures to circumvent the multinational anti-avoidance law. From the date of its commencement on 1 January 2016, the multinational anti-avoidance law will be enhanced so that it applies to: corporate structures that involve the interposition of partnerships that have any foreign resident partners; trusts that have any foreign resident trustees; and foreign trusts that temporarily have their central management and control in Australia.
Skilling Australians Fund levy — introduction
From March 2018, businesses that employ foreign workers on certain skilled visas will be required to pay a levy. Businesses with turnover of less than $10 million per year will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
The levy will replace the current training benchmark financial obligations for employers of workers on Temporary Work (Skilled) (subclass 457) visas, which are being abolished, and permanent Employer Nomination Scheme (subclass 186) Direct Entry stream visas.
Restrict foreign ownership in new developments to no more than 50 per cent
The Government will introduce a 50 per cent cap on foreign ownership in new developments through a condition on New Dwelling Exemption Certificates. The cap will be included as a condition on New Dwelling Exemption Certificates where the application was made from 7:30PM (AEST) on 9 May 2017.
New HELP repayment thresholds and rates to be introduced
The Government will revise the income thresholds for repayment of HELP debt, repayment rates and the indexation of repayment thresholds from 1 July 2018. A new minimum threshold of $42,000 will be established with a 1 per cent repayment rate and a maximum threshold of $119,882 with a 10 per cent repayment rate.