2017 Federal Tax Report - Summary    

• Individuals will be able to make voluntary contributions of up to $15,000 per year from 1 July 2017 and $30,000 in total, to be withdrawn subsequently for a first home deposit. Withdrawals can begin from 1 July 2018. Couples will be able to both access the scheme and combine savings for a single deposit.
  

• A person aged 65 or over can contribute up to $300,000 from the proceeds of the sale of their home as a 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.

• The CGT discount for Australian resident individuals investing in qualifying affordable housing will be increased from 50 per cent to 60 per cent 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 per cent and will apply to Australian real property and related interests valued at $750,000 or more.

• An annual levy of at least $5000 will be imposed on foreign owners of under-utilised residential property.

• A 50 per cent cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates.

• The taxable payments reporting system will be extended to contractors in the courier and cleaning industries from 1 July 2018.
  
  

• 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.

• 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.

• Purchasers of new residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement from 1 July 2018.

• The use of limited recourse borrowing arrangements will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.

• Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.

• The Medicare levy will be increased from 2.0 per cent to 2.5 per cent 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.

• The Medicare levy low-income thresholds for singles, families, and seniors and pensioners will increase from the 2016-17 income year.

• A new set of repayment thresholds and rates under the higher education loan program (HELP) will be introduced from 1 July 2018.

• 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.

First home deposit scheme

From 1 July 2017, Australians can contribute up to $15,000 per year in voluntary contributions, up to $30,000 in total that can be withdrawn for a first home deposit. Withdrawals will be allowed from 1 July 2018. Couples will be able to both access the scheme and combine savings for a single deposit.

The contributions can be made from 1 July 2017 and must be made into their superannuation account and be 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. People's contributions and earnings will be taxed at 15 per cent. Withdrawals will be taxed at an individual's marginal tax rate, less a 30 per cent tax offset.

Under this new first home saver scheme, both members of a couple can take advantage of the measure to buy their first home together.

Source: Budget Paper No 2, p 30; Treasurer's media release “Reducing Pressure on Housing Affordability”, 9 May 2017.

Super contributions from downsizing

A person aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence. They must have owned their principal residence for at least 10 years. This measure will apply from 1 July 2018 and is available to both members of a couple for the same home.

These contributions are in addition to existing rules and caps and are exempt from the age test, work test and the $1.6 million total superannuation balance test for making non-concessional contributions.

Source: Budget Paper No 2, p 28

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 measure will not prevent investors from engaging third parties such as real estate agents for property management services.

Depreciation deductions limited for residential rental properties

Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017.

Plant and equipment items are usually mechanical fixtures or those which can be “easily” removed from a property such as dishwashers and ceiling fans. This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

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.

Source: Budget Paper No 2, p 30.

CGT discount increased for affordable housing investments

The CGT discount will be increased from 50 per cent to 60 per cent for Australian resident individuals investing in qualifying affordable housing.

The conditions to access the 60 per cent discount are:

• the housing must be provided to low to moderate income tenants

• rent must be charged at a discount below the private rental market rate

• the affordable housing must be managed through a registered community housing provider

• the investment must be held for a minimum period of three years.

This measure will apply from 1 January 2018.

The higher discount will flow through to resident individuals investing in affordable housing via managed investment trusts as part of the tax measure enabling such trusts to invest in affordable housing (see the item “Managed investment trusts investing in affordable housing”).

Source: Budget Paper No 2, p 29.

CGT main residence exemption removed for foreign and temporary residents

Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm (AEST) on 9 May 2017.

Existing properties held before this date will be grandfathered until 30 June 2019.

Source: Budget Paper No 2, p 27.

Expansion of foreign resident CGT withholding regime

The CGT withholding rate that applies to foreign tax residents will be increased from 10 per cent to 12.5 per cent from 1 July 2017.

Currently, the foreign resident CGT withholding obligation applies to Australian real property and related interests valued at $2 million or more. This threshold will be reduced to $750,000 from 1 July 2017, increasing the range of properties and interests that will come within this obligation.

Source: Budget Paper No 2, p 27.

Annual levy for foreign-owned vacant residential properties

Foreign owners of vacant residential property, or property that is not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5000. The annual levy will be equivalent to the relevant foreign investment application fee imposed on the property when it was acquired.

The measure will apply to persons who make a foreign investment application for residential property from 7.30pm (AEST) on 9 May 2017.

Source: Budget Paper No 2, p 27; Treasurer's media release “Reducing Pressure on Housing Affordability”, 9 May 2017.

Foreign ownership in new developments restricted to 50 per cent

A 50 per cent cap on foreign ownership in new developments will be introduced 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 dwelling exemption certificates are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons (without each foreign purchaser seeking their own foreign investment approval). The current certificates do not limit the amount of sales that may be made to foreign purchasers.

The measure will ensure that a minimum proportion of developments are available for Australians to purchase.

Funding to address serious and organised tax crime
The government will provide $28.2 million to the ATO to target serious and organised crime in the tax system. This extends an existing measure by a further four years to 30 June 2021. This measure is estimated to have a gain to revenue of $408.5 million and a net gain to the budget of $380.3 million over the forward estimates period.

Source: Budget Paper No 2, p 20.

Interim report into black economy
The Black Economy Taskforce has delivered an interim report to the government and the government has accepted the following recommendations for immediate action:

• extending the taxable payment reporting system (TPRS) to two high-risk industries — cleaning and couriers — to ensure payments made to contractors in these sectors are reported to the ATO

• banning the manufacture, distribution, possession, use or sale of sales suppression technology. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system

• providing funding for ATO audit and lodgement activities to better target black economy risks.

  Payments reporting extended to couriers and cleaners
  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 and is estimated to have a gain to revenue of $318 million in the forward estimates period.

  Under the TPRS, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO. Businesses in these industries will need to ensure that they collect information from 1 July 2018, with the first annual report required in August 2019.

Source: Budget Paper No 2, p 35.

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.

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.

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.

Source: Budget Paper No 2, p 38.

Instant asset write-off extended for 12 months

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. 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 per cent in the first income year, and 30 per cent 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 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 to $1000.

This measure is estimated to have a cost to revenue of $650 million over the forward estimates period.

Source: Budget Paper No 2, pp 21–22; Treasurer's media release, “Stronger growth to create more and better paying jobs”, 9 May 2017; Minister for Small Business media release, “Budget boost for small business”, 9 May 2017; and Budget 2017-18 Glossy: Stronger growth to create more and better paying jobs, pp 5–6.

Purchasers of new residential properties to remit GST

Purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement from 1 July 2018. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. The new measure is an integrity measure to strengthen compliance with the GST law.

Source: Budget Paper No 2, p 38.

LRBAs included in super balance and transfer balance cap

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.

LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. 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.

Source: Budget Paper No 2, p 33.

Related party transactions to increase super reduced

Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.

The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included

Medicare levy to increase from 2.0 per cent to 2.5 per cent

The Medicare levy will be increased from 2.0 per cent to 2.5 per cent 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.

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).

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.

Source: Budget Paper No 2, pp 24–25; and Budget 2017–18 Glossy: Budget overview, p 16

Medicare levy — low income thresholds to increase

The Medicare levy low-income thresholds for singles, families, and seniors and pensioners will increase from the 2016-17 income year.

The threshold for singles will increase to $21,655 (up from $21,335 for the 2015-16 year).

The family threshold will increase to $36,541 (up from $36,001 for the 2015-16 year).

For single seniors and pensioners, the threshold will increase to $34,244 (up from $33,738 for the 2015-16 year). The family threshold for seniors and pensioners will increase to $47,670 (up from $46,966 for the 2015-16 year).  The child-student component of the income threshold for all families will increase to $3356 (up from $3306 for the 2015-16 year).

Source: Budget Paper No 2, p 25.

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 per cent repayment rate. Currently, the minimum repayment threshold for the 2017-18 year is $55,874 with a repayment rate of 4 per cent.

A maximum threshold of $119,882 with a 10 per cent 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 per cent.

Source: Budget Paper No 2, p 83

Enter your content here…