The 2017 – 18 Federal Budget was delivered by Treasurer Scott Morrison and it promotes ‘Fairness, Opportunity and Security,’ as well as a goal to return the current budget to a surplus of $7.4 billion in 2021.
The proposed practical measures of the Budget have been based on four main fundamentals:
- Stronger growth to provide more jobs and positions that are better paying
- Assuring essential services that Australians have become reliant on
- Addressing stress associated with the cost of living
- Ensuring that the Government operates within its budget allocation
Key Budget Announcements
Domestic Investors
As of July 1, 2017, owners of residential properties will no longer be allowed to claim a tax deduction for travel costs associated with personally maintaining and/or inspecting and collecting rent for these properties. However, they will still be allowed to claim travel costs that have been incurred by third parties like property management services.
In addition, from July 1, 2017, equipment and plant depreciation deductions will be limited to outlays that have been incurred by the present owner of a property. Existing investments will however be grandfathered.
Housing Affordability
This was of course a sensitive topic, with various proposed measures that need to positively impact demand and supply – without having a severe effect on the housing market.
Superannuation and First Time Home Buyers
The Government’s approach to improving the affordability of housing for first time buyers was one of the biggest anticipations in the Budget.
The newly proposed ‘first time home super saver scheme’:
- First time buyers will be allowed to use their super fund to accumulate a deposit for a home
- As of July 1,2018, first time buyers will be permitted to withdraw their voluntary super contributions along with earnings to use for a home deposit
- The amount of the withdrawal associated with the concessional (pre-tax) earnings and contributions will incur marginal tax rates, minus a 30% offset. This withdrawal won’t affect HELP/HECS repayments, child care benefits or family tax benefits
- The amount available to be withdrawn will be up to $15,000 of voluntary contributions per financial year as of July 1, 2017 (a total of $30,000), along with deemed earnings, minus tax on concessional (pre-tax) contributions and deemed earnings
- Any voluntary super contributions will still count towards the concessional (pre-tax) and non-concessional (post-tax) caps for contribution, and they will continue to attract concessions like the government co-contribution and low income superannuation tax offset
If you form part of a couple, both of you will be allowed to take advantage of this.
Superannuation and Aged 65 or Over
As of July 1, 2018, anyone who is 65 or older will be allowed to make a non-concessional (post-tax) contribution to their super of up to $300,000 using proceeds from the sale of their home – as long as they have owned it for 10 years or longer. It is crucial to keep in mind that:
- The normal age related work test won’t apply to the contribution
- Up to $300,000 may be contributed, along with existing non-concessional and concessional contribution caps
- Both spouses in a couple are allowed to take advantage of this for the same property
Affordable Housing
As of January 1, 2018, resident individuals who choose to invest in qualifying affordable housing will be entitled to a capital gains tax discount of 60% – up from the current 50%. In order to qualify for the new CGT discount, the appropriate housing investment has to be:
- Rented to low – moderate income tenants at a rate that is below that of the existing private rental market
- Managed by a registered community housing provider
- Held for a minimum of three years
Foreign Investors
Measures have been proposed that would be targeted at foreign investors with regards to CGT. For instance:
- As of May 9, 2017, temporary and foreign tax residents will no longer be allowed to take advantage of the CGT main residence exemption. However, any properties that were held before this date will be grandfathered until 30 June 2019
- From July 1, 2017, an increase will apply to the CGT withholding rate (from 10% to 12.5%), while a reduction in the withholding threshold will also apply (from $2 million down to $750,00)
- Foreigners who own domestic residential property will incur an annual levy if their property is not being lived in or has not been made available for rent for at least six months of each year. This will apply to any foreign investment applications for residential homes as of May 9, 2017
- The principal asset test will apply to an associate inclusive system for foreign tax residents who have indirect interests in any Australian property. This is intended to discourage avoidance of CGT by dividing indirect interests between associates
Other Notable Measures
Children and Family Tax Benefits
More efficient targeting of the Child Care Subsidy has been proposed by the Government for families that have combined household incomes of under $350,000 per year in 2017-18 terms.
In addition, the current Family Tax Benefit payment rates will stay the same at their existing levels for the next two years as of July 2017. From July 1, 2018, for families earning more than $94,316, the Family Tax Benefit Part A will see a $0.30 in the dollar income test taper being applied.
Taxpayers, the National Disability Insurance Scheme and the Medicare Levy
In an attempt to address the currently underfunded National Disability Insurance Scheme (NDIS), several taxpayers may find themselves being required to pay additional tax as of July 1, 2019. In addition, the Government is proposing a rise in the Medicare levy from 2% to 2.5% of an individual’s taxable income. It is hoped that this move will help ensure that the NDIS can become completely funded.
Age Pension, Pensioner Concession Card, Energy Assistance Payment and Disability Support Pension
Numerous revisions were made to the social security environment for pensioners as well as Disability Support Pension and Age Pension beneficiaries:
- Anyone who lost their pension as a result of changes that were made to the pension assets test from 1 January 2017 will have their Pensioner Concession Card reinstated
- As of July 1, 2018, anyone applying for the Disability Support Pension and Age Pension will have to have at least 15 years of continuous Australian residence before being able to qualify for these benefits. However, some exemptions apply, where an applicant has any of the following that is relevant to their specific circumstances:
- 10 years of continual Australian residence, and not have previously been a recipient of any activity tested income support payment for a cumulative period of five years, or
- 10 years of continuous Australian residence, five of which has to have been during the years they were working between the ages of 16 years to the relevant Age Pension age
Any existing exemptions will still apply for applicants who receive a Disability Support Pension, provided that they became disabled during their time in Australia.
On June 20, 2017, a once-off Energy Assistance Payment will be provided to eligible persons, such as those who receive Disability Support Pension, Age Pension, Veteran’s Service Pension, Parenting Payment (Single), Veteran’s disability payments, Veteran’s Income Support Supplement and War Widow or Widower’s Pension. Amounts provided will be $75 for single persons and $125 for couples.
Small Businesses
The instant tax offset will still continue for the next year, meaning that small businesses with a turnover of $10 million or less will be eligible for writing off expenditure of up to $20,000 with immediate effect.
As of July 1, 2017, capital gains tax concessions for small businesses will be modified to ensure that the concessions will only be able to be accessed in relation to the assets being used in a small business or specific ownership interests in a small business.
Self-managed Superannuation
From July 1, 2018, the non-arm’s length provisions for income will see costs that would ordinarily apply in commercial transaction being included when taking into consideration whether the corresponding transaction has been made commercially or not.
As of July 1, 2017, an outstanding balance of any limited recourse borrowing arrangement will be able to be included in a member’s complete superannuation balance. Repayment of principal and interest on a limited recourse borrowing arrangement from a member’s appropriate accumulation account will be in credit in the transfer balance account of the member in question.
Big Banks
From July 1, 2017, the five big banks of Australia, namely National Australia Bank, ANZ, Macquarie, Commonwealth Bank and Westpac, will face a ‘Major Bank Levy.’ This will be calculated each quarter as 0.015% or an annualised rate of 0.06%, and its intention is to boost the Government’s proposed return to surplus by 2021. It is hoped that the levy will bring in around $6.2 billion over the initial forward estimates.
Economists have issued warnings and stated that this levy:
- Could pass through to clients in the form of increased rates for lending – the Treasurer has however mentioned that this will not be the case
- Could also affect superannuation fund members who have exposure to any of these banks by means of their investments, mainly, a decrease in the bank’s profits may affect share prices and ultimately capital growth and income or dividends that have been derived from the shareholders
Higher Education
The current system for higher education has been amended to encourage an environment of ‘responsiveness and sustainability to students’ aspirations.’ Proposed measures would result in university funding being decreased, meaning that students would experience increased course fees as well as earlier repayment of HECS debt:
- During 2018 and 2019, Government will introduce an efficiency dividend on the Commonwealth Grant Scheme of 2.5%
- As of January 2018, university students will have to contribute an extra 7.5% to the initial cost of their courses – 1.82% yearly over four years from 2018. This extra expense will still be able to be achieved through the current Higher Education Loan Program scheme.
- Estimates of how this could affect students:
- Nursing students undertaking four-year degrees in 2018 would see a fee increase of $1,250
- Science students pursuing three-year degrees in 2018 would have a fee increase of $1,000
- Medical students completing six-year degrees in 2018 will see an increase of $3,900 in fees
- As of July 2018, students would have to start repaying HECS debt as soon as they earn more than $42,000 per year. This is a decrease from the current amount of $55,000 per year. The $42,000 pa threshold will have a 1% rate of payment applied and a maximum threshold of $119,882 applies with a 10% rate of payment
A potential silver lining with regards to higher education reform is that Commonwealth Supported Places would be made available for various education programs like diplomas.
Other proposed Budget measures included JobSeeker payment reforms, spending on infrastructure and the Medicare Benefits Scheme.