Government strives to deliver stability in 2017-18 Federal Budget

With the release of the 2017-18 Budget, the following summary provides an outline of key measures of interest for our clients. As with any legislative changes, much will remain unclear until legislation is passed.

This is what we know so far:

Superannuation

Contributing the proceeds of home downsizing to superannuation

From 1 July 2018, individuals aged 65 and over will be able to downsize their family home and place proceeds up to $300,000 per member into their superannuation fund. The measure will apply to a principal place of residence held for a minimum of 10 years. This will apply to both members of a couple for the same home.

To facilitate this measure the Government will remove the existing contribution rules for those aged 65 and over, making contributions under the new downsizing cap, including:

    • removing the gainful employment requirement between age 65 and 74
    • removing the restriction on contributions from age 75; and
    • removing the restriction applying from 1 July 2017 on non-concessional contributions by a person with a total superannuation balance of over $1.6 million.

Please note that Sale Proceeds contributed to superannuation under this measure will count towards the Age Pension Assets test.

First Home Super Saver Scheme

Individuals can make voluntary contributions from 1 July 2017 of up to $15,000 per year and $30,000 in total to their superannuation fund to later withdraw to purchase a first home. Voluntary contributions and associated earnings that are withdrawn will be taxed at a person’s marginal tax rate less a 30% offset. The measure will assist first home buyers to save a deposit for their home faster.

Features associated with this measure include:

    • contributions will count towards existing concessional and non-concessional contribution cap
    • earnings will be calculated based on the 90 day Bank Bill rate plus three percentage points
    • the ATO will administer this scheme, calculate the amount that can be released and provide release instructions to superannuation funds.

Disallow certain deductions for residential rental property

No deduction for travel expenses for residential rental properties

From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Investors will not be prevented from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Limited plant & equipment depreciation to outlays actually incurred by investors 

Also from 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

    • 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.

Extending the immediate deductibility threshold for small businesses

    • Small businesses, with aggregate annual turnover of less than $10 million, can immediately deduct purchases of eligible assets up until 30 June 2018, provided the asset costs less than $20,000.
    • Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period.

Expanding tax incentives for investments in affordable housing

From 1 January 2018, the CGT discount will increase from 50 per cent to 60 per cent for resident individuals who elect to invest in qualifying affordable housing.

To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.

Other changes

    • The Government will reinstate the Pensioner Concession Card for pensioners who were no longer entitled to the pension following changes to the pension assets test from 1 January 2017
    • The Government will introduce a major bank levy which will raise $6.2 billion in the next four years
    • The Medicare Levy will be increased from 2% to 2.5% from 1 July 2019
    • Education and childcare also rated mentions; university fees will rise by 7.5% by 2021 and childcare rebates will be means tested
    • Further restrictions apply to foreign investors.

How can we help?

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2017-18 Federal Budget, please feel free to give WLM a call on 9221 7777 to arrange a time to meet so that we can discuss your particular requirements in more detail.