Federal Budget 2017
Personal Income Tax
Increase in the Medicare levy
The Medicare levy will increase by half a percentage point from 2.0 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.
Temporary Budget Repair Levy expiry
There is no announced change to cessation of the Temporary Budget Repair Levy (TBRL) on 30 June 2017. This means that the top marginal tax rate (where taxable income exceeds $180,000), including the Medicare levy, will reduce from 49.0 percent to 47.0 per cent from 1 July 2017, and increase to 47.5 per cent from 1 July 2019.
Disallow certain deductions for residential rental property
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. 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. If you’re a subsequent investor in a property, the acquisition of existing plant and equipment will be reflected in the cost base for CGT purposes. Grandfathering applies to plant and equipment that forms part of a residential investment property as at 9 May 2017 and will continue to give rise to depreciation deductions under current rules. The new rule around travel expense deductions applies to all property investors, including SMSFs, family trusts and companies.
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. This increased discount will also apply to eligible Managed Investment Trusts (MITs) as of 1 July 2017.
The Medicare levy will increase by half a percentage point from 2.0 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.
Temporary Budget Repair Levy expiry
There is no announced change to cessation of the Temporary Budget Repair Levy (TBRL) on 30 June 2017. This means that the top marginal tax rate (where taxable income exceeds $180,000), including the Medicare levy, will reduce from 49.0 percent to 47.0 per cent from 1 July 2017, and increase to 47.5 per cent from 1 July 2019.
Disallow certain deductions for residential rental property
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. 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. If you’re a subsequent investor in a property, the acquisition of existing plant and equipment will be reflected in the cost base for CGT purposes. Grandfathering applies to plant and equipment that forms part of a residential investment property as at 9 May 2017 and will continue to give rise to depreciation deductions under current rules. The new rule around travel expense deductions applies to all property investors, including SMSFs, family trusts and companies.
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. This increased discount will also apply to eligible Managed Investment Trusts (MITs) as of 1 July 2017.
Superannuation
First home super saver scheme
From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.
These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.
Features associated with this measure include:
Example from Budget Fact Sheet 1.4
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle's partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
Contributing the proceeds of home downsizing to superannuation
It is proposed that from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to the existing contribution caps.
Features associated with this measure include:
Example from Budget Fact Sheet 1.5
George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.
Example 2 from Budget Fact Sheet 1.5
John and Sarah, who are still working part-time at age 65, decide to sell the large family home after all the children move out. The sale proceeds are $1.4 million. They are both able to make a non-concessional contribution of $300,000 ($600,000 in total) into superannuation. This is regardless of how much they have in their accounts already. They may also be able to make additional contributions to their superannuation using the sale proceeds under standard contribution arrangements.
Social security
From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.
These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.
Features associated with this measure include:
- contributions will count towards existing concessional and non-concessional contribution caps
- 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.
- the amount withdrawn (including the taxable component) will not flow through to income tests used for tax and social security purposes, such as for the calculation of HECS/HELP repayments, family tax benefit or child care benefit.
Example from Budget Fact Sheet 1.4
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle's partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
Contributing the proceeds of home downsizing to superannuation
It is proposed that from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to the existing contribution caps.
Features associated with this measure include:
- the property must have been the principal place of residence for a minimum of 10 years
- both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap
- amounts will count towards the transfer balance cap when used to commence an income stream
- contributions will be subject to social security means testing when added to a superannuation account.
Example from Budget Fact Sheet 1.5
George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.
Example 2 from Budget Fact Sheet 1.5
John and Sarah, who are still working part-time at age 65, decide to sell the large family home after all the children move out. The sale proceeds are $1.4 million. They are both able to make a non-concessional contribution of $300,000 ($600,000 in total) into superannuation. This is regardless of how much they have in their accounts already. They may also be able to make additional contributions to their superannuation using the sale proceeds under standard contribution arrangements.
Social security
Social Security
Reinstatement of Pensioner Concession Card entitlements
Pensioners who lost their Pensioner Concession Card entitlement due to the assets test changes on 1 January 2017 will have their card reinstated. Those who lost their entitlement were instead issued with both a Health Care Card and a Commonwealth Seniors Health Card. However these cards provided access to fewer concessions than the Pensioner Concession Card. If your Pensioner Concession Card entitlement is reinstated, you’ll have access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Your Pensioner Concession Card will be automatically reissued over time with an ongoing income and assets test exemption. You’ll also retain the Commonwealth Seniors Health Card, ensuring you continue to receive the Energy Supplement.
Energy Assistance Payment
A one-off Energy Assistance Payment will be made in 2016-17 of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who are a resident in Australia. Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988. edit.
Increased pension residence requirements
An individual currently needs to have at least 10 years’ residence in Australia (at least 5 of which are continuous) to qualify for the age pension or disability support pension. From 1 July 2018, they’ll need to have at least 15 years’ residence in Australia or either a) 10 years’ continuous residence including 5 years during their working life, or b) 10 years’ continuous residence and not in receipt of an activity-tested income support payment for a cumulative period greater than 5 years. This measure may impact you if you have less than 15 years’ residence in Australia or less than 5 years’ residence between age 16 and age pension age. However, existing exemptions will be maintained for humanitarian reasons or if you became unable to work while you were an Australian resident.
Other....
Pensioners who lost their Pensioner Concession Card entitlement due to the assets test changes on 1 January 2017 will have their card reinstated. Those who lost their entitlement were instead issued with both a Health Care Card and a Commonwealth Seniors Health Card. However these cards provided access to fewer concessions than the Pensioner Concession Card. If your Pensioner Concession Card entitlement is reinstated, you’ll have access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Your Pensioner Concession Card will be automatically reissued over time with an ongoing income and assets test exemption. You’ll also retain the Commonwealth Seniors Health Card, ensuring you continue to receive the Energy Supplement.
Energy Assistance Payment
A one-off Energy Assistance Payment will be made in 2016-17 of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who are a resident in Australia. Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988. edit.
Increased pension residence requirements
An individual currently needs to have at least 10 years’ residence in Australia (at least 5 of which are continuous) to qualify for the age pension or disability support pension. From 1 July 2018, they’ll need to have at least 15 years’ residence in Australia or either a) 10 years’ continuous residence including 5 years during their working life, or b) 10 years’ continuous residence and not in receipt of an activity-tested income support payment for a cumulative period greater than 5 years. This measure may impact you if you have less than 15 years’ residence in Australia or less than 5 years’ residence between age 16 and age pension age. However, existing exemptions will be maintained for humanitarian reasons or if you became unable to work while you were an Australian resident.
Other....
- A new Jobseeker Payment will replace 7 existing working age payments from 20 March 2020
- Job seekers and parents who receive working age income support will have increased activity test requirements from 20 September 2018
- The maximum length of the Liquid Assets Waiting Period will increase from 13 weeks to 26 weeks from 20 September 2018
- Family Tax Benefit rates will not be indexed for 2 years from 1 July 2017
- A new upper income threshold of $350,000 pa will apply to the child care subsidy from 1 July 2018.
Business Owners
Integrity measures limiting access to small business capital gains tax concessions
Measures will be introduced to ensure that taxpayers do not arrange their affairs in a way that means ownership interests in larger businesses do not count towards the small business CGT tests. This will ensure that the small business concessions are available to the appropriate group of taxpayers.
Measures will be introduced to ensure that taxpayers do not arrange their affairs in a way that means ownership interests in larger businesses do not count towards the small business CGT tests. This will ensure that the small business concessions are available to the appropriate group of taxpayers.
Students
New thresholds for HELP debt repayments
From 1 July 2018, income thresholds for the repayment of HELP debts will be revised, along with repayment rates and the indexation of repayment thresholds. A new minimum threshold of $42,000 will apply, with a 1% repayment rate. A maximum threshold of $119,882 will apply, with a 10% repayment rate. Currently, the maximum repayment threshold for the 2017–18 financial year is $103,766 with a repayment rate of 8%.
From 1 July 2018, income thresholds for the repayment of HELP debts will be revised, along with repayment rates and the indexation of repayment thresholds. A new minimum threshold of $42,000 will apply, with a 1% repayment rate. A maximum threshold of $119,882 will apply, with a 10% repayment rate. Currently, the maximum repayment threshold for the 2017–18 financial year is $103,766 with a repayment rate of 8%.
Capital Markets
New levy for major banks
A major bank levy will be introduced for authorised deposit-taking institutions (ADIs) with licensed entity liabilities of at least $100 billion (indexed to Gross Domestic Product (GDP)). The levy will equate to an annualised rate of 0.06% – for example, the levy on a bank deposit of $500,000 will be approximately $300 pa. Superannuation funds and insurance companies won’t be subject to the levy. ...how the banks will pay for this levy is unclear at this stage, however we would expect it to put some upward pressure on mortgage interest rates (cross-subsidisation).
A major bank levy will be introduced for authorised deposit-taking institutions (ADIs) with licensed entity liabilities of at least $100 billion (indexed to Gross Domestic Product (GDP)). The levy will equate to an annualised rate of 0.06% – for example, the levy on a bank deposit of $500,000 will be approximately $300 pa. Superannuation funds and insurance companies won’t be subject to the levy. ...how the banks will pay for this levy is unclear at this stage, however we would expect it to put some upward pressure on mortgage interest rates (cross-subsidisation).
Market Regulation
A new financial dispute resolution framework
From 1 July 2018, a new one-stop shop, the Australian Financial Complaints Authority (AFCA) will provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service. Australian Financial Services Licensees will be required to be members of AFCA, and its decisions will be binding on all firms.
AFCA will hear individual consumer/investor and small business disputes of higher values than are currently permitted under the existing three schemes, and those who are found to have wrongfully suffered losses will have access to more appropriate levels of compensation. The AFCA will be an industry funded complaints resolution body for all financial and superannuation disputes and will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal (SCT).
From 1 July 2018, a new one-stop shop, the Australian Financial Complaints Authority (AFCA) will provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service. Australian Financial Services Licensees will be required to be members of AFCA, and its decisions will be binding on all firms.
AFCA will hear individual consumer/investor and small business disputes of higher values than are currently permitted under the existing three schemes, and those who are found to have wrongfully suffered losses will have access to more appropriate levels of compensation. The AFCA will be an industry funded complaints resolution body for all financial and superannuation disputes and will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal (SCT).
Foreign Residents
Lower threshold for withholding tax for residential property disposals
From 1 July 2016, foreign investors were subject to a withholding tax where they sold a residential property for $2 million or more. The obligation to withhold falls on the purchaser of the property. From 1 July 2017, this threshold will reduce to $750,000. As median house prices in both Sydney and Melbourne exceeded $750,000 in the December 2016 quarter1, a far greater number of purchasers will need to be conscious of these rules to avoid any penalties for failure to withhold.
This obligation to withhold applies where:
From 1 July 2016, foreign investors were subject to a withholding tax where they sold a residential property for $2 million or more. The obligation to withhold falls on the purchaser of the property. From 1 July 2017, this threshold will reduce to $750,000. As median house prices in both Sydney and Melbourne exceeded $750,000 in the December 2016 quarter1, a far greater number of purchasers will need to be conscious of these rules to avoid any penalties for failure to withhold.
This obligation to withhold applies where:
- the purchaser knows or has reasonable grounds to believe the vendor is a foreign resident
- the purchaser doesn't reasonably believe the vendor is an Australian resident and
- has a record about the purchase indicating that the vendor has an address outside Australia, or
- is authorised to provide a financial benefit (eg make a payment) to a place outside Australia (whether to the vendor or to anybody else).