The Budget was delivered last night and there is a mix of good and bad news for our clients and prospective clients at Paris Financial. I will try and zero in on the key points and give a brief comment. The very large caveat here is that all this budget information is NOT law yet but everyone should be moving and starting to think about the consequences of these changes.
For Students – the HELP repayment thresholds and rates to be introduced are cutting in earlier
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% repayment rate. Currently, the minimum repayment threshold for the 2017/18 year is $55,874 with a repayment rate of 4%.
A maximum threshold of $119,882 with a 10% 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%.
For Everyone – Medicare levy — low income thresholds to increase, a standard budget night announcement
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).
For Everyone – Medicare levy to increase from 2.0% to 2.5%
The Medicare levy will be increased from 2.0% to 2.5% 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.
SMSF Loans to be included in super balance and transfer balance cap. This is another restriction and adjustment to limit the superannuation tax free environment
This is another hugely disappointing measure put in place to further compromise superannuation. The use of limited recourse borrowing arrangements (SMSF Loans) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.
SMSF Loans 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 SMSF Loan will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a SMSF Loan from a member’s accumulation account will be a credit in the member’s transfer balance account.
A BIG win for small business. Instant asset write-off extended for 12 months. This extension is welcome but the increase in the business turnover to $10m is even better news
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 $10m.
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).
We await what the tinkering is with this 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.
The concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business. However, 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 $2m or business assets of less than $6m.
More pressure on Land Banking could be good for first home buyers. Annual levy for foreign-owned vacant residential properties is proposed
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 $5,000. 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.
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.
Oh No the trip to Queensland could be just a holiday for some. Travel expenses related to residential rental properties proposed to be 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 is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.
This is good for Retirees. 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 $1.6m total superannuation balance test for making non-concessional contributions.
Hope for First Home Buyers – Access to super for first home deposit
Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn subsequently for a first home deposit. The contributions can be made from 1 July 2017 and must be made 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. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.
Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation.
So, there they are. The key changes affecting our clients in a tightly packed nutshell. Of course if you have any queries please talk to myself or fellow Partners at Paris Financial (03) 8393 1000.
Pat Mannix, Partner, Paris Financial
Follow me on Twitter @mannix_pat
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