AUSTRALIAN FEDERAL BUDGET – 2017/18
On Tuesday, 9 May 2017, Treasurer Scott Morrison handed down the 2017-18 Federal Budget, his 2nd Budget.
In his Budget Speech, the Treasurer reported an underlying cash balance deficit of $29.4bn for 2017-18. However, this outcome is projected to improve to a $7.4bn surplus by 2020-21. The Budget expects the economy to rebound and grow at 2.75% in 2017-18 and 3.0% in 2018-19, supported by growth in household consumption, exports and a transition to non-mining business investment.
The theme of the 2017-18 Federal Budget is tax, tax and more tax.
Forecast tax receipts for 2017-18 have been revised up by $6.4bn over the forward estimates to 2019-20 mainly due to new and higher taxes, including an increase in the Medicare levy, introducing a major bank levy, improving the integrity of GST on property transactions and a business levy on hiring foreign skilled workers. These policy measures are expected to raise $11.9bn over the forward estimates.
M Squared & Associates Pty Ltd is pleased to present the key tax and superannuation highlights contained in this year’s Federal Budget which may affect our clients below.
- Individuals across the board will be hit with higher taxes by way of an increase in the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019. The additional 0.5% tax will apply to anyone with incomes above the Medicare levy threshold ($21,655).
- The temporary Budget deficit levy of 2%, currently applying to taxpayers with incomes over $180,000 will end on 30 June 2017. This will reduce the highest margin tax rate from 47% to 45% (excluding Medicare levy).
- A new set of repayment thresholds and rates under the higher education loan program (HELP) will be introduced from 1 July 2018. The new minimum repayment threshold will be set at $42,000 from 1 July 2018 (currently $55,874) with a 1% repayment rate.
- 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 exempt from these changes until 30 June 2019.
- 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. This measure only applies to persons who make a foreign investment application for residential property.
- 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 in response to perceived rorting of claiming private travel expenses.
- Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017. The purpose of this change is to prevent taxpayers from claiming deductions for depreciation on assets purchased by previous owners. These changes will not apply to existing plant and equipment depreciation deductions.
- The Government reaffirmed its commitment to a reduction in company tax. In the 2016-17 financial year, the reduced corporate tax rate of 27.5% will apply for businesses with an aggregated turnover of less than $10m; $25m turnover in 2017-18; and $50m turnover from 2018-19. This effectively implements the first 3 years of the Government’s 10-year plan for company tax cuts.
- The corporate tax rate will also be further reduced in stages, starting from 1 July 2024, so that it will eventually fall to 25% by the 2026-27 financial year for businesses with an aggregated turnover of less than $50m.
- The small business entity aggregated turnover threshold will increase to $10m from 1 July 2016 – but the threshold for accessing the CGT small business concessions will remain at $2m.
- The unincorporated small business tax discount will increase from 5% to 16% over a 10-year period – the threshold for accessing the discount will be $5m (aggregated turnover).
- 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.
Foreign workers levy
- 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. This is effectively a new tax on employing foreign workers.
- Businesses with turnover of less than $10m per year will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
- Businesses with turnover of $10m or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
- From 1 July 2018, individuals 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 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.
- The Government is attempting to encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings.
Under the measure up to $15,000 per year and $30,000 in total can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure and combine savings for a single deposit to buy their first home together.
- A major bank levy will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100b, from 1 July 2017. The levy is expected to raise $6.2bn over the forward estimates period, net of interactions with other taxes (principally corporate income taxes). The Government believes that this represents a fair additional contribution from Australia’s major banks and will assist with budget repair.
Since the announcement, over $14 billion has been wiped from the value of bank shares.
Should you have any questions or concerns in respect to the announcements contained in this year’s Federal Budget, please don’t hesitate to contact M Squared & Associates Pty Ltd.