Welcome to the Advivo 2017 Budget Review
Like most budgets the 2017 budget has met mixed reviews from business and individuals. From a small business owner’s perspective the extension of the $20,000 capital asset purchase immediate write off is positive. However the flow on effects from the “big bank tax” may have adverse effects on superannuation savings and bank fees. For property investors there are more negatives than positives. Individuals will lament the 0.5% increase in the Medicare Levy effective from 1 July 2019. On a positive note first home buyers deposit assistance via the salary sacrificing initiative and reinstatement of pension card benefits to some will be well received.
See more below for our summary and click here for detailed coverage of the budget.
To discuss any matters further and how it may affect you, please call us.
$20,000 Immediate Asset Write Off.
Small Business entities with a turnover of less than $10M will enjoy the benefit of the $20,000 immediate write off to end 30 June 2018 (previously 2017). This extends to the write off of existing pooled assets where the pool balance is less than $20,000.
Corporate Tax Rate
The government remains committed to reducing the corporate tax rate as previously announced in the 2016 Budget.
Taxable Payment Annual Reporting (TPAR)
The government has extended the Taxable Payment Reporting System to include the courier and cleaning sectors to ensure payments made to contractors are reported to the ATO. This will create more red tape for some businesses predominantly in the cleaning and courier industries.
Innovation and Crowd funding
Consistent with the 2016 budget, the Government has again created some incentives for innovation particularly the Fin Tech ‘sandbox’ regulations, which will only appeal to a very small part of the business community.
The further enhancements to the crowdfunding for business (crowd sourced equity funding) will need further legislative clarification from ASIC and we are concerned the cost of the proposed compliance activities may outweigh the benefits.
Anyone employing foreign workers on various visas will be affected by the new levies to be imposed from March 2018.
Removing the double taxation of digital currency
From 1 July 2017, purchases of digital currency will no longer be subject to the GST, allowing digital currencies to be treated just like money for GST purposes. Currently, consumers who use digital currencies can effectively bear GST twice; once on the purchase of the digital currency and once again on its use in exchange for other goods and services subject to the GST.
A levy which will affect the five largest banks will be imposed from 1 July 2017. This has been introduced to help the government balance their budget. Whilst this may have positive effects for the Government the flow on effects for business and individuals in the form of reduction in the value of their superannuation funds (share prices of the major banks have already been affected which makes up 39% of retail super fund investments and 30% of the value of the ASX). Also widely popularised is the potential flow on effect of this with the banks passing on this added cost to their customers. Who really wins out of this?
Medicare Levy and NDIS
The Medicare Levy will be increased to 2.5% for every Australian earning over $21,655, an increase of 0.05% that is expected to raise $8.2bn over four years. The increase will take effect from 1 July 2019 to fund the National Disability Insurance Scheme.
Budget Repair Levy Ending
Confirmation the 2% Budget Repair Levy ends on 30 June 2017.
Higher Education Loan Program (HELP)
HELP Repayment threshold reducing to $42,000 with a 1% repayment rate from 1 July 2018 and a maximum rate of 10% for those earning over $119,882.
New simplified means test to apply from 2 July 2018.
Work for the Dole
The announcement of improved measures to penalise dole recipients who aren’t serious about seeking employment is a welcomed relief for all taxpayers and for small business owners.
The Government will improve the integrity of residential property investment rules by disallowing deductions for travel expenses related to owning a residential investment property. The Government will also confine depreciation deductions for plant and equipment — these are items that can be easily removed such as carpets and dishwashers — only to those expenses directly incurred by investors (from budget night). This will impact on the travel and the tax depreciation benefit of obtaining a quantity surveyor’s deprecation report. Whilst it’s been commented that the budget hasn’t touched negative gearing, these changes will limit the extent to which properties are able to be negatively geared.
First Homebuyer Savings
For first homebuyers, the ability to salary sacrifice into an approved superannuation fund allows savers to contribute towards a home deposit with earnings on the balance benefiting from a lower tax rate. Given withdrawals are not possible before 1 July 2018, we see this as a longer term saving measure that requires serious commitment towards purchasing a first home as funds may be stuck in superannuation if plans change.
A flow on effect of this is we see additional administrative costs to businesses with increased incidence of salary sacrificing.
Persons aged over 65 and downsizing will be offered exemptions from 1 July 2018 to make non-concessional contributions of up to $300K each from the sale of their home without having to satisfy a work test or be under age 75. Taking advantage of this new measure may require an amendment to the fund’s trust deed but we see this measure is a welcomed way for retirees to boost their superannuation balance, particularly following the increased restrictions from the 2016 budget.
Property Developers and Marketers
The introduction of a 50% cap on foreign ownership in new developments will have a significant impact on the ability to market new residential developments. This is coupled with tougher rules on foreign investment in residential real estate to ensure foreign investors meet their capital gains tax obligations.
The main residence capital gains tax exemption for foreign and temporary tax residents that own Australian real estate will be removed.
To reduce the avoidance of foreign residents’ capital gains tax liabilities in Australia, the Government will bolster the withholding regime by increasing the withholding rate from 10 per cent to 12.5 per cent, while also lowering the threshold from sales valued at $2 million or above to $750,000 or above.(this will dramatically increase the requirement for Non-resident certificates). Anyone selling a property for greater than $750k will need to be aware of their obligations under these new rules, particularly if a discretionary trust is involved.
GST on new residential premises
From 1 July 2018 GST on new residential properties or subdivisions is to be paid directly to the ATO at settlement as opposed to being paid to the Developer and then to the ATO. This will impact project cash flows and feasibilities.
Disclaimer of Liability
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.