The 2017-18 Federal Budget was recently delivered by Treasurer Scott Morrison. Its overall aim is to foster ‘Fairness, Opportunity and Security’ with a vision to return the budget to a $7.4 billion surplus in 2021.
The Budget’s proposed sensible measures were founded on these four main principles:
- Ensuring stronger growth to provide more and better paying jobs
- Guaranteeing the essential services that Australians rely on
- Tackling cost of living pressures
- Ensuring the Government lives within its means.
Some commentators, however, are one in saying that it’s a ‘busy’ Budget that creates ‘winners’ and ‘losers’.
So let’s talk about the key announcements.
HOUSING AFFORDABILITY MEASURES
As expected, housing affordability was a hot topic, with proposed measures that would have positive impacts both on supply and demand, without upsetting the housing market. As the Treasurer put it, ‘there’s no silver bullet’.
1. First homebuyers and superannuation
One of the most anticipated measures in the Budget was the Government’s approach to make housing more affordable to first homebuyers.
Under the newly proposed ‘first home super saver scheme’:
- From 1 July 2018, first homebuyers will be allowed to withdraw their voluntary superannuation contributions (including earnings) for use as a deposit on a home.
- First homebuyers will be able to use their superannuation fund to accumulate a home deposit.
- The amount available for withdrawal will be up to $15,000 of voluntary contributions per financial year since 1 July 2017 ($30,000 in total) plus deemed earnings, less tax on concessional (pre-tax) contributions and deemed earnings.
- The amount of the withdrawal that relates to concessional (pre-tax) contributions and earnings will be taxed at marginal tax rates, less a 30% offset. The withdrawal will not impact HECS/HELP repayments, family tax benefits or child care benefits.
- Voluntary superannuation contributions will continue to count towards the concessional (pre-tax) and non-concessional (post-tax) contribution caps, and will continue to attract concessions such as the government co-contribution and low income superannuation tax offset.
More importantly, if you and your partner are members, you may both take advantage.
2. Domestic Investors
From 1 July 2017, residential property investors can no longer claim a tax deduction for travel expenses incurred while personally inspecting, maintaining or collecting rent for their residential rental property; however, can continue to claim travel expenses incurred by third parties such as property management services.
In addition, from 1 July 2017, the Government will limit plant and equipment depreciation deductions to expenses incurred by the current owner of a residential real estate property; however, existing investments will be grandfathered.
3. Aged 65 or over and superannuation
From 1 July 2018, individuals aged 65 or above will be able to make a non-concessional (post-tax) contribution to superannuation (up to $300,000) using the proceeds of the sale of their home, provided it has been owned for 10 years or more.
It is important to note that:
- The non-concessional contribution of up to $300,000 is on top of the existing concessional and non-concessional contribution caps.
- The usual age related work test will not apply to the contribution.
- Both members of a couple will be able to take advantage of this measure for the same home.
4. Affordable housing
From 1 January 2018, resident individuals who choose to invest in qualifying affordable housing will be entitled to a 60% capital gains tax discount (up from the existing 50%).
To qualify for the discount, the relevant housing investment must be:
- Managed through a registered community housing provider.
- Rented to low–moderate income tenants at a rate below the existing private rental market rates.
- Held for at least three years.
THE BUDGET’S OTHER MAJOR MEASURES
1. Taxpayers, the Medicare Levy and the National Disability Insurance Scheme
From 1 July 2019, many taxpayers may soon be required to pay more in taxes if the Government’s proposal to increase the Medicare Levy from 2% to 2.5% of taxable income is approved. This measure aims to ensure that the underfunded National Disability Insurance (NDIS) become fully funded.
2. Childcare and Family Tax Benefits
The Government is proposing a more efficient Child Care Subsidy targeting only families that have household incomes less than $350,000 per annum (in 2017-18 terms).
Furthermore, from July 2017, the existing Family Tax Benefit payment rates will remain at their current levels for the next two years. Lastly, from 1 July 2018, the Family Tax Benefit Part A will have a $0.30 in the dollar income test taper applied for families with a household income greater than $94,316.
3. Small businesses
The instant tax offset will continue for another year, which means small businesses with $10 million turnover per annum will be able to write off expenditure up to $20,000 immediately.
In addition, from 1 July 2017, small business capital gains tax concessions will be amended to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.
4. Pensioner Concession Card, Age Pension, Disability Support Pension and Energy Assistance Payment
These are the changes to the social security environment for pensioners and recipients of the Age Pension and Disability Support Pension.
- The Pensioner Concession Card has been reinstated for those who lost their pension due to changes to the pension assets test from 1 January 2017.
Starting 1 July 2018, a 15-year continuous Australian residency is required for applicants for the Age Pension and Disability Support Pension before they are deemed eligible to receive the social security income support payments. However, there are several exemptions to the rule, where an applicant has any of the following relevant to their circumstance:
- 10 years continuous Australian residence – five years of which must have been during their working life, namely, from the age of 16 to the relevant Age Pension age; or
- 10 years continuous Australian residence, and not have been an activity tested income support payment recipient for a five year cumulative period.
It is important to note that existing exemptions will continue to apply for Disability Support Pension applicants who become disabled whilst in Australia.
- On 20 June 2017, there will be a one-off Energy Assistance Payment for those eligible for payments, such as the Age Pension, Disability Support Pension, Parenting Payment (Single), Veteran’s Service Pension, Veteran’s Income Support Supplement, Veteran’s disability payments and War Widow(er)s Pension – $75 for single recipients and $125 per couple.
5. Self-Managed Superannuation
From 1 July 2018, the non-arm’s length income provision would include expenses applied in a commercial transaction when considering whether or not the relevant transaction has been made on a commercial basis.
In addition, from 1 July 2017, the outstanding balance of a limited recourse borrowing arrangement will be included in a member’s annual total superannuation balance. Lastly, the repayment of the principal and interest of a limited recourse borrowing arrangement from a member’s relevant accumulation account will be a credit in the member’s transfer balance account.
6. Higher Education
Changes to the higher education system aims to foster an environment of ‘sustainability and responsiveness to the aspiration of students’. The reality of the proposed measures will see university funding reduced as well as university students facing increased university course fees and the earlier repayment of their HECS debt:
- In 2018 and 2019, the Government will introduce an efficiency dividend of 2.5% on the Commonwealth Grant Scheme.
- From January 2018, university students will be required to contribute an additional 7.5% to the cost of their university courses (1.82% annually over four years from 2018). This additional cost will still be able to be met through the existing Higher Education Loan Program scheme. The Budget Overview paper provides estimates of how this may affect university students over several different higher education disciplines.
- “A nursing student commencing a four year degree in 2018 will have their total fees increased by $1,250.
- A science student commencing a three year degree in 2018 will have their total fees increased by $1,000.
- A medical student commencing a six year degree in 2018 will have their total fees increased by $3,900.”
- From July 2018, university students will also now be required to commence the repayment of their HECS debt once they begin to earn over $42,000 per annum; down from the existing threshold of $55,000 per annum. The minimum threshold ($42,000pa) will have a 1% payment rate and there is a maximum threshold of $119,882 with a 10% payment rate.
On the bright side, the higher education reform now makes available Commonwealth Supported Places for education programs, such as diplomas.
7. The big banks
From 1 July 2017, Australia’s big five banks (ANZ, Commonwealth Bank, Macquarie, National Australia Bank and Westpac) will be hit with a ‘Major Bank Levy‘ calculated quarterly as 0.015% (an annualised rate of 0.06%). This new levy aims to boost the Government’s proposed return to surplus in 2021. It’s anticipated that the levy will generate funds to the tune of $6.2 billion over the forward estimates.
Economists have warned, though, that the levy:
- May flow through to customers by way of increased lending rates; however, the Treasurer advised that this will not be the case.
- May also impact members of superannuation funds who have exposure to the big banks via their investments, namely, a reduction in the banks’ profits may impact the share price and subsequently capital growth and income (dividends) derived from shareholders.
The other proposed measures of the Budget include:
- infrastructure spending
- reforms to JobSeeker payments, and
- the Medicare Benefits Scheme.
Should you require further clarification on how these changes may affect your situation, feel free to discuss with your Adviser, or contact us if you wish to book an appointment.