Each year after the Federal Treasurer brings down the government’s budget (or at least its aspirations of such) for the ensuing year, we summarise highlights for the benefit of our readers1. ContinuumFP’s Budget Highlights 2017 focuses on the usual key areas of Taxation, Superannuation and Social Security (Centrelink); and this year, Housing (Affordability) merits a mention.
On 9 May 2017 (at 7:30 pm), Scott Morrison (Federal Treasurer) presented the Budget under the mantra of Fairness, Opportunity and Security – and announced that all measures are fully Funded!
Whilst a significant number of the proposals are expected to pass into law over the coming few months, a number of the proposals are not intended to take effect for more than eighteen months out – there are challenges to some of the nearer-term measures: some of the measures intended to take place beyond November 2019 are omitted.
1See Budget Highlights (by year) in the Market Updates Category in the ContinuumFP website Library.
Budget Highlights 2017 – TAXATION
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 – effective from 1 July 2019. 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. The revenue generated by the Medicare levy increase will be used to support the National Disability Insurance Scheme (NDIS) and to guarantee Medicare.
Temporary Budget Repair Levy expiry. The 2% additional tax on an individual’s taxable income in excess of $180,000 was introduced in 2014/15 and was levied for three financial years ending 2016/17. This Levy will cease to apply, effective from 1 July 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.
Residential rental property deductions. Effective from 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed. 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 existing in a property at acquisition will be reflected in the cost base for capital gains tax purposes for subsequent investors.
Continuation of small business asset write-offs. Small businesses with an annual turnover of less than $10 million will be able to continue to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018, with some exclusions including in-house software. This measure will only be extended to 30 June 2018, at which time the immediate deductibility threshold and deductible pool balance will revert to $1,000.
Capital gains tax changes for foreign investors. Effective from 7:30 pm on 9 May 2017, foreign investors will no longer be eligible to access the CGT main residence exemption on Australian owned property. Grandfathering will apply for those existing owners until 30 June 2019. The CGT withholding rate for foreign investors will increase from 10% to 12.5% and the CGT withholding threshold for foreign investors will reduce from $2 million to $750,000 from 1 July 2017.
HELP debt repayment income threshold reduced. Effective from 1 July 2018, the income threshold at which persons with existing HELP debt will be required to make HELP debt repayments will reduce from $54,869 (in 2016/17) to $42,000 pa. The repayment rate will start at 1% and will increase to 10% once the maximum threshold of $119,882 is reached. Each progressive threshold is set at six per cent higher than the preceding threshold, while repayment rates increase in 0.5% increments.
New indexation arrangements for repayment thresholds for HELP. Effective from 1 July 2019, the indexation of HELP repayment thresholds, currently linked to Average Weekly Earnings (AWE), will be changed to Consumer Price Index (CPI): this means that in future as graduates’ incomes will likely grow quicker than the thresholds, they will need to make higher minimum repayments.
Budget Highlights 2017 – SUPERANNUATION
Limited Recourse Borrowing Arrangements. As one of the integrity measures targeting SMSFs, effective from 1 July 2017, the outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA, from a member’s accumulation account, will be a credit in the member’s transfer balance account.
Non-arm’s length arrangements in SMSFs. The other integrity measure announced was that, effective from 1 July 2018 opportunities for members to use related party transactions on non-commercial terms to increase super savings. The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
Home downsizing proceeds contribution to superannuation. Effective 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. Contribution eligibility requirements, such as the work test and restrictions on contributions from age 75 will not apply to these contributions. The requirement to have a total superannuation balance of less than $1.6 million to be eligible to contribute will also not apply. Some features of this measure to consider, include –
- 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 this measure – BUT:
- The property must have been the principal place of residence for a minimum of 10 years
- 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
Extending tax relief for merging super funds. Intended to expire as at 30 June 2017, now extended to 30 June 2020, this tax relief has seen a number of superannuation funds (particularly industry funds) merge over the last few years. This relief is important for members of those funds as it avoids the need to physically sell assets, or for account balances to be impacted by tax outcomes where super funds choose to merge which each other. It is important that this is not seen as a reason for clients to not review their current superannuation arrangements to see if they are in the right fund for them.
Budget Highlights 2017 – SOCIAL SECURITY
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’ are broadly, though specifically defined.)
Change in JobSeeker Requirements. Effective from 20 September 2018, under a new equitable participation framework, job seekers will now have to meet greater participation requirements to receive social security income support. Age bands are proposed to be changed and qualifying work hours, reduced – or newly imposed.
Reduced Family Tax Benefit Part A for certain children. Effective from 1 July 2018, Family Tax Benefit Part A (FTBA) will be reduced by $28 per fortnight ($726 pa) for each child who does not meet immunisation requirements. Parents will need to ensure their children are immunised to receive the full FTBA. Free catch up childhood vaccinations will be available for children and young adults aged up to 19 years old under the National Immunisation Program.
Family Tax Benefit rates. Effective from 1 July 2017, Family Tax Benefit rates will be frozen for two years and will not be indexed to CPI until 1 July 2019. This change applies to the standard, base rate and approved care organisation rate of FTB Part A and the maximum rate of FTB Part B.
Income treatment for families receiving Family Tax Benefit Part A. Effective from 1 July 2018, a flat 30 cents in the dollar income test taper will apply to families with household income in excess of the Higher Income Free Area (currently $94,316), ensuring higher income families are subject to the same taper rate. Some families will lose access to or see a reduction in Family Tax Benefit Part A.
Demerit system for job seekers. Effective from 1 July 2018, a new demerit system will be introduced to encourage job seekers receiving Social Security income support to comply with requirements to undergo approved training and education and/or actively find suitable work. Job seekers receiving income support who are not actively looking for work or participating in activities that will help them find employment will need to meet requirements to avoid a reduction or suspension of their payments.
Changes to Liquid Assets Waiting Period (LAWP) provisions. Effective from 20 September 2018, individuals applying for certain income support payments needing to serve a LAWP will see the time period double, but the qualifying liquid assets also considerably increased. From the current period of 13 weeks where they have liquid assets in excess of $5,499 for singles, or $10,999 for members of a couple combined, the changes are to 26 weeks when an individual’s liquid assets are $18,000 or greater for singles without dependants, or $36,000 for singles with dependants or members of a couple combined.
Residency requirement for Age Pension and Disability Support Pensions. Effective from 1 July 2018, Individuals will be required to have 15 years of continuous Australian residency before being eligible to receive either payment, unless they have either; > 10 years of continuous Australian residence, with five being during their working life, or > 10 years of continuous Australian residence, without having received an activity tested income support payment for a cumulative period of five years.
Reinstatement of the Pensioner Concession Card. Effective from 1 July 2017, The Government will reinstate the Pensioner Concession Card for pensioners who lost their card as a result of losing their Age Pension entitlement following the changes to the pension assets test from 1 January 2017.
Rebalancing student contributions towards course fees. Effective from 1 January 2018, student contributions will be increased by 7.5% over 4 years from 1 January 2018. This will capture all students regardless of when they commenced their study.
Budget Highlights 2017 – HOUSING (AFFORDABILITY)
Social Impact Investments (SII). Effective from 1 July 2017, these investments are to be aimed at improving housing and welfare outcomes for young people at risk of homelessness. The Government will invest $10.2m over 10 years from 2017-18, complementing the broader SII funding the government is currently providing ($20.2bn over 10 years from 2017-18). The current funding is targeting areas other than homelessness.
Investments in affordable housing. Effective 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, ‘affordable housing’ must –
- be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate;
- be managed through a registered community housing provider; and (the property)
- be held for a minimum period of three years.
Affordable housing investment through Managed Investment Trusts (MITs). Affordable housing will now be an eligible investment within the flow-through tax environment of a Managed Investment Trust. To qualify, the affordable housing must be available to rent for 10 years and the Trust must derive at least 80% of its assessable income from affordable housing. Additional withholding taxes will apply to resident and non-resident investors where the property or the Trust does not meet these conditions. This measure is intended to be effective from 1 July 2017.
First home super saver scheme. (This measure might also be considered a Taxation and a Superannuation proposal: we report it here as this is the strategic focus of the measure.) Effective 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. Special tax rate arrangements are proposed for when these savings are properly accessed for the intended purpose.
Charge on foreign owners of underutilised residential property. Effective from 7:30 pm on 9 May 2017, an annual charge will be imposed if the property is not occupied or available for rent for more than 6 months of the year. The charge will be levied annually, equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. This measure will apply to foreign persons who make a foreign investment application for residential property from Budget night.
Restricting foreign ownership in new developments to no more than 50%. Effective from 7:30 pm on 9 May 2017 a 50% cap on foreign ownership in new developments will be introduced through a condition on New Dwelling Certificates. The cap will be included as a condition on New Dwelling Certificates where the application was made any time after the effective date above.
Remember that the measures covered in Budget Highlights 2017 (this article) will not take effect until the Parliament passes the relevant legislation. Before you act on any of the measures, please check that the law is in place: your ContinuumFP financial planner will be able to answer questions regarding the Budget that may affect your circumstances. To contact ContinuumFP’s team, call our office (on 07-3421 3456), or complete the website Contact Us form – and be assured of a prompt and courteous response.
Acknowledgements: Our appreciation for the prompt reporting on the Budget measures afforded by a significant number of investment industry participants – our Budget Highlights 2017 summary has been compiled from information provided by Russell Investments; Macquarie; and BT Financial Group, to whom we extend special thanks. ASGARD has published a client-friendly Budget Report that includes some more detail on some of the above Budget Highlights 2017.
[This article was posted on 16 May 2017.]