- / Blog
- / 2017 Federal Budget Summary
2017 Federal Budget Summary
First home savers, downsizers and small business are the winners in Treasurer Scott Morrison’s second Budget – while taxpayers face an increase in the Medicare levy.
These changes are proposals only and may or may not be made law. This information is provided to help assist in understanding the 2017 Federal Budget changes. It does not constitute advice and any questions should be directed to your Financial Adviser.
SUPERANNUATION
Contributions from downsizing the home
Date of effect: 1 July 2018
To increase housing stock, the Government is encouraging older Australians, aged 65 or more, to downsize their properties by allowing them to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home.
This limit will:
- apply on a per person basis
- be in addition to the ordinary non-concessional contribution cap, and
- be available where the home has been owned for at least 10 years.
Unlike other non-concessional contributions, it will not be necessary to meet a work test or have a ‘total super balance’ under $1.6 million. The amount contributed will not be exempt from the assets test used to assess eligibility for the Age Pension.
What this could mean for you
You may be able to contribute an additional $300,000 to super (or $600,000 for couples), over and above your existing concessional and non-concessional caps. However, if you or your partner receives the age pension, this could cause your entitlements to be reduced.
First home super saver scheme
Date of effect: From 1 July 2017
To help first home buyers get ‘into the game’, they will be able to save for a deposit by making additional voluntary contributions into their superannuation account from 1 July 2017. The First Home Super Savers Scheme will enable access to the tax advantages of superannuation with pre-tax contributions and earnings taxed at 15%, rather than marginal rates, and on withdrawal taxed at the relevant marginal rate, less 30% offset. These voluntary contributions plus their deemed earnings can be accessed from 1 July 2018.
Savers will not have to set up a new account, they can just use their existing super account while contributions will be limited to $30,000 per person in total and $15,000 a year. The contributions made will be counted under the relevant contributions caps.
What this could mean for you
When you withdraw your extra contributions to pay for a deposit, they’ll be taxed at your marginal tax rate minus a 30% tax offset. While the tax concessions for these contributions may allow you to save a larger deposit, you won’t be able to access your money until retirement if you decide not to buy a home.
SMSF borrowings
Date of effect: When law is passed
Broadly, when new limited recourse borrowing arrangements are established, the loan balance will be included in an individual’s ‘total super balance’. The total super balance is used to determine a person’s ability to:
- make non-concessional contributions
- qualify for a Government co-contribution or a spouse contribution tax offset, and
- make catch-up concessional contributions above the annual caps from 1 July 2018, where certain conditions are met.
Also, repayments made from the SMSFs accumulation balance will count towards the member’s transfer balance cap, if the borrowing supports a pension account. The transfer balance cap limits the total lifetime transfers a person can make to retirement phase pensions.
TAXATION
Medicare levy increase
Date of effect: 1 July 2019
To ensure all Australians can continue to access timely and affordable healthcare, the Government announced that it will set up the Medicare Guarantee Fund to pay for all expenses on the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme (PBS). The revenue raised from the Medicare Levy will be credited to this fund (excluding amounts to fund the National Disability Insurance Scheme (NDIS)).
To fully fund the NDIS, the Medicare levy will be increased from 2% to 2.5% from 1 July 2019.
What this could mean for you
The increased levy may also result in increases to many tax rates linked to the top personal tax rate, including fringe benefits tax and excess non-concessional contributions tax. Certain lump sum super payments that attract the levy may also be impacted, such as disability benefits paid to people under preservation age.
Small business accelerated depreciation
Date of effect: 1 July 2017
The ability for small businesses with an annual turnover of $10 million or less to claim an immediate deduction for eligible assets costing less than $20,000 each will be extended for 12 months.
What this could mean for you
If your small business has aggregated annual turnover below $10 million, you’ll be able to immediately deduct the purchase of eligible assets costing less than $20,000 where they are first used or installed ready for use by 30 June 2018. After that date, the immediate deductibility threshold will revert back to $1,000.
HELP thresholds and rates
Date of effect: 1 July 2018
From 1 July 2018, income thresholds for the repayment of HELP debts will be revised, along with repayment rates and the indexation of repayment thresholds.
What this could mean for you
A new minimum threshold of $42,000 will apply, with a 1% repayment rate. A maximum threshold of $119,882 will apply, with a 10% repayment rate. Currently, the maximum repayment threshold for the 2017–18 financial year is $103,766 with a repayment rate of 8%.
Keeping local property for locals
Tougher rules will apply on foreign investment in residential real estate by removing the main residence capital gains tax exemption (on properties acquired after 7.30pm AEST on Budget night 9 May 2017) and applying a vacancy charge of at least $5,000 on all future foreign investors who fail to either occupy or lease their property for at least 6 months a year.
Developers will also be prevented from selling more than 50% of new developments to foreign investors.
What this could mean for you
If you’re a foreign of temporary tax resident and you held an existing property before Budget night, the property will be grandfathered and you’ll be able to continue claiming the CGT main residence exemption until 30 June 2019. However, from 1 July 2017, the CGT withholding rate that applies to foreign tax residents will increase from 10% to 12.5%.
SOCIAL SECURITY
Pensioner Concession Card
Date of effect: From 1 July 2017
Individuals who lost entitlement to the Pensioner Concession Card as a result of the 1 January 2017 assets test changes will be reissued with the card.
What this could mean for you
If your Pensioner Concession Card entitlement is reinstated, you’ll have access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Your Pensioner Concession Card will be automatically reissued over time with an ongoing income and assets test exemption. You’ll also retain the Commonwealth Seniors Health Card, ensuring you continue to receive the Energy Supplement.
Energy Assistance Payment
Date of effect: 20 June 2017
Eligible pensioners will be entitled to a one-off Energy Assistance Payment of $75 for singles and $125 per couple. Eligible recipients include Australian residents who qualify for the Age Pension, Disability Support Pension and Service Pension.
Residency requirements for pensioners
Date of effect: 1 July 2018
An individual currently needs to have at least 10 years’ residence in Australia (at least 5 of which are continuous) to qualify for the age pension or disability support pension. From 1 July 2018, they’ll need to have at least 15 years’ residence in Australia or either a) 10 years’ continuous residence including 5 years during their working life, or b) 10 years’ continuous residence and not in receipt of an activity-tested income support payment for a cumulative period greater than 5 years.
What this could mean for you
This measure may impact you if you have less than 15 years’ residence in Australia or less than 5 years’ residence between age 16 and age pension age. However, existing exemptions will be maintained for humanitarian reasons or if you became unable to work while you were an Australian resident.
Family Tax Benefit – Part A
Date of effect: 1 July 2018
A single taper rate of 30 cents in the dollar will apply to income that exceeds the Higher Income Free Area ($94,316 in 2016/17). Currently, two tests are applied and the higher payment determines the entitlement.
Family Tax Benefit – Part A and B
Date of effect: 1 July 2017
The payment rates will not be indexed for two years. Indexation will resume on 1 July 2019.
OTHER ANNOUNCEMENTS
New levy for major banks
A major bank levy will be introduced for authorised deposit-taking institutions (ADIs) with licensed entity liabilities of at least $100 billion (indexed to Gross Domestic Product (GDP)). The levy will equate to an annualised rate of 0.06% – for example, the levy on a bank deposit of $500,000 will be approximately $300 pa. Superannuation funds and insurance companies won’t be subject to the levy.
What this could mean for you
It’s unclear at this stage how the levy will be implemented, and what the impacts might be on clients/customers and shareholders.
Republished with permission from Astute Financial.
Disclaimer
The information contained in this Federal Budget Analysis is current as at 9 May 2017 and is prepared by AIW Dealer Services Pty Ltd AFSL 414256 ABN 59 153 322 420, Registered Office 1/155 Baroona Rd, Rosalie Qld 4064.
Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
Past performance is not a reliable indicator of future performance.
This article does not consider your personal circumstances and is general advice only – unless otherwise stated. You should not act on any recommendation without considering your personal needs, circumstances and objectives. Adroit Financial Group recommends you obtain professional financial advice specific to your circumstances.