The 2017-18 Budget’s main focus is on boosting the economy and tackling the Australian housing affordability crisis by proposing a package of tax, superannuation and other measures, at the expense of the big banks, foreign investors and investment property owners.

There are also proposed measures to ensure the integrity of the tax and superannuation systems, with substantial funding to be provided to the Australian Taxation Office (ATO) to target serious and organised crimes in the tax system and extending their Black Economy Taskforce audit and compliance activities.

The Medicare levy is also being increased from 2% to 2.5% from 1 July 2019, which partially offsets the lapsing of the temporary budget repair levy.

Aside from the above, no major tax reforms have been announced. In particular, negative gearing or the CGT discount (except for certain affordable housing investments) has not been impacted.

We set out below a summary of the tax and superannuation highlights from the Budget. Note that measures proposed in the Budget are subject to the usual parliamentary process and may not become law or the eventual law may vary from the announced measures.

 

Area

Changes

Effective
From

Superannuation A limited amount of an individual’s superannuation contributions made from 1 July 2017 may be withdrawn from 1 July 2018 onwards for a first home deposit. Withdrawals will be taxed at the individual’s marginal tax rate less a 30% tax offset.

1 July 2017

Superannuation A person aged 65 or over can contribute up to $300,000 from the proceeds from selling their principal residence (must have owned for at least 10 years) as a non-concessional contribution into superannuation. These contributions are in addition to existing rules and caps and are exempt from the age test, work test and the $1.6 million total superannuation balance test.

1 July 2018

Property Investors Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

1 July 2017

Property Investors Plant and equipment depreciation deductions will be limited to outlays actually incurred by residential property investors. These changes will apply on a prospective basis, with existing investments grandfathered.

1 July 2017

Property Investors The CGT discount for Australian resident individuals investing in qualifying affordable housing will be increased from 50% to 60%.

1 January 2018

Property Investors Various measures applicable to foreign and temporary residents:

  • The CGT main residence exemption will be removed for foreign and temporary residents from 9 May 2017. Existing properties held before this date will be grandfathered until 30 June 2019.
  • Foreign resident CGT withholding rate increase from 10% to to 12.5% and will apply to Australian real property and related interests valued at $750,000 or more (the threshold is currently $2 million) from 1 July 2017.
  • Annual levy of at least $5,000 imposed on foreign owners of under-utilised residential property. This measure will apply to foreign persons who make a foreign investment application for residential property from 9 May 2017.
  • A 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates. This cap will apply on applications made from 9 May 2017.
  • The ‘principal asset test’ in Division 855 of the Income Tax Assessment Act 1997 will be applied on an associate-inclusive basis from 9 May 2017 for foreign tax residents with indirect interests in Australian real property.

9 May 2017 or

1 July 2017

Managed Investment Trusts Managed investment trusts will be able to invest in affordable housing, allowing investors to receive concessional tax treatment provided certain conditions are met, including that the properties are let as affordable housing for at least 10 years.

1 July 2017

Small Business Tightening of the small business CGT concessions by denying eligibility for assets which are unrelated to the small business.

1 July 2017

Small Business The $20,000 instant asset write-off for small businesses will be extended by 12 months for businesses with an aggregated turnover of less than $10 million.

1 July 2017 to

30 June 2018

Personal Medicare levy to increase from 2.0% to 2.5% of taxable income. Other tax rates that are linked to the top personal tax rate (eg. fringe benefits tax rate) will also be increased.

1 July 2019

Personal The low income threshold for the Medicare levy for singles, families, seniors and pensioners will increase.

From the 2016-17 income year

Personal New repayment thresholds and rates under the higher education loan program (HELP) will be introduced.

1 July 2018

Superannuation Use of limited recourse borrowing arrangements will be included in a member’s total superannuation balance and transfer balance cap.

1 July 2017

Superannuation Reduced opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings.

1 July 2018

GST Purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement. Currently, GST is included in the purchase price and it is the developer who remits any GST.

1 July 2018

GST The GST treatment of digital currency (eg. Bitcoin) will be aligned with that of money, preventing double taxation.

1 July 2017

Multinational Multinational anti-avoidance law will be amended to prevent the use of foreign trusts and partnerships in corporate structures for tax minimisation.

Retrospectively from 1 January 2016

Employers of foreign workers Businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will provide funding for a new Skilling Australians Fund.

1 March 2018

Business The taxable payments reporting systems will be extended to contractors in the courier and cleaning industries.

1 July 2018

Business Sales suppression technology and software used to understate business income by deleting electronic transactions will be prohibited.

Date of assent of enabling legislation

Banks A major bank levy will be introduced for authorised deposit-taking institutions (ADIs) with licensed entity liabilities of at least $100 billion.

1 July 2017

Banks Hybrid mismatch rules used by banks to minimise tax in cross-border transactions will be prohibited.

1 January 2018

 

For any queries regarding the taxation aspects of the Budget, please contact either Andrew Lam or Winson Liew of Hill Rogers.