This year’s Federal Budget announcement on 9 May was a mix of pain points and perks for small businesses and individuals. The Government is focused on returning Australia to surplus over the next few years, so they’ve really tightened the purse strings. Everyone from the big banks to the average Australian will be paying more tax. However, there were some good news for small businesses.
It’s important to note these proposals all need to pass parliament first.
We have picked out the highlights most likely to affect our Atticus clients.
- This is the big winner for small business – the initiative that allows you to immediately write off purchases of assets up to $20,000 was supposed to end in June this year. This has now been extended to 30 June 2018 for businesses with a turnover of under $10 million. It is expected that from 1 July 2018 the threshold will revert back to $1,000 so this is a significant tax planning opportunity for small business.
- The Government will spend $300 million over two years on regulatory reform to reduce red tape for businesses.
- Flying in the face of reducing red tape is the extension of the taxable payments reporting system (TPRS). Currently the building industry needs to report payments to contractors and this is now being extended to the courier and cleaning industries from 1 July 2018. Our tip is to make sure you are keeping good records and that you may need to make changes to your bookkeeping system from 1 July 2018 to make completing the forms at end of financial year easy. Overall this measure is part of the Government’s focus on shrinking the black economy. In fact, an additional $32 million has been allocated to the ATO to assist with audit programs targeting the black economy.
- Farmers, there’s $1 billion in funding for Landcare for over five years which includes a boost to the Sustainable Agriculture grants program and money towards the eradication of fire ants in South East Queensland.
- For property developers there’s also some changes. GST on the sale of new residential properties will be paid directly to the ATO by the purchaser on settlement. Practically this will have an effect on cashflow for developers as they will not have the GST they would have collected to assist with covering cashflow between settlement and the time when they would normally have to remit it to the ATO.
- More than $8 billion was allocated to the Melbourne to Brisbane inland rail, meaning it’s closer than ever that farmers will be able to take advantage of this network.
- The Medicare Levy will increase by 0.5% to 2.5% meaning a household on $75,000 a year will pay an extra $375 in tax. This will fund a Medicare Guarantee Fund and the National Disability Insurance Scheme. This new tax will take effect from 1 July 2019.
- In related Medicare news, the Medicare rebate on some GP and specialist appointments will be unfrozen from 1 July 2018.
- Uni students (and parents of uni students) – your fees are going up. Uni fees will increase by 7.5% by 2022. And the income level at which you need to start repaying HELP debts will reduce from $55,000 to $42,000.
- If you own an investment property you travel to visit – there’s some bad news. From 1 July 2017, you’ll no longer be able to claim expenses for travelling to collect rent, manage or inspect residential investment properties. You can still claim estate agent and property manager fees however.In a further effort to reduce negative gearing benefits, depreciation deductions are going to be limited for residential investment property owners. It’s normal for many of our clients to obtain a depreciation report and claim depreciation on things like air-conditioners and dishwashers that form part of your purchase cost. However, the changes mean that if you buy the property after budget night there’s no depreciation for items present in the house at the time of purchase – if you purchase the items directly yourself, no problem. Existing properties are grandfathered as these rules only apply for properties purchased from 9 May 2017 and there appears to be no change to deductions for building cost write-off.
Superannuation has been largely left alone this year which is fortunate given the impact is still being felt from the sweeping changes made last year. Both of the super initiatives in this year’s budget are focused on improving housing affordability. Practically though, we expect that these measures will only assist a limited number of the population.
- First home buyers are getting a boost. From 1 July 2017 first home buyers will be able to contribute $15,000 a year into their super as a house deposit. Lifetime total you can contribute is $30,000 and withdrawals will start at 1 July 2018. If you make this as a non-concessional contribution (after tax) it will be tax free when you withdraw it.If you make the extra contributions using before tax money you will pay personal tax when the money is withdrawn. This will be at a reduced rate, but our tip is to plan for this to avoid having an unexpected tax bill. Also disappointingly, any extra savings you put in super for your home savings must still be within the yearly upper limits for making contributions. Always talk to your advisor before putting extra money into super.
- People aged 65 and older can contribute up to $300,000 from the sale of your primary residence into your superannuation from 1 July 2018. This move, which is designed to encourage older people to downsize and free up housing for younger families is in addition to any other contributions you can make, including the $1.6 million super cap. It’s per person, so a couple can contribute $600,000. However, there’s a sting in the tail for those receiving an age pension as the amount contributed to super will count towards the assets test compared to it previously being exempt when it was part of the value of your home.
Other items of interest
- Something that has received a huge amount of press is the levy that will be charged on Australia’s big five banks of 0.06% levy from 1 July this year to help boost the budget. Watch this space as it will be interesting how this plays out.
- Early childhood education getting a funding boost of $429.4 million.
- There’s been a crackdown on foreign property ownership with owners now having to pay capital gains tax when they sell their main residence. There is also a 50% cap on foreign ownership of new developments.
Feel free to contact us for a meeting if you’d like to discuss how these changes may affect you.