May 11, 2017
The Federal Government has unveiled its 2017-18 national Budget, with first time buyers and small business owners the big winners, and foreign workers, Australia’s major banks and middle to high income earners the biggest losers.
Below are some of the changes highlighted in the 2017-18 Federal Budget.
As promised, negative gearing was largely kept off the agenda.
But while there were no material changes to this investment policy, the Treasurer made it clear that certain tax advantages given to these property investors would be restricted.
From today onwards, negatively geared landlords will no longer be able to claim tax deductions for travel expenses related to owning and renting an investment property.
In addition, the rules around depreciation deductions for plant and equipment items have been tightened. As a result, investors will only be able to claim deductions on plant and equipment items (such as washing machines and ceiling fans) that they actually purchased.
Meanwhile, investors looking to purchase ‘affordable housing’ will be rewarded with various tax incentives.
In his address, Mr Morrison said those investors who purchase ‘qualified affordable housing’ will receive a 60% Capital Gains Tax discount – up from 50%.
First Home Buyers
But it wasn’t just property investors who were targeted in this year’s Budget. From 1 July, first home buyers will be able to salary sacrifice a portion of their income into their superannuation account in order to save a property deposit.
Savers will be able to salary sacrifice from their pre-tax income extra amounts up to $15,000 a year over the compulsory superannuation contribution (up to a maximum of $30,000) to fund a new home purchase. All additional contributions will be taxed at just 15% and subject to the combined annual limit of $25,000 for both employer and pre-tax contributions.
Then, from 1 July 2018, first home buyers will be able to withdraw the cash they have saved as well as any earnings on that money. All withdrawals will be taxed at 30% below the marginal tax rate.
Mr Morrison said the new scheme would accelerate savings for first home buyers and act in a far more effective manner than the everyday savings account.
Downsizers were also addressed in the latest Budget. From 1 July 2018, those aged 65 and over who are looking to downsize, will be able to make a non-concessional contribution of up to $300,000 from the sale of their principal place of residence into their superannuation fund. This would mean that a couple could contribute up to $600,000 extra to super.
This additional contribution would not be subject to the work test, other age limits or the non-concessional contribution limits for those with over $1.6 million in super.
The policy change is expected to encourage older Australians to downsize (and thus free up more properties), but it will only apply to those who have lived in their principal place of residence for more than 10 years.
With all of these changes, the rules surrounding superannuation have become even more complex. As such, there has never been a more important time to seek out the services of a professional adviser.
Housing aside, small business owners were afforded some additional incentives. In last year’s Budget, the Government announced that small businesses with a turnover of anywhere up to $10 million will pay a reduced company tax rate of 27.5%.
This year, the Government continued its support of small business owners, with the Treasurer announcing that more tax breaks and red tape reductions were on the cards to help these businesses recruit and retain employees.
In addition, the Federal Government announced that the $20,000 instant asset tax write-off introduced in the 2016 Budget, would be extended for another year and opened to businesses with an annual turnover of up to $10 million.
Housing and cost of living
In a bid to unlock even more property and create more supply for potential buyers, the Government also said it would focus on building more homes over the coming years.
Specifically, the Treasurer said $1 billion would be spent on the creation of a National Housing Infrastructure Facility which would hopefully address some of the chokepoints that are impeding housing development in certain areas.
Mr Morrison said the Government is working to unlock un-used Defence land in Melbourne in order to erect more properties in the area. In addition, Mr Morrison said the Government would seek to deliver "tens of thousands" of new homes in western Sydney as part of the 'Western Sydney city deal'.
I hope you found this wrap up useful, if you have any questions, or would like to talk about how this might impact your situation, please get in touch.