2017 Budget: Fairness, opportunity and security

Treasurer Scott Morrison, delivered the 2017-18 Federal Budget fostering ‘Fairness, Opportunity and Security’ and a vision to return the budget to a $7.4 billion surplus in 2021.

The Budget’s proposed ‘practical’ measures were based on four main principles:

1. Stronger growth to deliver more and better paying jobs

2. Guaranteeing the essential services that Australians rely on

3. Tackling cost of living pressures

4. Ensuring the Government lives within its means.

Some commentators see it as a ‘busy’ Budget that engenders ‘winners’ and ‘losers’.

So what were the key announcements?

Housing affordability measures
Housing affordability was invariably a hot topic, with proposed measures needing to positively impact both supply and demand – without causing a shock to the housing market. As the Treasurer put it, ‘there was no silver bullet’.

First homebuyers and superannuation

One of the biggest anticipations in the Budget was the Government’s approach to improving housing affordability for first homebuyers. Under the newly proposed ‘first home super saver scheme’:

• From 1 July 2018, first homebuyers will be allowed to withdraw their voluntary superannuation contributions (plus earnings) for use as a deposit on a home.

• First homebuyers will be able to use their superannuation fund to accumulate a home deposit.

• The amount available for withdrawal will be up to $15,000 of voluntary contributions per financial year since 1 July 2017 ($30,000 in total) plus deemed earnings, less tax on concessional (pre-tax) contributions and deemed earnings. 

• The amount of the withdrawal that relates to concessional (pre-tax) contributions and earnings will be taxed at marginal tax rates, less a 30% offset. The withdrawal will not impact HECS/HELP repayments, family tax benefits or child care benefits.

• Voluntary superannuation contributions will continue to count towards the concessional (pre-tax) and non-concessional (post-tax) contribution caps, and will continue to attract concessions such as the government co-contribution and low income superannuation tax offset.

Importantly, if you are a member of a couple, you may both take advantage.

Domestic Investors

From 1 July 2017, residential property investors will no longer be able to claim a tax deduction for travel expenses for personally inspecting, maintaining or collecting rent for their residential rental property; however, can continue to claim travel expenses incurred by third parties such as property management services.

Furthermore, from 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays incurred by the current owner of a residential real estate property; however, existing investments will be grandfathered.

Aged 65 or over and superannuation

From 1 July 2018, individuals aged 65 or over will be able to make a non-concessional (post-tax) contribution of up to $300,000 to superannuation using the proceeds of the sale of their home, provided it has been owned for 10 years or more. It is important to note that:

• Up to $300,000 can be contributed, in addition to the existing concessional and non-concessional contribution caps.

• The usual age related work test will not apply to the contribution.

• Both members of a couple will be able to take advantage of this measure for the same home.

Affordable housing

From 1 January 2018, resident individuals who elect to invest in qualifying affordable housing will be entitled to a 60% capital gains tax discount (up from the existing 50%). To qualify for the new capital gains tax discount, the relevant housing investment must be:

• Managed through a registered community housing provider.

• Rented to low–moderate income tenants at a rate below the existing private rental market.

• Held for at least three years.

Foreign investors

The Government has proposed measures targeted at foreign investors in relation to capital gains tax. For example:

• From 9 May 2017, foreign and temporary tax residents will no longer be given access to the capital gains tax main residence exemption; however, existing properties held prior to this date will be grandfathered until 30 June 2019.

• From 1 July 2017, there will be an increase in the capital gains tax withholding rate (from 10% to 12.5%) and a reduction in the withholding threshold (from $2 million to $750,000).

In addition, from 9 May 2017:

• Foreign owners of domestic residential property will incur a charge (levied annually) if their property is not occupied or has not been made available on the rental market for at least six months each year. Importantly, this measure will apply to foreign investment applications for residential property from 9 May 2017.

• And, the principal asset test will apply to an associate inclusive basis for foreign tax residents with indirect interests in Australian real property. This is aimed at discouraging capital gains tax avoidance by splitting indirect interests amongst associates.

Other major measures

Taxpayers, the Medicare Levy and the National Disability Insurance Scheme

In an effort to address the underfunded National Disability Insurance Scheme (NDIS), many taxpayers may soon be required to pay more in tax from 1 July 2019. The Government is proposing an increase in the Medicare Levy from 2% to 2.5% of taxable income. This move is intended to ensure that the NDIS becomes fully funded.

Childcare and Family Tax Benefits

The Government has proposed more efficient targeting of the Child Care Subsidy to only families that have household incomes less than $350,000 per annum (in 2017-18 terms).

Furthermore, from July 2017, the existing Family Tax Benefit payment rates will remain unchanged at their current levels for the next two years. Lastly, from 1 July 2018, for families with a household income greater than $94,316, the Family Tax Benefit Part A will have a $0.30 in the dollar income test taper applied.

Small businesses

The instant tax offset will continue for another year, so small businesses with $10 million turnover per annum will be able to write off expenditure up to $20,000 immediately.

In addition, from 1 July 2017, small business capital gains tax concessions will be amended to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

Pensioner Concession Card, Age Pension, Disability Support Pension and Energy Assistance Payment

There were several revisions to the social security environment for pensioners and recipients of the Age Pension and Disability Support Pension.

• The Pensioner Concession Card has been reinstated for those who lost their pension due to changes to the pension assets test from 1 January 2017.

• From 1 July 2018, applicants for the Age Pension and Disability Support Pension will be required to have 15 years of continuous Australian residence before being deemed eligible to receive the social security income support payments. However, there are several exemptions to the rule, where an applicant has any of the following relevant to their circumstance:
  • 10 years continuous Australian residence – five years of this residence must have been during their working life, namely, from the age of 16 to the relevant Age Pension age; or
  • 10 years continuous Australian residence, and not have been an activity tested income support payment recipient for a five year cumulative period.

It is important to note that existing exemptions will continue to apply for Disability Support Pension applicants that become disabled whilst in Australia.

• On 20 June 2017, there will be a one-off Energy Assistance Payment for those eligible for payments, such as the Age Pension, Disability Support Pension, Parenting Payment (Single), Veteran’s Service Pension, Veteran’s Income Support Supplement, Veteran’s disability payments and War Widow(er)s Pension. This one-off payment will be $75 for single recipients and $125 per couple.

Self-Managed Superannuation

From 1 July 2018, the non-arm’s length income provisions will see expenses that would apply in a commercial transaction included when considering whether or not the relevant transaction has been made on a commercial basis.

In addition, from 1 July 2017, the outstanding balance of a limited recourse borrowing arrangement will be included in a member’s annual total superannuation balance. Lastly, the repayment of the principal and interest of a limited recourse borrowing arrangement from a member’s relevant accumulation account will be a credit in the member’s transfer balance account.

Higher Education

The higher education system has been altered to foster an environment of ‘sustainability and responsiveness to the aspiration of students’. The reality of the proposed measures will see university funding reduced as well as university students facing increased university course fees and the earlier repayment of their HECS debt:

• In 2018 and 2019, the Government will introduce an efficiency dividend of 2.5% on the Commonwealth Grant Scheme.

• From January 2018, university students will be required to contribute an additional 7.5% to the cost of their university courses (1.82% annually over four years from 2018). This additional cost will still be able to be met through the existing Higher Education Loan Program scheme. The Budget Overview paper provides estimates of how this may affect university students over several different higher education disciplines. For example:
  • “A nursing student commencing a four year degree in 2018 will have their total fees increased by $1,250.
  • A science student commencing a three year degree in 2018 will have their total fees increased by $1,000.
  • A medical student commencing a six year degree in 2018 will have their total fees increased by $3,900.”

• From July 2018, university students will also now be required to commence the repayment of their HECS debt once they begin to earn over $42,000 per annum. This is a reduction from the existing threshold of $55,000 per annum. The minimum threshold ($42,000pa) will have a 1% payment rate and there is a maximum threshold of $119,882 with a 10% payment rate.

The somewhat ‘silver lining’ in the higher education reform is that Commonwealth Supported Places will now be made available for education programs, such as diplomas.

The big banks

From 1 July 2017, Australia’s big five banks (ANZ, Commonwealth Bank, Macquarie, National Australia Bank and Westpac) will be hit with a ‘Major Bank Levy‘ calculated quarterly as 0.015% (an annualised rate of 0.06%). This new levy will be aimed at boosting the Government’s proposed return to surplus in 2021. It’s anticipated that the levy will generate in the tune of $6.2 billion over the forward estimates.

Economists have warned that the levy:

• May flow through to customers by way of increased lending rates; however, the Treasurer advised that this will not be the case.

• May also impact members of superannuation funds who have exposure to the big banks via their investments, namely, a reduction in the banks’ profits may impact the share price and subsequently capital growth and income (dividends) derived from shareholders.

Other proposed measures of the Budget include infrastructure spending, reforms to JobSeeker payments, and the Medicare Benefits Scheme.

For more information on what the Budget may mean for you please watch Sandra Sully’s summary, and the roundup from the Institute of Public Accountants.