Federal Budget Update May 2017
It is important to note that before any of these announcements can be implemented they will require the passage of legislation and they may be subject to change.
Downsizing and contributing the proceeds to superannuation
From 1 July 2018, anyone aged over 65 who sells their home will be able to make a non-concessional contributions to their superannuation of up to $300,000 from the proceeds of the sale.
This measure applies to the sale of a principal residence owned for the past ten or more years and in the case of couples, each partner can contribute for the same home.
This new contribution rule is in addition to those already allowed under existing rules and caps, and is exempt from the existing age and work tests and the $1.6 million balance test for non-concessional contributions.
The Government has confirmed that downsize sale proceeds contributed to superannuation will be counted under the Age Pension Assets Test. This measure will provide significant additional flexibility to those retirees looking to structure income streams for their retirement including those downsizing for lifestyle, to raise capital or for additional care requirements.
With housing affordability a hot topic, the government has addressed the issue by allowing first home buyers to withdraw voluntary superannuation contributions for a first home deposit. From 1 July 2018, voluntary contributions made from 1 July 2017 will be able to be withdrawn up to $15,000 per year, with a total of $30,000 able to be contributed within existing caps. Any concessional contributions and earnings withdrawn will be taxed at a person’s marginal tax rate less a 30 per cent offset. For couples, both partners are able to use this measure for a joint first home deposit.
Limited recourse borrowing arrangements
For those using limited recourse borrowing arrangements (LRBA), from 1 July 2017 the outstanding balance will be included in an individual’s total superannuation balance and transfer balance cap. The ability to make non-concessional contributions and use the segregated method in a SMSF will be affected under this measure.
The repayment of the principal and interest of a LRBA from an individual’s accumulation account will be a credit in their transfer balance account.
Integrity of non-arm’s length arrangements
Non-arm’s length income provisions that apply to superannuation will change to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis. This will apply from 1 July 2018 and will limit an individual’s ability to use related party transactions on non-commercial terms to increase superannuation savings.
Medicare levy low income thresholds increase
The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2016-17 financial year as follows:
Medicare levy increase
The Medicare levy will increase by 0.5% to 2.5% from 1 July 2019, to fund the National Disability Insurance Scheme. This will also increase other tax rates that are linked to the top marginal rate such as fringe benefits tax.
The Temporary Budget Repair levy will expire on 30 June 2017 as originally announced in the 2014-15 Federal Budget.
Child care rebate – upper income threshold
From 1 July 2018, the Child Care Subsidy will only be available to families with incomes below $350,000 per annum, indexed annually. This measure is expected to achieve savings of $119.3 million over three years from 2018-19 .
Travel expenses for residential rental property
From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed. Investors may still engage third parties (real estate agents, property management services etc) and these fees will remain deductible.
Plant and equipment depreciation deductions
From 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties. These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.
Small business capital gains tax concessions
From 1 July 2017, the Government will modify the small business capital gains tax (CGT) concessions 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.
Extending the immediate deductibility threshold for small businesses
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Only a few assets are not eligible (such as horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.
Social Security & Aged Care
Energy Assistance Payment
A one-off Energy Assistance Payment will be made for people eligible for qualifying payments (see below) on 20 June 2017 who reside in Australia. A payment of $75 is earmarked for single recipients and $125 per couple. The payment, which is not taxable and will not be counted as income, will be automatically paid in the week commencing 26 June 2017.
Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.
Pensioner Concession Card reinstatement
The Pensioner Concession Card (PCC) will be reinstated for former pensioners who were no longer eligible to receive the Age Pension following the rebalancing of the Assets Test from 1 January 2017. These former pensioners will receive the PCC from 9 October 2017 and they will retain the Commonwealth Seniors Health Card to ensure they continue to receive the Energy Supplement. The Low Income Health Care Card will be deactivated.
Enhanced residency requirements for Pensioners
The Government will revise the residency requirements for claimants of the Age Pension and the Disability Support Pension (DSP) from 1 July 2018. Claimants will be required to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP unless they have either:
- 10 years continuous Australian residence, with five years of this residence being during their working life (16 years of age to Age Pension age); or
- 10 years continuous Australian residence, without having received an activity tested income support payment for a cumulative period of five years.
Existing exemptions for DSP applicants who acquire their disability in Australia will continue to apply.
Strengthening aged care
From 1 July 2017 an industry-led aged care workforce taskforce will be established to explore options to:
- Improve productivity in the aged care workforce and
- Contribute to the development of an aged care workforce strategy, including for regional and remote areas.
From 1 July 2018 the Commonwealth Home Support Program (CHSP) and Regional Assessment Services (RAS) funding arrangements will be extended. The CHSP and RAS contribute to essential home support services, such as meals (Meals on Wheels), personal care, nursing, domestic assistance, home maintenance, and community transport, to assist older people to keep living independently in their own home.
Social Security & Aged Care (Continued)
Greater choice for at home palliative care
From 2017-18, the Government will provide palliative care services for people who would prefer to be cared for in their homes rather than in a hospital or hospice setting. Funding will be provided through the Primary Health Care Networks, supporting greater choice for end of-life care for Australians.
Liquid Assets Waiting Period increasing
From 20 September 2018, the Government will increase the maximum Liquid Assets Waiting Period from 13 weeks to 26 weeks. The maximum waiting period will apply to claimants whose liquid assets are equal to, or exceed, $18,000 (from $11,500) for singles with no dependants or $36,000 (from $23,000) for couples and singles with dependants.
Working Age Payments Reforms
Seven working age payments and allowances will be progressively consolidated into a new JobSeeker Payment.
- Newstart Allowance and Sickness Allowance recipients will transition to the new JobSeeker Payment on 20 March 2020 and will be set at the same rate as Newstart Allowance. Current mutual obligation exemptions for Sickness Allowance will be retained.
- Widow Allowance will be closed to new recipients from 1 January 2018 and will cease on 1 January 2022, when all remaining recipients have reached Age Pension eligibility age.
- Widow Allowees transferring to the Age Pension will receive a higher payment rate.
- Partner Allowance, which has been closed to new recipients since 20 September 2003, will cease on 1 January 2022, when all remaining recipients have reached the eligibility age for the higher payment Age Pension.
- Widow B Pension (closed to new recipients since 20 March 1997) will cease on 20 March 2020. Recipients will transition to the Age Pension with no change to their payment rate.
- Wife Pension (closed to new recipients since 1 July 1995), will cease on 20 March 2020.
Most recipients will transition to the Age Pension or Carer Payment at the same payment rate. Australian residents who do not qualify for these payments will transition to the new JobSeeker Payment. Transitional arrangements will ensure that those who transfer to the JobSeeker Payment have their rates preserved; however, those aged under 55 will be required to meet mutual obligation requirements. Bereavement Allowance will be closed to new recipients from 20 March 2020 and will be replaced by the new JobSeeker Payment. Existing recipients of Bereavement Allowance will not be impacted by the change. Newly bereaved people on the new JobSeeker Payment will receive a triple payment in the first fortnight and current mutual obligation exemptions will be retained. Eligibility for the Pensioner Concession Card and the Health Care Card will not be affected by these changes.
A new, more equitable participation framework will apply from 20 September 2018. Key elements include aligning the participation requirements for recipients aged 30 to 49 with those for recipients under 30, and recipients aged 55 to 59 will only be able to meet up to half of their participation requirements through volunteering. Recipients aged between 60 and Age Pension age will have a new activity requirement of 10 hours per fortnight that can be met through volunteering. The current jobactive program will be enhanced to support both mature age and inexperienced job seekers to increase their chances of finding employment, including through a new Career Transition Assistance Program.
Family Tax Benefit payments – not increasing
The Government will maintain the current Family Tax Benefit (FTB) payment rates for two years at their current levels from 1 July 2017 as previously announced in the 2015-16 Mid-Year Economic and Fiscal Outlook.
Indexation of the FTB payment rates using the Consumer Price Index will resume on 1 July 2019
Family Tax Benefit Part A income test taper rate: Government will implement a consistent 30 cents in the dollar income test taper rate for higher income families receiving Family Tax Benefit (FTB) Part A from 1 July 2018.
Department of Human Services improvements
Service delivery improvement will include:
- Piloting opportunities with existing accredited Government service providers to reduce call wait times by increasing Centrelink call centre capacity by 250 full-time equivalent roles;
- More efficient information-sharing arrangements with the Australian Taxation Office by requiring welfare claimants to provide their Tax File Number (TFN) when first lodging claims; and
- Streamlining of referrals for welfare fraud prosecution by allowing information held by DHS to be used in respect to potential criminal proceedings.
Major bank levy
The Government announced a levy for banks from 1 July 2017. The levy is expected to raise $6.2 billion over the forward estimates period. Currently this will only affect the five largest banks but does not apply to superannuation funds and insurance companies. The levy will be calculated quarterly as 0.015% of a bank’s licensed entity liabilities (for an annualised rate of 0.06%). Importantly, the levy will not apply to deposits of individuals, businesses and other entities protected by the Financial Claims Scheme. That means that banks will not incur this cost on funds held by an individual of up to $250,000.
Foreign investors and property
From 7.30pm on Tuesday 9 May 2017, a number of changes affecting property investments by foreign residents will take effect. These include:
- Foreign-owned residential property left vacant for more than six months in a year will incur a charge (minimum $5,000). The amount will be equivalent to the foreign investment application fee paid at the time of application.
- Foreign and temporary tax residents will no longer be able to claim the main residence capital gains tax exemption when they sell property in Australia. For those who already own property on Budget night they will be able to continue to claim the exemption until 30 June 2019.
- Developers who are granted a New Dwelling Exemption Certificate will be subject to a condition which limits the sale to foreign investors of new dwellings in that development to 50%.
From 1 July 2017, foreign residents will be subject to an increase from 10% to 12.5% capital gains tax withholding regime, where the transaction is $750,000 or above (reduced from $2 million or above).
Pharmaceutical Benefits Scheme (PBS) and Repatriation Pharmaceutical Benefits Scheme (RPBS)
The Government has proposed a number of changes to the schemes including new listings and price amendments for both schemes. This will include building on existing statutory price reductions for medicines listed on the Pharmaceutical Benefits Scheme (PBS) to reduce out-of-pocket costs for medicines for Australians.
The Budget also focused on making the higher education sector more sustainable. The measures announced include:
- A new efficiency dividend of 2.5%in 2018 and 2019 on the Commonwealth Grant Scheme (CGS)
- An increase in student contributions through the Higher Education Loan Program (HELP) by 7.5% (1.82% annually over four years from 2018), with a commensurate reduction in funding universities receive under CGS. Student contributions will increase for all Commonwealth supported students from 1 January 2018 regardless of when they began their study
- Abolishing Commonwealth loading for enabling programs and replacing it with a student contribution through HELP
- Revising the income thresholds for repayment of HELP debt, repayment rates and the indexation of repayment thresholds from 1 July 2018. A new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10 per cent repayment rate.
Improving external dispute resolution
The Australian Financial Complaints Authority (AFCA), a new one-stop shop for external dispute resolution, will be introduced. AFCA will provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service.
Internal dispute resolution
To increase accountability, the Government will also legislate to require financial firms to report to the Australian Securities and Investments Commission (ASIC) on internal dispute resolution outcomes.
Finalisation of the Industry Funding Model for the Australian Securities and Investment Commission
The Government will recover $112.6 million from all entities regulated by the Australian Securities and Investments Commission (ASIC) through a statutory levy, with effect from 1 July 2017.
Australian Securities and Investments Commission – improving financial literacy
Over four years from 2017-18, the Australian Securities and Investments Commission (ASIC) will be given an additional $16 million to broaden its financial literacy program. The cost will be partially offset by an increase of $12.0 million over three years from 2018-19 in the statutory levy amount recovered from entities regulated by ASIC.
International Workers – New Employer Levy Imposed on Certain Skilled Visas
With effect from March 2018, businesses that employ foreign workers on certain skilled visas will be required to pay a foreign worker levy. The amount of the levy will depend on business turnover of the employer and the type of visa issued.
The foreign worker levies are intended to replace the current training benchmark financial obligations on subclass 457 and 186 visas which the Government has indicated have been difficult to monitor effectively.
The revenue raised from the new foreign worker levies will be used to fund a new Skilling Australians Fund aimed at apprenticeships and traineeships in high demand sectors including regional and rural areas.
What does the Budget mean for me?
Should you have any concerns or wish to discuss the proposed changes in more detail, please do not hesitate to contact our office on 02 8850 0777.
The Affinity Accounting Team