HIGHLIGHTS

Last night (9 May 2017) the Treasurer, Mr Scott Morrison, handed down the 2017-18 Federal Budget.

Mr Morrison described the Budget as one “about making the right choices to secure the better days ahead” through a “fair and responsible path back to a balanced budget” based on “the principles of fairness, security and opportunity”.  As was the underlying sentiment of the previous year’s Budget, the choice is to “ensure the Government lives within its means” while still having a plan to:

• Reduce cost of living pressures
• Grow the economy to create more and better paid jobs
• Guarantee the essentials that Australians rely on

INDIVIDUALS

Individuals will be impacted by an increase to the Medicare levy, changes to HELP repayment thresholds and various property related measures.

Medicare levy to increase from 2.0% to 2.5%

The Medicare levy will be increased from 2.0% to 2.5% of taxable income from 1 July 2019, raising approximately $8 billion over the forward estimates to fund the shortfall in the NDIS.

Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

SMALL AND MEDIUM BUSINESS

Extension of $20,000 immediate asset write-off 

The $20,000 immediate asset write-off for businesses with an annual turnover of less than $10m will be extended by 12 months to 30 June 2018. Software will continue to be excluded from these measures.

Depreciating assets valued at $20,000 or more can continue to be placed into the general small business pool. Existing pools can also be immediately deducted if the balance is less than $20,000.

The immediate deductibility threshold for assets and pool balances will revert back to $1,000 from 1 July 2018.

Restriction on accessing Small Business CGT Concessions

From 1 July 2017, access to the Small Business CGT Concessions will be tightened to deny eligibility for assets which are unrelated to a small business.  This is unlikely to have any broad impact on most taxpayers.

The eligibility thresholds will remain unchanged and the concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2m or net assets less than $6m

PROPERTY

The Government have introduced a number of property related changes which aim to reduce pressure on housing affordability. The measures will have a significant impact on property developers, investors and non-resident property owners.

INVESTORS 

Travel expenses related to residential rental properties disallowed

From 1 July 2017 deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Expenses in relation to investors engaging third parties such as real estate agents for property management services will remain deductible.

Depreciation deductions limited for residential rental properties

From 1 July 2017 plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential rental properties.

The building write off (2.5% deduction) is unaffected.

These changes will apply on a prospective basis, with existing investments grandfathered.

Investors who purchase plant and equipment for their residential rental property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of the property will not be able to claim deductions for plant and equipment purchased by the previous owner of that property.

Purchasers of new residential property to remit GST

From 1 July 2018 GST on new residences will be remitted to the ATO by the purchaser, rather than by the developer.

This will apply to sales of new residential property or land from new subdivisions. This is a GST integrity measure, but will have a material cash flow impact on property developers.

It is anticipated that the GST is to be remitted by the conveyancer as part of the settlement process and as such purchasers are unlikely to experience any negative consequences.

BUSINESSES EMPLOYING FOREIGN WORKERS

Businesses employing foreign workers will be subject to extra levies as a result of the Federal Budget. Larger corporates will also be subject to further restrictions under the MAAL provisions.

Changes to 457 visa arrangements

The Government will abolish the Temporary Work (Skilled) (subclass 457) visa and replace it with a new Temporary Skill Shortage visa (2 year or 4 year visas).

From March 2018, businesses that employ foreign workers on certain skilled visas will be required to pay an annual levy that will provide revenue for a new Skilling Australians Fund.

The levy will be $1,800 per Temporary Skill Shortage visa per year, reduced to $1,200 for small businesses with turnover of less than $10m.  There is also a once off levy of $5,000 ($3,000 for small businesses) per employee for permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

The levy will replace the current training benchmark financial obligations for subclass 457 and 186 visas.

REPORTING PAYMENTS EXTENDED

Extension of Taxable Payments Reporting System to couriers and cleaners

From 1 July 2018, the taxable payments reporting system (TPRS) will be extended to contractors in the courier and cleaning industries.

The TPRS is a transparency measure which aims to improve contractor compliance, and currently applies to the building and construction industry.

Businesses in the courier and cleaning industries will need to ensure that they collect contractor payment information from 1 July 2018, with the first annual report to the ATO required in August 2019.