Forman Financial Services

Federal Budget Briefing Paper – Taxation

Medicare Levy Increase

Effective 1 July 2019

The Medicare levy will be increased from 2% to 2.5% of taxable income.

The increase will be used to ensure the National Disability Insurance Scheme (NDIS) is fully funded.

The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase from the 2016/17 financial year.

Extending The Immediate Deductibility Threshold For Small Businesses

Effective 1 July 2017

The Government will extend the existing accelerated depreciation for small businesses by 12 months to 30 June 2018.

Small businesses with aggregated annual turnover less than $10 million will be able to immediately deduct the purchase of eligible assets costing less than $20,000 where they are first used or installed ready for use by 30 June 2018. After this date, the immediate deductibility threshold will revert back to $1,000.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% 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).

Major Bank Levy

Effective 1 July 2017

A major bank levy will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100B (indexed to GDP).

The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities as at each quarterly reporting date mandated by APRA. This equates to an annualised rate of 0.06%. For example, on a bank deposit of $500,000 the levy is going to be approximately $300 pa.

Superannuation funds and insurance companies will not be subject to the levy.

Changes To Small Business Capital Gains Tax (CGT) Concessions

Effective 1 July 2017

The Government will amend the small business CGT concessions to ensure the concessions can only be accessed in relation to assets used in a small business or an ownership interest in a small business.

The Government is concerned that some taxpayers are able to access the small business concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less the $2 million or business assets less than $6 million.

Additional Capital Gains Tax Discount For Investment In Affordable Housing

Effective 1 July 2018

Resident individuals who invest in qualifying affordable housing will be eligible for an additional 10 percentage point CGT discount, increasing from 50% to 60%.

To qualify for the higher discount, the residential property must be:

  • rented to low to moderate income tenants, and
  • rented at a discounted rate, and
  • managed through a registered community housing provider, and
  • held for a minimum period of three years.

The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.

Managed Investment Trust (MIT) Investment In Affordable Housing

Effective 1 July 2017

MITs will be provided concessional tax treatment if they invest in affordable housing that is available to be rented for at least 10 years. The investor will receive a 60% discount on CGT if they hold the investment for more than three years.

Under this regime MITs will be able to acquire, construct or redevelop the property as long as they derive at least 80% of assessable income from affordable housing.

Residential Property Plant And Equipment Depreciation Deductions

Effective 1 July 2017

Deductions relating to the depreciation of plant and equipment (i.e. dishwashers and ceiling fans) in residential properties will be limited to investors who actually incur the outlay. This change is to ensure subsequent owners of a property will not be able to claim deductions for plant and equipment purchased by a previous owner.

Under this measure, the acquisition of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

Grandfathering applies to plant and equipment that forms part of a residential investment property as at 9 May 2017 and will continue to give rise to deductions for depreciation under current rules.

Disallowing Deduction Of Travel Expenses For Residential Property

Effective 1 July 2017

The Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property. This measure is to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.

Reducing The Corporate Tax Rate

The legislation to reduce the corporate tax rate has passed both houses, but is not yet law.

The Bill was amended so that the reduced company tax rate will progressively apply to companies with an aggregated annual turnover of less than $50 million only.

A summary of the proposed rates is as below:

Financial year Companies with annual aggregated
turnover of less than
Applicable company
tax rate
2015-16 $2 million 28.5%
2016-17 $10 million 27.5%
2017-18 $25 million 27.5%
2018-19 $50 million 27.5%
2019-20 to 2023-24 $50 million 27.5%
2024-25 $50 million 27%
2025-26 $50 million 26%
2026-27 $50 million 25%

Capital Gains Tax Changes For Non-Residents

The Government will make the following changes to capital gains tax rules applicable to foreign tax residents:

  • Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption on properties acquired after 7:30pm (AEST) on 9 May 2017. Existing properties held before this date will be grandfathered and can continue to claim the exemption until 30 June 2019.
  • The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July 2017.
  • The property value threshold where the CGT withholding obligation applies will reduce from $2m to $750,000 from 1 July 2017.

Changes To Repayment Of HELP Debt

Effective 1 July 2018

The Government will revise the income thresholds for the repayment of HELP debt, repayment rates and the indexation of repayment thresholds.

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% repayment rate. Currently, the maximum repayment threshold for the 2017-18 year is $103,766 with a repayment rate of 8%.

Annual Levy For Foreign Owned Vacant Residential Properties

Effective 9 May 2017

Foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year will be subject to an annual levy of at least $5,000.

This measure will apply to foreign persons who make a foreign investment application for residential property from Budget Night.

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