Individuals
Changes Affecting your Rental Property Claims
Plant & Equipment deductions limited to outlays actually incurred by investors.
As of 9 May 2017, all new purchases of property will no longer be able to purchase a depreciation report to calculate the depreciation on plant and equipment. The only eligible deductions in this area will be the 2.5% special building write off, and any new acquisitions of plant and equipment.
Plant and equipment items are usually mechanical fixtures, or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
Any existing properties owned by investors will not be affected by this change.
Deductions for Travel to Residential Rental Properties DENIED
From 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 will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services.
Medicare Levy set to increase from 1 July 2019.
No changes will be made for the current or next financial year of 2016-2017 and 2017/2018
Encouraging investment into affordable housing
Increased CGT discount for resident individuals investing in qualifying affordable housing
From 1 January 2018, the Government will increase the CGT discount from 50% to 60% for resident individuals who elect to invest in qualifying affordable housing. To qualify for the higher CGT discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate.
The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.
The higher discount would flow through to resident individuals investing in qualifying affordable housing.
Managed Investment Trusts- Affordable housing through Managed Investment Trusts (‘MITs’)
The Government will encourage investment into affordable housing by enabling MITs to invest in affordable housing. For investors to receive concessional taxation treatment through this structure, the affordable housing must be available for rent for at least 10 years.
HELP LOAN Repayment Threshold Changed
A new minimum repayment threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate from 1 July 2018.
Businesses
$20,000 immediate write off extended by 12 months.
Previously this write off was set to end 30 June 2017 under the current law. The Government has proposed to extend this concession to end on 30 June 2018 for all small businesses with an aggregated turnover of less than $10 million.
This means 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.
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% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if the balance is less than $20,000 over this period.
From 1 July 2018, the threshold and the balance at which the pool will revert back to $1,000.
Superannuation
First Home Saver Scheme
The Government will encourage home ownership by allowing first homebuyers to ‘build a deposit’ inside their superannuation fund, as follows:
- Voluntary contributions of up to $15,000 per year, and $30,000 in total, can be contributed by first home buyers from 1 July 2017. The contribution must be within existing concessional and non-concessional caps. Concessional contributions are taxed at 15% in the fund and earnings on contributions are taxed at 15% in the fund.
- These contributions can then be withdrawn, along with associated deemed earnings, for a first home deposit, from 1 July 2018 onwards. Concessional contributions and earnings that are withdrawn will be taxed at the taxpayer’s marginal rate less a 30% offset. When non-concessional contributions (‘NCCs’) are withdrawn, they will not be taxed.
Both members of a couple can take advantage of this measure to buy their first home together.
Limited Recourse Borrowing Arrangements now included with the $1.6 Million transfer balance Cap
From 1 July 2017, the Government will include the use of LRBAs in a member’s total superannuation balance and transfer balance cap.
The concept of total superannuation balance is used to limit the ability of a fund member to make NCCs into superannuation (among other things) and the transfer balance rules are designed to limit the value that a fund member is able to transfer into the tax-exempt pension phase to $1.6 million.
LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap.
As such, the outstanding balance of a LRBA will be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
Over 65’s can downsize their house and contribute proceeds to superannuation.
From 1 July 2018, the Government will allow a person aged 65 or over to make a Non Concessional Contribution of up to$300,000 from the proceeds of selling their eligible home. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making contributions.
Eligible homes are residences that have been owned for the past ten or more years.
Measures affecting foreign investors
CGT changes for foreign investors
The Government will extend Australia’s foreign resident CGT regime by:
- denying foreign tax residents access to the CGT main residence exemption from 7:30PM on 9 May 2017. Note that existing properties held prior to this date will only be grandfathered until 30 June 2019.
Charge on foreign owners of underutilised residential property
The Government will introduce a charge of at least $5,000 on 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. This measure will apply to foreign persons who make a foreign investment application for residential property from 7:30PM on 9 May 2017.
Changes to the Foreign Resident CGT Withholding regime
The Government will extend this regime by increasing the CGT withholding rate for foreign tax residents from 10.0% to 12.5% from 1 July 2017. The Government will also reduce the CGT withholding threshold for foreign tax residents from $2 million to $750,000 from 1 July 2017.
This is a huge change as it effectively means you need to consider EVERYONE as a foreign investor until they obtain that exemption certificate. Previously $2 million threshold didn’t catch a lot of people, however now that the threshold has been reduced to $750,000, anyone selling their house over $750,000 will be affected.
Taxable Payments Reports- Now include Cleaning Industry
The Taxable Payments Reports will now include Couriers and the Cleaning Industry.
The Government will extend the taxable payments reporting system (‘TPRS’) to contractors in the courier and cleaning industries with effect from 1 July 2018.