The 2017 Federal Budget was very surprising and many commentators have labelled it a Labor-like lazy budget that focused on increasing taxes to increase Government spending. In fact 83% of the extra Government spending announced in the budget is funded by raising taxes & levies. It appears the Turnbull Liberal Government has given up on finding Government spending savings and taken the easy path of increasing taxes.
The 2017 budget continues to prove disappointing when it comes to genuine tax reform that Australia needs. Instead political expediency has reduced the budget to the following tinkering at the edges:
INSTANT WRITE OFF CONTINUES FOR SMALL BUSINESSES
The $20,000 instant asset write-off, previously set to finish on 30 June 2017, has been extended to 30 June 2018. The asset must be first used or installed ready for use by 30 June 2018. The write-off can provide businesses with some cash benefit. For example, a business with an effective tax rate of 30% can receive up to $5,999 as a tax refund if an asset costing less than $20,000 is purchased.
BUDDING BUSINESS TAX CUTS
The Ten Year Enterprise Tax Plan, unveiled in last year’s federal budget, remains on track.
Incorporated small businesses with turnover of up to $10 million will have their rate of tax cut to 27.5 per cent for the 2017 financial year. Under a 10-year plan, the corporate tax rate will be reduced to 25% by the 2027 financial year.
Unincorporated businesses with annual turnover of up to $5 million will receive an increase in the unincorporated tax discount, taking the rate from 5 to 8 per cent in the 2017 financial year.
MEDICARE LEVY UPSURGE
This favourite of Governments, the ‘tax’ which isn’t a ‘tax’, is, surprise surprise, being lifted 2.5 percent from 1 July 2019.
Last year, many individual taxpayers received token “cake and coffee” tax cuts which were touted as an important first step to addressing bracket creep; but one year later, the Government announces that the Medicare Levy will increase by 0.5% to 2.5% which will surely eat into those tax cuts (for those lucky enough to have received them). The higher Medicare Levy will go towards funding the NDIS and a new Medicare Guarantee Fund. This lifts the top marginal tax rate to 47.5 percent. Remember the ‘budget deficit tax’ of years gone by? This measure is equivalent to bringing that back in, but it now applies to most taxpayers.
NEGATIVE FOR PROPERTY INVESTORS
In the 2016 Federal Budget, the Government confirmed that there is no plan to remove or limit negative gearing. It appears that they have changed their mind!
From the 2018 financial year, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
Another negative announced by the treasurer is to limit plant and equipment depreciation deductions for residential property investors. Investors who purchase plant and equipment for a residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset (as is the case under current law). However, subsequent owners of the property will be unable to claim deductions for the plant and equipment purchased by the previous owner.
GST SURPRISE FOR RESIDENTIAL PROPERTIES
From 1 July 2018, the Government plans to introduce measures which will require purchasers of new residential premises to remit the GST directly to the tax office as part of settlement. This announcement comes as a surprise and is a significant divergence from the way the GST system currently operates (where GST is collected from the builder) and creates more complexity in our convoluted taxation system.
The Government plan to reduce pressure on housing affordability, includes greater incentives for first homebuyers and downsizers as well as tougher rules on foreign investment.
From 1 July 2017, a First Home Super Saver Scheme will be introduced allowing individuals to make voluntary contributions of up to a maximum of $30,000 into their superannuation account to purchase a first home.
In addition, from 1 July 2018, individuals aged 65 and over will be able to make a non-concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation. Existing voluntary contribution rules for people aged 65 and older (work test for 65-74-year-olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under the new downsizing cap.
A 50 per cent cap will also be placed on foreign ownership in new developments and will be applied through conditions imposed on New Dwelling Exemption Certificates. Developments must be multi-storey and have at least 50 dwellings. Foreign investors will no longer be allowed to claim the main residence Capital Gains Tax exemption. In addition, foreign investors will be charged at least $5,000 annually should they leave their properties unoccupied or not available for six months or more each year.
HECS & HELP DEBT HORROR
As announced in the federal budget, the Government will be introducing a new set of repayment thresholds from 1 July 2018. The Government is lowering the repayment threshold from $ $55,874 to $42,000. This means that the new HECS threshold is barely above minimum wage. The new set of thresholds will contain a minimum repayment threshold on annual income in 2018-19 of $42,000 with a one per cent repayment rate, and a maximum income threshold of $119,882 from which a repayment rate of ten per cent applies.
Also, University students will face a 7.5 per cent tuition fee hike, phased in over four years starting in 2018. The maximum increase for a four-year, Government-subsidised degree will be $3600, with a maximum total cost of $50,000. A subsidised six-year medical degree will cost a maximum of $75,000.
FAMILY TAX BENEFIT A CHANGES
Parents who don’t vaccinate their children will be $14-a-week worse off, with $28 set to be wiped from their family tax benefits every fortnight.
Also, families will be subjected to an income test, losing 30 cents of their family tax benefit for every dollar they earn over $94,316 from July 2018. This change will mean 100,000 families will lose access to the family tax benefit.
A NEW TAX FOR THE BANKS THAT WE MIGHT BE PAYING
CommBank, NAB, ANZ, Westpac and Macquarie will be stung with a new tax for being too successful. Set to raise $6.2 billion over the next four years, it’s being described as another “budget repair levy”. Unfortunately it is likely to have a negative impact on the broader Australian community. The Australian Banking Association claims it will simply be passed on to consumers and if you have money in any large Super Fund or own bank shares you are already be paying for this new tax.
POSITIVE FOR PENSIONERS
The pensioner concession card will be restored to those who lost it after the pension assets test change introduced earlier this year, so seniors will regain access to state and territory based concessions that were withdrawn after the change.
Up to 3.5 million people on the age and disability support pensions and parenting payment will also receive one-off cash payments to help cover their winter energy bills — $75 for singles and $125 for couples.
WILL TULLAMARINE AIRPORT FINALLY GET A TRAIN STATION?
The Government has announced funding for a range of new infrastructure projects across Australia as well as the establishment of a new rail program and a regional growth fund.
Victoria will receive a $1 billion infrastructure package, including $500 million for regional passenger rail, with $100 million for Geelong Rail Line upgrades, a further $20.2 million for Murray Basin Rail and $30 million towards a rail link to Tullamarine Airport.
THE WAR ON SMOKING CONTINUES
Roll-your-own tobacco and cigars will soon be more expensive under a plan to bring their tax treatment in line with pre-made cigarettes. The change will be phased in over four years from 2017 to 2020, to coincide with the existing annual 12.5 per cent tobacco tax increases which occur on 1 September each year.
If you’re on Centrelink, expect to be hit by a tough new regime. A crackdown on unemployed Australians who fail to turn up to appointments or work-for-the-dole placements without a reasonable excuse will have their payment suspended and demerit points will be accrued for each incident. The measures will include a drug testing trial of 5000 new welfare recipients, new rules making drug addicts and alcoholics ineligible for disability pensions for medical conditions and crackdown on single parents who fraudulently collect multiple payments, with single-parent households to be subjected to closer scrutiny to verify their relationship status.
THE GOVERNMENT IS STILL OPTIMISTIC ABOUT A SURPLUS
The federal Government still anticipates meeting its slated return to surplus, despite the projected deficit for this year rising slightly. According to the Treasurer, the budget will return a $7.4 billion surplus in 2020-21. However many commentators have suggested that this surplus is based on Treasury’s almost impossibly heroic assumptions about economic conditions going forward. So is this return to surplus simply another pipe dream?
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