Last week, Federal Treasurer Scott Morrison handed down his second Federal Budget.
Here’s a roundup of some of the key proposals put forward, and a look at how they might affect your financial goals — whether you’re starting out in your working life, building a career and family, or enjoying the fruits of your labour in retirement.
Remember, at this stage these are just proposals and not yet law. As such, they could change as legislation passes through parliament.
Proposed effective date: 1 July 2017
From 1 July 2017, individuals will be able to make voluntary contributions (e.g. salary sacrifice and non-concessional contributions) of up to $15,000 per year and $30,000 in total, to their super account to purchase a first home. These limits apply to each individual so a couple can contribute up to $30,000 per year and $60,000 in total.
Voluntary contributions under this scheme must be made within existing super caps. Withdrawals of the contributed amounts along with the deemed earnings will be allowed from 1 July 2018. The amount of earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus three percentage points (currently this equates to 4.78%). The withdrawals of concessional contributions and associated
earnings will be taxed at the individual’s marginal tax rate, less a 30% tax offset. When non-concessional amounts are withdrawn, they will not be taxed, but we anticipate that the earnings will be taxed at the individual’s marginal tax rate, less a 30% tax offset.
The First Home Super Saver Scheme will be administered by the Australian Tax Office (ATO), which will determine the amount of contributions that can be released and will instruct super funds to make these withdrawal payments. The ATO will also be responsible for compliance to ensure that people purchase their first home after they withdraw from super for their deposit.
2. Contributing the proceeds of property downsizing to super
Proposed effective date: 1 July 2018
Currently, if you are aged 65 to 75 and want to make voluntary super contributions, you must satisfy a work test.
If you are over 75, you are generally unable to contribute to your super. The government proposes that from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution into their super of up to $300,000 from the proceeds of selling their home, irrespective of their age, work status or total super balance. Both members of a couple will also be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to super under this measure.
To be eligible, the property must be a principal place of residence owned for a minimum of 10 years. These contributions will be in addition to any other concessional or non-concessional contributions you are eligible to make.
Taxation – general
3. Marginal tax rates remain unchanged
Marginal tax rates are unchanged from 2016–17.
As legislated, the Temporary Budget Repair Levy – which is an additional 2% on the top marginal tax rate – will expire on 30 June 2017. Resident and non-resident marginal tax rates for 2017-18 are shown in the table below.
4. Increase to Medicare levy
Proposed effective date: 1 July 2019
The Medicare levy, which is still assessed on taxable income, is proposed to increase from 2% to 2.5% from 1 July 2019. The increase in the Medicare levy will be used to fund the National Disability Insurance Scheme (NDIS).
Other tax rates that are linked to the top marginal tax rate (ie 47.5% following the increase) will also rise, such as the fringe benefits tax rate.
5. Residential investment property – disallowance of deduction for travel expenses and limitation on deductible depreciation
Proposed effective date: Various
From 1 July 2017, travel expenses incurred in inspecting, maintaining or collecting rent on your residential investment properties will no longer be tax deductible. As a residential property investor, you will continue to be able to deduct fees paid to real estate agents or other property managers for these services. In a separate proposal, depreciation deductions for plant and equipment – such as dishwashers and ceiling fans – in residential investment properties will be limited to the actual expenditure you incur. This is an integrity measure designed to ensure that successive purchasers of a property cannot depreciate an asset beyond its true cost.
Taxation – small business
6. Company tax rate reduction
Legislated from: 1 July 2016
Federal Parliament has now also finalised passage of legislation to reduce the company tax rate.
The first step involves reducing the corporate tax rate for companies that are small business entities, from 28.5% to 27.5%, for the 2016–17 income year. Small business entities are classified as companies that carry on a business and have an annual aggregated turnover of less than $10 million.
Other companies remain subject to the 30% corporate tax rate.
The second step involves subsequent increases in this annual aggregated turnover threshold so that progressively larger companies with annual aggregated turnover under $50 million will qualify for the 27.5% corporate tax rate.
For companies with annual aggregated turnover under $50 million the tax rate will progressively reduce to 25% from the 2026–27 income year.
7. Pensioner Concession Card reinstated
Proposed effective date: 2017–18
Due to the assets test changes that came in on 1 January 2017, some pension recipients were no longer entitled to a payment and as a result lost their Pensioner Concession Card (PCC). At the time those affected were issued with a Low Income Health Card and in some cases, a Commonwealth Seniors Health Card.
Although these cards provide you with access to discounted medication under the Pharmaceutical Benefits Scheme, they don’t provide all the ancillary benefits that the PCC provided.
The government will reinstate the PCC to those who lost their payment as a direct result of the 1 January 2017 asset changes.
8. Earlier Budget measures being abandoned
Proposed effective date: Various
The government will not proceed with the unlegislated components (sometimes referred to as ‘zombie measures’) of measures reported prior to the 2016–17 Budget. This includes the following measures:
- Increasing the age of eligibility for Newstart allowance and Sickness allowance
- Cessation of the education entry payment and the pensioner education supplement
- Pharmaceutical Benefits scheme – increase in co-payments and safety net thresholds
- Australian Working Life Residence – tightening proportionality requirements
- Youth Employment strategy – revised waiting period for youth income support
- Family Payment reform:
– phasing out end of year supplements and limiting FTB Part B to single families with a youngest child aged under 17 years, and
– reducing FTB Part B for single parents with a youngest child aged 13–16
- Paid Parental Leave – removing the mandatory obligation for employers to administer payments
- The increase to Family Tax Benefit (Part A) of $10.08 per fortnight starting from 1 July 2018.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.