The 2017-18 budget represents the federal government’s attempt to gain favour with voters amidst rising economic populist sentiment in the electorate. The government has decided to increase taxes and embark upon major new spending programs. There were no major tax changes announced, however, plans to increase the tax burden on property investors and foreigners were introduced, with some additional concessions for small business.
Relevant taxation measures include:
Increase in the Medicare Levy
The Medicare Levy will increase from 2% to 2.5% from 1 July 2019.
Extension of immediate $20,000 asset deduction for small business
The $20,000 instant asset write-off for small business entities (turnover less than $10M for the 2017 year) will be extended by 12 months to 30 June 2018.
Reduction in company tax rate
The company tax rate for small business entities for the 2017 financial year has been reduced to 27.5%.
Limit on investment property depreciation deductions
From 1 July, the government will limit plant and equipment depreciation deductions to outlays actually incurred by real estate property investors, rather than allowing claims to be based on quantity surveyor reports.
No deduction for travel expenses for residential property
From 1 July, travel expense deductions will be disallowed for inspections of residential rental property.
Tighter small business CGT concessions
From 1 July, the small business CGT concessions will be amended to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.
Taxable payments reporting system extended
The government will extend the taxable payments reporting system from the construction industry to contractors in the courier and cleaning industries per the recommendation of the Black Economy Taskforce.
GST on digital currencies
From 1 July, purchases of digital currency will no longer be subject to GST. The measure will align the GST treatment of digital currency with that of money.
Property purchasers to pay GST direct to ATO
From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement.
Affordable housing incentive
From 1 January 2018, there will be an additional 10% CGT discount for resident individuals who invest in qualifying affordable housing, i.e. a total of 60% CGT discount.
Withholding from payments to foreign residents
There will be changes to the foreign resident capital gains withholding (FRCGW) rate and threshold. The changes will apply to:
- Real property disposals from 1 July where the contract price is $750,000 and above (currently $2 million)
- All contracts settled from 1 July that the FRCGW applies to will be subject to a withholding tax rate of 12.5% (currently 10%)
New tax on bank customers
The government will introduce a new bank levy for Authorised Deposit-Taking Institutions with licensed entity liabilities of at least $100 billion (i.e. the ‘Big 4’ banks plus Macquarie Bank) from 1 July. The levy will be calculated as 0.06% of liabilities. This new tax will likely be passed on to bank customers via higher interest rates and fees.
Please contact us if you have any questions regarding how the 2017-18 budget proposals may affect you.