Special report: Budget 2017 – what’s in it for private households & business owners

The team at Naritas have summarised the 2017 Federal Budget that was announced on Tuesday evening by the Treasurer, Scott Morrison.

NB: The proposals listed below as part of the Federal budget are subject to the passing of legislation.

Breaks for first homes buyers

To make the task of saving for their first home easier, eligible buyers will be able to divert their pre-tax income towards a special savings account. This will mean that saving a deposit will become a little bit easier.

From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.

For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.

Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions.

Negative Gearing

Negative gearing remains however some rules have been tightened around what can be claimed, specifically travel expenses and depreciation deductions.

Under new rules coming into effect from 1 July 2017, depreciation deductions for plant and equipment items such as washing machines and ceiling fans will only be allowed if the investor actually bought them.

The “integrity measure”, which is intended to address concerns that such items are being claimed as tax write-offs by successive investors in excess of their actual value, is tipped to claw back $260 million over the next four years. The changes will apply to any items purchased after budget night, but existing investments will be grandfathered.

Meanwhile, investors will no longer be able to claim tax deductions for travel expenses “related to inspecting, maintaining or collecting rent for a residential rental property” from 1 July 2017.

Ghost house tax will be imposed on foreign investors who leave properties vacant

To discourage foreign investors from buying residential properties and leaving these vacant, the Government will now charge foreign owners of residential properties an annual charge if the property is not occupied or available to rent for at least six months in each year.

This is expected to increase the number of homes available to Australians wishing to rent. The annual vacancy charge will apply to foreign persons who make a foreign investment application for residential property from 7:30 pm on budget night 2017.

Where a foreign-owned residential property is left vacant for more than six months in a year, a charge will be levied on the foreign owner equivalent to the foreign investment application fee which was paid at the time of application.

The new charge builds on the Government’s existing foreign investment regime which seeks to increase the number of houses available for Australians to live in. The charge provides a financial incentive for the foreign owner to make their property available on the rental market if they do not intend to reside there.

This will be administered by the Australian Taxation Office.

Record levels of spending on infrastructure

The budget also included details on the funding ($5.3 billion) of the second Sydney airport. This will create 20,000 jobs over the 8 year construction period.

Transport and infrastructure feature strongly in the budget, with funding provided for an inland rail link from Melbourne to Brisbane

Housing and housing affordability measures feature strongly in the budget.

In addition to the first home buyers savings benefit, retirees will be encouraged to downsize, increasing the available supply of housing via preferred treatment under superannuation limits.

Older Australians will be encouraged to downsize and free up housing stock. These homeowners will be given greater flexibility to contribute the proceeds of the sale of their home into superannuation. Downsizing frees up larger homes for younger families.

From 1 July 2018, people aged 65 and older will be able to make a non-concessional contributions of up to $300,000 to their superannuation after selling their home. This will be in addition to any other contributions they are eligible to make.

Incentives for the building and development of social housing

The Government is taking action to encourage investment in new and existing affordable rental housing by increasing the Capital Gains Tax discount from 50 per cent to 60 per cent for qualifying affordable housing. To qualify for the higher discount, housing must be provided to tenants on low to moderate incomes, 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.

Increased funding for Child Care

The Child Care Subsidy will ensure families on low to middle incomes of $185,710 or less (in 2017-18 terms) that need to use more child care will not face an annual cap. An annual cap of $10,000 will apply to families earning more than $185,710 (in 2017-18 terms).

Impact for Interest Rates, Exchange Rates and Growth

  • The government forecasts suggest that the economy will expand by around 3% in the year to June 2018
  • On the back of the infrastructure spending boom, unemployment to remain below 6%
  • Inflation will progressively increase to 2.25% in 2018
  • Wages growth will progressively increase
  • The government expects commodity prices to remain at around current levels
  • The Australian dollar could be expected drift slightly lower.

Business owners

$20,000 instant asset write-off

Treasurer Scott Morrison revealed the highly popular measure would be extended, and also be made available to businesses with a larger turnover.

“Small businesses with a turnover up to $10 million will continue to be able to immediately write off expenditure up to $20,000 for a further year,” he said.

The measure – which originally applied to businesses with a turnover of up to $2 million – had been due to expire on June 30, 2017.

It will now expire on the same date in 2018.

Business tax cuts

The Ten Year Enterprise Tax Plan, unveiled in last year’s federal budget, remains on track.

Incorporated small businesses with turnover up to $10 million will have their rate of tax cut to 27.5 per cent for the current financial year. The government says this is the lowest rate of tax that SMEs have accessed for 50 years.

Unincorporated business with annual turnover of up to $5 million will receive an increase in the unincorporated tax discount, taking the rate to 8 per cent.

Meanwhile those businesses with turnover above that threshold, up to $50 million, will receive the same tax rate from the 2018-19 financial year.

Skilled labour

Following the fiery debate that erupted last month following the unexpected abolition of 457 temporary worker visas, My Business forecast that the budget would outline new measures to support skills training.

Mr Morrison said that the current arrangement, which sees employers contribute 1 to 2 per cent of their payroll to training when employing foreign workers would be scrapped.

In its place, he unveiled a new annual foreign worker levy, with the funds raised to go into a new Commonwealth-State Skilling Australian Fund.

“We are replacing these requirements with an annual foreign worker levy of $1,200 or $1,800 per worker per year on temporary work visas and a $3,000 or $5,000 one-off levy for those on a permanent skilled visa,” Mr Morrison said.

The fund is expected to contribute $1.5 billion to state and territory governments in its first four years, with a focus on apprenticeships and traineeships in high-demand occupations that currently rely on skilled migration, as well as regional areas and future growth industries.

In addition, the government will dedicate a further $263 million to the ParentsNext service.

ParentsNext aims to provide the parents of young children with tailored support to return to work. Its services will be expanded nationally.

Banking regulation to benefit customers

Following a number of high-profile scandals in Australia’s banking sector, the government announced the establishment of the Australian Financial Complaints Authority.

According to Mr Morrison, the new authority will be “a simpler, more accessible and more affordable one-stop shop for Australians to resolve their disputes and obtain binding outcomes from the banks and other financial institutions.”

“If banks breach misconduct rules, they will also face bigger fines starting at $50 million for small banks and $200 million for large banks,” he said.

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