2017 Budget Summary

Grahame Allen • May 08, 2017

Federal Budget 2017-18 – What it means for you

Highlights

-          Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (levied at two percent of taxable income in excess of $180,000) will cease on 30 June this year as planned.

-          The $20,000 immediate write-off for small businesses is being extended for one year, to 30 June 2018.

-          The Medicare levy is being increased from 2% to 2.5%, effective from the 2019-20 income year.

-          A number of measures have been announced to reduce the pressure on housing affordability, including:

-           an annual charge on foreign owners of underutilised residential property

-           various CGT changes for foreign investors, including denial of the main residence exemption

-           an option for individuals aged 65 or over to contribute the proceeds of downsizing their home to superannuation

-           denial of deductions for expenses related to inspecting, maintaining or collecting rent for a residential investment property

-           access to a higher CGT discount of 60% (as compared to the 50% available in other circumstances) for investments in qualifying affordable housing

-           the introduction of a first home super saving scheme

 


If you are an individual . . .

who pays tax

. . . you may not have to pay the Medicare levy this year.   From the 2016-17 income year (this year) the Government will increase the Medicare levy low-income threshold for singles to $21,655 (from $21,335), for families to $36,541 (from $36,001), for single seniors and pensioners to $34,244 (from $33,738) and for senior and pensioner families to $47,670 (from $46,966).   The additional amount of threshold for each dependent child or student will also be increased to $3,356 (from $3,306).   This means that you can earn more before triggering a liability to pay the Medicare levy.

. . . if you are required to pay the Medicare levy you will have to pay more from the 2019-20 tax year, as the Medicare levy is being increased from 2% to 2.5%

earning more than $180,000 per annum

. . . you will pay less tax next year.   Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (an additional two percent on taxable income in excess of $180,000) will cease on 30 June 2017 as planned.   It is not being extended.

who owns a home

. . . if you are aged 65 or over and have owned that home for at least 10 years, from 1 July 2018 you will be able to make a non-concessional (after tax) contribution of up to $300,000 from the proceeds of selling your home. You will be able to do this regardless of the existing age test, work test and soon to be introduced $1.6 million cap on after tax contributions.

. . . if you are a foreign or temporary resident you will not have access to the CGT main residence exemption from 7.30pm on Budget night (although existing properties held prior to this time will be grandfathered until 30 June 2019).

who wants to own a home

. . . you will be able to withdraw on or after 1 July 2018 voluntary superannuation contributions you make from 1 July 2017, along with associated deemed earnings, for a first house deposit.   You will be taxed at your marginal rate, less a 30 percent offset, on concessional (before-tax) contributions you withdraw. You will be able to contribute up $15,000 per year, and up to $30,000 in total.

who is studying

. . . repayments on your Higher Education Loan Programme (HELP) debts will be subject to revised income thresholds - a new minimum threshold of $42,000 will be established with a 1% repayment rate, and a maximum threshold of $119,882 with a 10 per cent repayment rate.

who has a SMSF

. . . the use of limited recourse borrowing arrangements by your fund will be included in your $1.6 million total superannuation balance and transfer balance cap, thereby reducing your scope to make non-concessional contributions from other sources.

. . . you can expect greater focus on the use of related party transactions on non-commercial terms to increase your superannuation savings.

If you invest in residential property . . .

and are a foreign resident

. . . where the property is not occupied or genuinely available on the rental market for at least six months per year, you will be charged an annual 'penalty' of at least $5,000.   The new charge applies to applications to acquire property from 7:30pm Budget night.

. . . you may find yourself barred from buying into a new development, as the Government will introduce a 50% cap on foreign ownership in such developments.

and incur travel expenses related to inspecting, maintaining or collecting rent for the property

. . . from 1 July 2017 you will no longer be able to claim deductions for those expenses.   The cost of engaging a real estate agent for property management services will remain deductible.

that qualifies as 'affordable housing'

. . . on or after 1 January 2018 you will benefit from a higher CGT discount - 60% instead of 50%.   To qualify for the higher 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.

. . . you will be able to access concessional tax treatment by investing in a Managed Investment Trust that itself invests in affordable housing, provided the affordable housing is available for rent for at least ten years.

that contains plant and equipment

. . . you will not be able to claim depreciation deductions for assets purchased after 9 May 2017 by a previous owner of the property.  

that is newly constructed or a new subdivision

. . . on or after 1 July 2018 you will be required to remit GST on the purchase   directly to the ATO as part of settlement, as opposed to the developer being required to remit the GST as is currently the case.

If you are a business . . .

planning to employ foreign workers

. . . from March 2018 you may be required to pay a levy. Businesses will be required to make an upfront payment of $1,200 (for businesses with turnover of less than $10 million) or $1,800 (for businesses with turnover of $10 million or more) per visa per year for each employee on a Temporary Skill Shortage visa, and make a one-off payment of $3,000 (for businesses with turnover of less than $10 million) or $5,000 (for businesses with turnover of $10 million or more) for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

planning to invest in a depreciating asset or two (or more)

. . . if you are a small business (which you are if your turnover less than $10 million for the year) you will be able to immediately deduct purchases of eligible assets costing less than $20,000 through to 30 June 2018 (initially planned to cease on 30 June 2017).   From 1 July 2018 the immediate deductibility threshold will revert back to $1,000.

in the courier or cleaning industry

. . . the taxable payments reporting system (TPRS) that operates in the building and construction industry will apply to you from 1 July 2018.   You will be required to report payments you make to contractors (individual and total for the year) to the ATO.

and you are intending to dispose of your business, or CGT assets used in your business

. . . your accountant may need to take a second look at whether the small business CGT concessions will be available to you, as the Government is planning to make changes to those rules from 1 July 2017 designed to restrict their availability.

Whoever you are . . .

if you operate in the black economy

. . . your affairs are more likely to be picked up by the ATO, as the Government will be extending the provision of additional funding for ATO audit and compliance programs to better target black economy activities, such as non lodgement, omission of income and non payment of employer obligations.

. . . the Government will act to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software, which apparently allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment so that income earned from these transactions and tax owing from this income is not reported to the ATO. .

Trust reporting changes from 1 July 2024

By Grahame Allen • 26 Apr, 2024
Changes to simplify reporting for trustees and beneficiaries are commencing from 1 July 2024 as a part of the Modernisation of Trust Administration Systems (MTAS) project. From that date, labels in the statement of distribution, which is a part of the trust tax return, will be modified, a new schedule will be introduced for all trust beneficiary types, and new data validations will be added. Looking at each of these changes in depth, from the 2023-24 income year and onward, four new capital gains tax (CGT) labels have been added into the trust tax return statement of distribution. These changes will enhance the ability of trustees to appropriately notify beneficiaries of their entitlement to income and support the calculation of the CGT amount in individual tax returns. The ATO recommends that all beneficiaries obtain copies of the trust statement of distribution as it relates to their individual entitlements. This will allow beneficiaries to include the correct information in the new trust income schedule. The trust income schedule instructions will demonstrate how the information on the tax statement provided should be reported on the trust income schedule. This also includes trust income from a managed fund. It should be noted that beneficiaries will still need to complete existing trust income labels in beneficiary income tax returns as this new trust income schedule will not replace any existing trust income labels. Individual beneficiaries who lodge via MyTax will receive prompts about the additional reporting of trust income. In addition to these reporting changes, the ATO has reminded trustees that where beneficiaries’ entitlements reflected in trust resolutions are subsequently changed by either arguing the resolution as invalid, defective or made at a different time, it should be notified as an affected party where the change triggers tax consequences. For context, to ensure that beneficiaries are presently entitled to trust income, discretionary trusts are usually required to make a resolution by 30 June of any specific income year. For those specifically entitled to a capital gain, trustees of discretionary trusts must make a resolution in respect of that capital gain by 31 August following the income year in which the capital gain is made. According to the ATO, high-risk behaviours by trustees can include altering trust resolutions after tax returns are lodged, failing to inform the ATO of errors in trust deeds or their administration, and making decisions that affect the tax liabilities of a trust, such as early vesting, without notifying the ATO. These actions can lead to disputes over entitlements, amended assessments, and the potential for tax fraud or evasion charges if the issues are not promptly and transparently addressed with the ATO. The ATO notes that it is critical for trustees of trusts to maintain open and honest communication with the ATO, as failure to do so may lead to serious consequences, including the possibility of amended tax assessments for fraud or evasion (which are not limited by the standard four-year review period) and the imposition of significant penalties. The need for trustees to promptly advise the ATO of any mistakes in the trust deed or in the administration of the trust to prevent legal and financial complications cannot be overstated.

Old ATO debts: IGTO weighs in

By Grahame Allen • 19 Apr, 2024
In response to the ATO's recent actions on re-activating or off-setting old debts, the Commonwealth Ombudsman/ACT Ombudsman, and the Inspector-General of Taxation and Taxation Ombudsman (IGTO) have jointly issued new guidelines aimed at improving how Australians are notified about government debts. The publication outlines principles designed to ensure that the process of debt notification is handled with transparency, clarity and sensitivity towards impacted individuals. Mr Iain Anderson, serving as both Commonwealth Ombudsman and ACT Ombudsman, together with Ms. Karen Payne, Inspector-General of Taxation and Taxation Ombudsman, emphasized the importance of government agencies adopting a compassionate and principled approach when dealing with debt notification. "While the law may require agencies to take certain actions, it is crucial that these actions are taken in a manner that minimizes distress," they stated. The guidelines propose five key principles for the ATO and other government departments to consider when conducting programs: Transparency and Accountability - agencies should communicate clearly why the debt has arisen, fostering trust and confidence in the process. Clarity on the Debt's Origin - individuals should understand the source and nature of the debt, tailored to the recipient's circumstances. Clear Pathways for Review - information on how to request a review of the debt, apply for waivers, and arrange repayments should be readily accessible, ensuring individuals understand their rights and options. Accessible Support - contacts for further assistance must be provided, acknowledging that people may have additional questions or need personalized support. Commitment to Improvement - the process of debt recovery should be viewed as an opportunity to learn and enhance future practices based on oversight recommendations and past experiences. Also noted was the significance of reflecting on past interactions and the recommendations from oversight bodies to continually elevate how agencies engage with the community regarding sensitive matters such as debt recovery. Taxpayers who have an unresolved complaint or dispute with the ATO are able to lodge a dispute with the IGTO to receive independent assurance. IGTO will conduct an independent investigation of the actions and decisions that are subject of the dispute and can help taxpayers better understand the actions taken by the ATO and/or independently verify whether shortcomings exist in ATO’s action or decision which should be rectified, as well as identifying other options taxpayers may have to resolve their concerns. For example, in one case study, the IGTO assisted a taxpayer to verify whether the full amount of general interest charge had been remitted on their tax debts. In another, after a taxpayer’s original request for the Commissioner to exercise his discretion to advance their refund instead of offsetting against their tax debt due to imminent risk of homelessness was denied, the taxpayer lodged a dispute with the IGTO. Following urgent discussions between the IGTO and senior ATO officers, the ATO reversed their decision, and the taxpayer received his refund. The IGTO can also intervene in cases where the ATO has used family assistance payments to offset tax debts. According to another one of IGTO’s case studies, the ATO used a Centrelink Family Assistance (CFA) payment to offset a tax debt that a taxpayer had. At the time, the taxpayer was unemployed and supported two minors along with an ageing parent and relied on the payment. After IGTO intervention, the ATO agreed to refund the offset recognising it was not appropriate to pursue debt collection given the circumstances. Taxpayers interested in lodging a dispute with the IGTO should note that they must have first attempted to resolve the complaint directly with the ATO unless special circumstances exist. Those that remain unsatisfied with the ATO response should then lodge a formal complaint with the ATO for review. If taxpayers are still unsatisfied with the outcome of the ATO review, they can then lodge a dispute with the IGTO for an independent investigation either online or via post or phone.

Get ready for FBT time

By Grahame Allen • 12 Apr, 2024
The end of the FBT year is upon us once again. Employers that have provided their employees with fringe benefits any time during the 2024 FBT year – 1 April 2023 to 31 March 2024 – will need to lodge an FBT return and pay any liability by 28 May 2024. With the landscape of FBT evolving every year due to legislative amendments and administrative updates, employers need to be mindful of the changes applying for the current FBT year. While the electric vehicle exemption came into effect on 1 July 2022, many employers have only recently started ramping up the purchase or leasing of electric vehicles due to a combination of waiting for previous leases to expire and a temporary shortage of electric vehicles. As a refresher, employers are now exempt from paying FBT on benefits related to eligible electric vehicles under the condition that the vehicles are zero or low emissions, first held and used after 1 July 2022, never subjected to luxury car tax, and utilised by current employees or their associates. It should be noted that car expenses associated with providing eligible electric vehicles are also exempt, which includes registration, insurance, repairs and maintenance and fuel (including the cost of electricity to charge electric cars). Other expenses that are not exempt may be reduced by the otherwise deductible rule if the expenditure would have been deductible to the employee had they incurred it themselves. To provide certainty for employers, the ATO recently issued Practical Compliance Guideline PCG 2024/2, offering guidance on calculating electricity costs for charging electric vehicles at an employee’s home. This guideline provides a methodology for employers and individuals to calculate electricity costs, either by using the outlined approach or by determining the actual cost, facilitating the inclusion of these costs in FBT and income tax calculations. In addition, employers that provide cars to their employees should also be aware of the recent updates to the car parking fringe benefits to reflect the latest Taxation Ruling, TR 2021/2, offering clarity on modern car parking arrangements and compliance requirements. In another change for the 2024 FBT year, the ATO has simplified employee declarations in relation to some fringe benefits to ease the administrative burden for both employees and employers. The new declarations remove the requirement for employees to declare the make and model of cars for specific transport-related benefits, including remote area holiday transport and overseas employment holiday transport, among others. Similar to previous FBT years, employers that lodge FBT returns electronically through tax practitioners will have access to a deferred due and payment date of 25 June. This only applies to electronic lodgments and any paper returns lodged through tax practitioners will still have 25 May as the due and payment date. For employers that have registered for FBT but do not need to lodge a return for the 2024 FBT year, a notice of non-lodgment should be submitted to the ATO by the time the FBT return would normally be due (ie by either 25 May or 25 June) to prevent the ATO from seeking a return at a later date. The regulatory environment surrounding FBT continues to evolve; for example, recently the ATO registered instruments to allow employers the option to utilise existing records instead of statutory evidentiary documents for certain benefits from 1 April 2024 (ie the 2025 FBT year). Therefore it is crucial to stay up-to-date and well-informed to navigate the complexities of FBT compliance.
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