Last night the Federal Budget was announced.  Here are some highlights that will affect you and your business.

PERSONAL INCOME TAX MEASURES

Limiting plant and equipment depreciation deductions to outlays actually incurred by investors – for residential investment properties acquired from Budget night on 9 May 2017

From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties. Plant and equipment items are usually mechanical fixtures, or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans. These changes will apply on a prospective basis, with existing investments grandfathered. More specifically:

– Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7.30pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

– Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

This in an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.

Simplified by APL: If you buy an asset for your residential rental property it can be depreciated for the life of the asset. If you sell the property, the asset can no longer be depreciated and is included as part of the cost of the property for the new owner and will form part of CGT calculations from 9 May 2017.

No deduction for travel expenses for residential rental properties

From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services.

Simplified by APL: If you inspect, collect rent, do maintenance or anything on your own rental property, you are no longer to claim the travel to the property as a deduction.

MEASURES AFFECTING SMALL BUSINESS

Extending the $20,000 immediate write-off for small business

Under current law, the $20,000 immediate write-off ends on 30 June 2017. However, the Government has proposed to extend the concession by 12 months to 30 June 2018 for businesses with an aggregated annual turnover less than $10 million.

This means small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

From 1 July 2018, the immediate deductibility threshold and the balance at which the pool can be immediately deducted will revert back to $1,000.

Simplified by APL: If your turnover is less than $10 million you can continue to write off assets under $20,000 until 30 June 2018.

SUPERANNUATION

Extending tax relief for merging superannuation funds

The Government will extend the current tax relief for merging superannuation funds until 1 July 2020.

Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017.

Extending this relief will ensure superannuation fund members’ balances are not reduced by tax when superannuation funds merge.

Simplified by APL:  You will not lose out if your superannuation fund merges with another and has capital gains or losses until at least 1 July 2020.

Integrity of non-arm’s length arrangements

From 1 July 2018, the Government will further improve the integrity of the superannuation system by reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings. The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.

Simplified by APL: Be careful with your non-arm’s length transactions with superannuation funds.

Individuals aged 65 or over able to contribute the proceeds of downsizing into superannuation

From 1 July 2018, the Government will allow a person aged 65 or over to make a NCC of up to $300,000 from the proceeds of selling their home. The NCCs will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making NCCs.

This measure will apply to sales of a principal residence owned for the past ten or more years and both members of a couple will be able to take advantage of this measure for the same home.

This measure reduces a barrier to downsizing for older people. Encouraging downsizing may enable more effective use of the housing stock by freeing up larger homes for younger, growing families.

Note: It is unclear how this measure will affect the assets test for aged pension purposes.

Simplified by APL: If over 65 you can sell your residential home and put the proceeds (of up to $300,000) into your superannuation fund regardless of existing rules and caps for making NCCs.

MEASURES AFFECTING THE GST REGIME

Improving the integrity of GST on property transactions

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. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. As most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes.

Simplified by APL: The buyer on a new property will be dealing with the GST. If you use an external agent (eg conveyancer) you won’t have to worry about it too much.

Aligning the treatment of digital currency (eg. bitcoin) with money

From 1 July 2017, the Government will align the GST treatment of digital currency (eg Bitcoin) with money. Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST. This measure will ensure purchases of digital currency are no longer subject to the GST.

Simplified by APL:  If you use these kinds of services, you will no longer be charged GST twice.

CHANGES AFFECTING THE HIGHER EDUCATION LOAN PROGRAM (‘HELP’)

The Government will revise the income thresholds for repayment of HELP debt, repayment rates and the indexation of repayment thresholds from 1 July 2018. 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% repayment rate.

By way of background, for 2017/2018, the minimum threshold is $55,874 and the minimum repayment rate is 4%. The maximum threshold for 2017/2018 is $103,766 with an 8% repayment rate.

Simplified by APL: You will start to pay your HELP debt back sooner but at a lower repayment rate.

from National Tax & Accountants’ Association Ltd

Exciting stuff!