Okay, another year and another budget. My inbox is full of very intelligent people and well-established companies explaining it all in very correct technical and (typically) boring accounting and tax language. Some of it is so complicated even I have a hard time trying to work out what it means.
I am reading a paragraph right now under the heading 'Tax Integrity'. Here's what it says:
'Integrity rules will be introduced to clamp down on aggressive structures used by institutions for tax minimization. The new rules will apply to hybrid mismatch rules to hybrid tax mismatches' ...... I never got to the end because I fell asleep.
So I thought I would write a summary which is in plain English and explain what it really means to you and me.
Overall, most of it was expected ..... with the odd firework thrown in.
This budget was about getting the best deal through the Senate. The Senate has not been a friend of Malcolm Turnbull & Co this year so we think they worked out what would go through and ran with it. It's a shame because it seems politics is taking a front seat when the country should be taking a front seat.
So for those of us who like plain English here is our summary.
Go For the Banks!
Yes, we hate them all so when Scott Morrison said he was introducing a 'special levy' amounting to $6bn on the big 4 banks everyone was happy. We popped champagne corks and invited all our friends round for a drink. I have not yet met anyone who thinks this is a bad idea. Even my parrot was happy.
But don't be fooled because I have a suspicious feeling we are being mugged.
Yes, the banks will pay but I doubt very much the CEOs of the major banks are sitting in their comfortable chairs in their comfortable offices shrugging their shoulders and happily prepared to write cheques of $6bn. Shareholders will sack them if they do.
You see increasing the tax rates for me and you is not popular but going after the banks is. So the government has gone after the banks knowing that the chances are the banks will end up passing this cost to its customers - you and me. In other words, the chances are we might have just been mugged into thinking the banks are going to pay $6bn. They probably won't and we probably will.
The bank might not raise borrowing rates but do not be surprised if you see small changes to monthly bank fees, overdraft fees, lending fees and reductions in saving rates..
For those of you who have investment properties, the government will be limiting plant and equipment depreciation deductions to those that you have actually paid for.
Plant and equipment items are usually mechanical fixtures or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
If you purchase plant and equipment for your residential investment property after 9 May 2017 you will be able to claim a deduction over the effective life of the asset. However, subsequent owners of your property will be unable to claim deductions for plant and equipment purchased by you.
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property. The Government felt that many Investment Property Owners were undertaking private travel and claiming a tax deduction. This might not be true if you have an investment property out in a dodgy area of Adelaide but they may have a point when it comes to units held on the Gold Coast!
Medicare levy low-income thresholds have been increased for singles, families and seniors and pensioners from the 2017 income year.
• The threshold for singles will be increased to $21,655.
• The family threshold will be increased to $36,541 plus $3,356 for each dependent child or student.
• For single seniors and pensioners, the threshold will be increased to $34,244.
• The family threshold for seniors and pensioners will be increased to $47,670 plus $3,356 for each dependent child or student.
There is a lot of excitement and discussions about the increase in the Medicare Levy but the reality is that this does not come into effect for another two years! The money will be put aside to Fund the National Disability Insurance Scheme.
From 1 July 2019, the Government will increase the Medicare levy from 2% to 2.5% of taxable income. For a single person earning $80,000 a year this will increase their taxes by $400 and for a couple with joint income of $100,000, their taxes go up by $500. For the single person that's about 2 coffees a week so it's not really not bad. If you are couple have a fight about who is going to give up the morning coffee!
Corporate Tax Rate
It is about time our government has worked out that we are part of a global economy and whether we like it not, this is not going to change. Businesses in London can sell us goods and services. Those same services might be offered by Australian businesses but because the tax rates are different the London Business can do it cheaper. Tax rates in England are 20% moving to 17%.
So the budget has tried to fix this by gradually reducing the company tax rate over 10 years to 25%. There are one or two issues with this. Firstly any future government can decide to change this and secondly we will still be more expensive than other western economies. But it is a move in the right direction for small business although I am not sure Telstra or Commonwealth Bank will lower their costs to us when they save their millions in taxes.
From 1 July 2016, the government will cut the small business company tax rate to 27.5%, and make this tax rate available to small companies with an annual aggregated turnover of less than $10 million.
However, the rate does not change until the 2024/25 income year, when the tax rate will be reduced to 27% and then be reduced progressively by 1 percentage point per year until it reaches 25% in the 2026/27 income year. I don’t know about you but based on history do not be surprised if come 2026/27 the rates are totally different. It's hard enough trying to work out what is going to happen next year so talking about tax rates in ten years in not really useful.
$20,000 Instant Write Off
The Government is extending the $20,000 immediate write-off for small business which was due to end on 30 June 2017 by a further 12 months.
This means small businesses will be able to immediately deduct purchases of assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more can continue to be placed into the small business pool and depreciate as normal.
The Government is giving $300m to the States to reduce Red Tape for businesses. Don't hold your breath. Such initiatives have been done before and the states simply use the money for something else. Expect no changes to the hated payroll tax or other silly bureaucratic rubbish small business has to deal with. We can always hope!
Foreign Workers Levy
With the abolition of 457 Visa, businesses who employ foreign workers will have to pay a levy of between $1,200 - $1,800 per year per worker. This levy will be used to train Australians to do the same job. Sounds great in principal but there are some industries where Australians simply do not want to work. Take cleaning and hospitality where the use of 457 Visa is used extensively. My clients tell me they cannot find Australian workers who want to do this kind of work.
Superannuation reform changes
Before we start we need to make one thing clear so that someone does not sue the pants off us. We are not financial planners so the information below is for information only and we are not providing any advice whatsoever. If you have any queries, please contact your financial planner or speak to us and we will recommend a few for you.
Help for First Home Buyers
There has been quite a lot of discussion about the use of Superannuation to purchase your first home. One wonders what the purpose of Superannuation is as it has changed so much since its introduction. The idea then was to put money away which cannot be touched until retirement.
The Government will encourage home ownership by allowing first home buyers to ‘build a deposit’ inside their superannuation fund, as follows:
• Voluntary superannuation contributions of up to $15,000 per year and $30,000 in total can be contributed by first home buyers from 1 July 2017. The contribution must be within existing caps.
• These contributions can then be withdrawn, for a first home deposit, from 1 July 2018 onwards.
Individuals aged 65 or over able to contribute the proceeds of downsizing into superannuation from 1 July 2018. the Government will allow a contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently permitted under existing rules and caps. This would allow a sale 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. The idea is that this will allow easier downsizing for older people.
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 the settlement. This is to stop certain unscrupulous property developers holding onto GST monies and not making payment to the ATO
The Government has made various changes for foreign investors. We do not believe these changes are of significant interest for our clients. However, if you would like to know what these changes are, please contact us.
We hope you enjoyed reading our plain English summary.
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