A number of tax changes came into place as of July 1. We've prepared a guide for our clients and friends of the firm. The guide outlines the changes for:
These changes apply to landlords, small business owners, foreign investors, first home purchasers, superannuation, individuals with HECS debt and more.
Reduction in Tax rate for Individuals
Individuals earning over $180,000 will have their tax rate reduced to 47% (this percentage includes the Medicare levy 2%). This reduction in tax has been afforded by the conclusion of the Temporary Budget Repair Levy which was introduced in the 2014/15 Federal Budget lifting tax rates for those within this category to 49%. The 2% reduction is effective as of July 1, 2017.
More companies access reduced tax rate
Great news for businesses with the definition of a small business company adjusting which will open access to the reduced tax rate of 27.5% for a larger pool of businesses. Previously small business companies were recognised as having a turnover under $10 million, this has lifted to $25 million.
Access to capital gains tax concessions a $2 million threshold still applies.
The tax rate remains at 30% for all other companies.
Note that tax rate changes have flow on impacts to the franking credits paid by a company.
Asset write-offs for small businesses
Businesses with a turnover of less than $10million have had an extension on the 2015-16 budget policy which allows accelerated depreciation. Accelerated depreciation is a useful tool which allows depreciation of an asset to be applied as it is used. The logic is that an asset is most heavily used when it is new, functional and most efficient. This recognises that the value of an asset will decrease with increased use, opposed to being evenly applied throughout the whole lifecycle of the asset.
These businesses are also able to access immediate deductions for purchases of eligible assets costing less than $20,000 installed or used by 1 July 2018. Please note some exemptions apply, seek further advice if you are looking to utilise this opportunity.
Foreign investors – “ghost tax”
In the 2017/18 budget, the Government announced a “ghost tax” on foreign owners of residential property where the property is not occupied or not genuinely available on the rental market for at least six months per year. A tax of $5,000 applies for residential property values of less than $1million and is capped off at $91,300 for property values up to $10million. The definition of foreign owners is available here
Changes to plant depreciation and travel allowances for property investors
Deductions for travel expenses will not be allowed in relation to inspecting, maintaining or collecting rent for a residential rental property.
Investors will not be able to claim depreciation in relation to existing plant and equipment that has been acquired together with a residential rental property. Investors will only be allowed to claim depreciation for subsequently purchased plant and equipment. Plant and equipment are the assets within a property that are generally considered ‘easily removable’, for example carpet, blinds, air conditioners, hot water systems, kitchen appliances
These changes do not apply to commercial investments.
Capital gains tax withholding
Australian resident vendors selling real property will need to obtain clearance from the Australian Tax Office prior to settlement to ensure they do not incur withholding tax of 12.5% of the purchase price. This applies from 1 July 2017 to all property sales where the contract price is $750,000 and above.
Clearance must be sought using a Foreign resident capital gains withholding clearance certificate application form. The form requires information that is both directly and indirectly associated with the transaction. For this reason, we recommend seeking the advice of a taxation professional who has a broader understanding of your investments and financial position, as care must be taken to ensure the responses are consistent with the facts and other statements made.
A range of significant superannuation reforms became effective as of 1 July 2017. A copy of the superannuation reform guide was sent to CABEL’s clients in our May newsletter. View it online here.
First home super saver
The Government announced that from 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation fund to purchase a first home. These contributions can be withdrawn from 1 July 2018 for a first home deposit.
Stamp Duty changes in NSW
The NSW Government announced some changes to stamp duty in NSW, including abolishing stamp duty for first homebuyers on existing and new homes up to $650,000, and stamp duty discounts for properties worth up to $800,000.
Changes to insurance duty for small businesses
There will be some changes to insurance duty including exemptions for small businesses. From 1 January 2018 small businesses are not liable to duty on certain types of insurance.
Changes for Australians living overseas with unpaid education debts
Australians living overseas with unpaid HELP (HECS) debts will be required to start repaying regardless of where they live from 1 July 2017.
We see many businesses who are not structuring their remuneration, dividends, loans and fringe benefits as best they could within available rules. We have previously written about this matter in Taxation in Australia May 2016, outlining the changes in the numerous tax laws in the last two years make the need to optimise the way owners interact with their business. In short, when a change in business or stage of life we recommend an Optimisation Review.
With changes also planned from 1 July 2018, proactive tax planning is more important than it has been in recent years. You should plan your life changes, asset sales and purchases and where you live well ahead of time and get proactive advice. The cost will be worth the benefit.
Need help or more information?
Contact Caroline Vickery, Senior Tax Manager or Adrian Ma, Tax Manager on +612 8071 0300