Tuesday May 9 2017 saw the Turnbull Government deliver their second Budget. Thank goodness, they didn’t propose as many changes to the tax system as in their first, many of which remain stuck in Parliament unable to be resolved.
From a wealth and financial planning perspective the positive news is that the changes are minimal. From a business perspective, the Budget will have positive outcomes for most of our clients.
We believe the Government is clearly investing in the future of the nation via infrastructure spending and increasing some of the tax concessions for small business.
Following are the 2017 Budget highlights which we believe may be applicable to you …
Tax for Business
- $20,000 instant asset write-off has been extended for another year for small businesses.
The Government will be extending the existing accelerated depreciation allowance for small businesses for another 12 months
What could this mean for you … Most importantly the definition of a “small business” has changed to a business having a turnover of less than $10 million per annum. This will now expire on 30 June 2018.
- New levy for major banks
A major banks levy will be introduced for authorised deposit-taking institutions with licensed entity liabilities of at least $100 billion. The levy equates to 0.06%.
What could this mean for you … Most q4 clients bank with a major bank and will be watching this initiative closely as the rollout becomes clearer. Our major concern is around how the banks try and recoup the extra costs they will now incur. Depending on how the bank manage this levy, it may open the doors for smaller banks to become more competitive, which is not a bad thing.
Tax for Individuals
- A 0.5% Medicare Levy increase from 2019
From 1 July, 2019 the Medicare Levy will jump from 2% to 2.5% of an individual’s taxable income
What could this mean for you … The increased levy may also result in increases to other taxes including Fringe Benefits Tax and Excess Contributions Tax. With an ageing population, this is to be expected.
It is also worth noting that the Temporary Budget repair levy for those earning over $180,000 per annum will be abolished from the 1st of July, 2017.
- New threshold for HELP debt repayments
From 1 July,2018 income thresholds for the repayment of HELP Debts will be revised.
What could this mean for you … A new minimum threshold of $42,000 will apply with a 1% repayment rate. For the children of our clients receiving trust distributions we will need to manage the distribution levels to ensure we achieve optimal tax and debt repayment outcomes for the family group.
Tax for Investors
- Restrictions on deductions from residential property investments
From 1 July, 2017 depreciation deductions for residential plant and equipment (eg dishwashers and ceiling fans) will be limited to investors who actually incur the outlay – not subsequent owners, as is the case today. Also from that date, investors will be unable to be deduct travel expenses related to inspecting, maintaining or collecting the rent for a residential property.
What could this mean for you … There have been many suggestions over the last few years that negative gearing will be abolished. This initiative falls along way short of that. No investor should be relying on the above deductions to establish the affordability of such an investment. We see this initiative having very little effect on this sector.
- Additional non-concessional cap for retiree downsizers
From 1 July 2018 people aged 65+ will be able to contribute up to $300,000 into super from the sale of their principal home, if they have owned their home for at least 10 years.
What could this mean for you … You may be able to contribute an additional $300,000 to super (or $600,000 for a couple) over and above your existing concessional and non-concessional caps. We see very few of our clients downsizing in retirement so we don’t see a big impact for q4 clients, but it is worth noting that this may be an option in some instances.
- Super Savings scheme for first home buyers
From 1 July 2017 individuals will be able to make extra voluntary super contributions of up to $15,000 per year beyond their employer’s Super Guarantee payments up to a total of $30,000. These contributions will be taxed at 15% and can be withdrawn to go towards the deposit on a first home. Withdrawals will be allowed from 1 July 2018.
What could this mean for you … Most q4 clients are well past this stage of their wealth creation journey, but this proposal may be applicable for the next generation to save tax effectively for their first home. We see this as a very positive initiative by the Turnbull Government.
Please note. As with all Australian Budgets, each initiative needs to be passed by both houses of Parliament before becoming legislation. Please do not act on the above information until you have spoken to your advisor to confirm if this initiative is applicable to your situation and if in fact it has become legislated.
The Government have taken a different approach with the 2017 Budget and have not made it as divisive as some previous budgets, in an attempt to keep things moving. They have also focused on a notion of “Good” and “Bad” debt, so they can be associated with the initiative that “Good” debt is building a stronger nation. Here’s hoping for a smoother passage through Parliament so they can get on with their job and be judged on these outcomes before the next election.
A CPA and Director of q4 financial, Grant Titman brings leadership and the disciplined energy of an endurance runner to deliver ‘big picture’ outcomes for his firm and his clients.
Grant’s expertise includes and extends well beyond achieving profitability and growth for his clients’ businesses. His focus is squarely on helping his clients to achieve three key goals: extract wealth from their business; set and achieve long-term wealth objectives; and ultimately, enjoy financial freedom.