The May 2017 Federal Budget was handed down on 10 May 2017.
The budget measures include a number of changes to superannuation that many clients may be able to access.
Of particular note is the ability of older Australians downsizing their homes being able to contribute a lump sum of the sale proceeds of their home into their super. This is allowed where the taxpayer is at least 65 years of age and does not rely on them passing any current work test or age limitations.
These contributions will still need to be considered with reference to the $1.6mil benefits cap applicable from 1 July 2016 if it is used to commence a pension.
This means that additional contributions may be made to superannuation from the proceeds of the downsizing of a home, even where the person is over the age of 75 and no longer able to contribute to super.
The downsize policy however will have a negative impact on Centrelink and DVA income and assets tests, although the tax saving may obviate some of this cost.
Another change allows first home buyers to contribute to their superannuation funds in order to save a deposit for the purchase of their home. This measure allows them to contribute up to $15,000 a year, up to a total of $30,000 over their lifetime and then redraw these funds, together with notional earnings on the funds to be used as a deposit on their first home.
Changes to tax deductions relating to rental property investments include travel expenses relating to inspecting, maintaining or collecting rent on residential properties will be disallowed from 1 July 2017.
The Government will also limit the deductibility of depreciation of plant and equipment to outlays actually incurred by investors in residential real estate properties. 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.
These changes apply on a prospective basis so all existing investments will be grandfathered.
$20,000 Instant Assets Write-Off
The instant asset write-off for small business entities is to be extended for an additional 12 months to 30 June 2018, when it will revert to the normal $1,000 threshold amount.
Small Business Tax Rates
The Government has re-committed to the reduced tax rates to be applied to small business entities over the next decade. Currently at 28.5% for the 2016 year, the rate will reduce to 27.5% for 2017 to 2024, 27% in 2025, 26% in 2026 and finally reducing to 25% in 2027.
The Medicare Levy is set to increase from the current 2% of taxable income to 2.5% from 1 July 2019.