Federal Budget 2017: How it affects you

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
10 May 2017

First home savers, downsizers and small business are the winners in Treasurer Scott Morrison’s second Budget – while taxpayers face an increase in the Medicare levy.

Note: These changes are proposals only and may or may not be made law.

Superannuation

Contributions from downsizing the home

Date of effect: 1 July 2018

Individuals aged 65 or older will be able to make non-concessional (after tax) super contributions of up to $300,000, using proceeds from the sale of the family home. This limit will:

  • Apply on a per person basis
  • Be in addition to the ordinary non-concessional contribution cap, and
  • Be available where the home has been owned for at least 10 years.

Unlike other non-concessional contributions, it will not be necessary to meet a work test or have a ‘total super balance’ under $1.6 million. The amount contributed will not be exempt from the assets test used to assess eligibility for the Age Pension.

First home super saver scheme

Date of effect: From 1 July 2017

First home buyers will be able to save for a deposit by making voluntary concessional and non-concessional super contributions. Contributions will be limited to $15,000 per year (up to a total of $30,000) and will count towards the relevant contribution cap.

Withdrawals can be made from 1 July 2018. Concessional contributions plus assumed earnings withdrawn will be taxed at the person’s marginal tax rate, less a 30% tax offset.

The Government has provided an online estimator to help individuals calculate the potential benefit of the scheme.

The First Home Super Saver Scheme will be administered by the ATO, which will determine the amount of contributions that can be released and instruct superannuation schemes to make these withdrawal payments.

SMSF borrowings

Date of effect: When law is passed

Broadly, when new limited recourse borrowing arrangements are established, the loan balance will be included in an individual’s ‘total super balance’. The total super balance is used to determine a person’s ability to:

  • Make non-concessional contributions
  • Qualify for a Government co-contribution or a spouse contribution tax offset, and
  • Make catch-up concessional contributions above the annual caps from 1 July 2018, where certain conditions are met.

Also, repayments made from the SMSFs accumulation balance will count towards the member’s transfer balance cap, if the borrowing supports a pension account. The transfer balance cap limits the total lifetime transfers a person can make to retirement phase pensions.

Taxation

Medicare levy increase

Date of effect: 1 July 2019

The Medicare levy will increase from 2% to 2.5% pa to fully fund the National Disability Insurance Scheme. This increase will flow to a range of other taxes such as Fringe Benefits Tax.

Residential investment property

Date of effect: various

From 1 July 2017, travel expenses incurred in inspecting, maintaining or collecting rent on residential investment properties will no longer be tax deductible. Residential property investors will continue to be able to deduct fees paid to real estate agents or other property managers for these services.

In a separate proposal, depreciation deductions for plant and equipment in residential investment property will be limited to the actual expenditure incurred by the investor. Such fixtures include dishwashers and ceiling fans.

Small business accelerated depreciation

Date of effect: 1 July 2017

The ability for small businesses with an annual turnover of $10 million or less to claim an immediate deduction for eligible assets costing less than $20,000 each will be extended for 12 months to 30 June 2018.

HELP thresholds and rates

Date of effect: 1 July 2018

The annual income threshold at which Higher Education Loan Program (HELP) repayments commence will be reduced to $42,000 (currently $54,869). Also, the repayment rate will start at 1% and increase progressively to 10%.

Social Security

Pensioner Concession Card

Date of effect: From 1 July 2017

Individuals who lost entitlement to the Pensioner Concession Card as a result of the 1 January 2017 assets test changes will be reissued with the card.

Energy Assistance Payment

Date of effect: 20 June 2017

Eligible pensioners will be entitled to a one-off Energy Assistance Payment of $75 for singles and $125 per couple. Eligible recipients include Australian residents who qualify for the Age Pension, Disability Support Pension and Service Pension.

Residency requirements for pensioners

Date of effect: 1 July 2018

To be eligible for the Age Pension and Disability Support Pension (DSP), claimants will need to have 15 years of continuous Australian residence unless they have either:

  • 10 years continuous Australian residence, with 5 years of this being during their working life, or
  • 10 years continuous Australian residence, without having received an activity tested income support payment for a cumulative period of 5 years.

Existing exemptions will continue to apply for DSP applicants who acquire their disability in Australia.

Family Tax Benefit – Part A

Date of effect: 1 July 2018

A single taper rate of 30 cents in the dollar will apply to income that exceeds the Higher Income Free Area ($94,316 in 2016/17). Currently, two tests are applied and the higher payment determines the entitlement.

Family Tax Benefit – Part A and B

Date of effect: 1 July 2017

The payment rates will not be indexed for two years. Indexation will resume on 1 July 2019.

Liquid Assets Waiting Period

Date of effect: 20 September 2018

The maximum Liquid Assets Waiting Period (LAWP) will increase from 13 to 26 weeks. The LAWP is a period an individual will be ineligible to receive Government income support. The new maximum period will apply to:

  • Singles without dependents with liquid assets of more than $18,000, or
  • Couples, or singles with dependents, with liquid assets of more than $36,000.

Liquid assets are readily available assets such as bank accounts, terms deposits, shares and managed funds.

Contact Liz Maroney

If you have any questions on how the Budget may affect you, please contact Liz:

Copyright © 2017

Westlawn Wealth Adviser, Liz Maroney is a ...

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