There are no changes to personal income tax rates and thresholds in the 2017-2018 Budget, and there will be relief from the 2% Budget deficit levy, as anticipated, from 30 June 2017. On the other hand, the Medicare levy will be increased to 2.5% from 1 July 2019. There were changes for people repaying HELP debts for higher education, and the unexpected token of a small, one-off payment to pensioners.
Perhaps the most significant initiatives contained in the Budget are the housing affordability measures, a comprehensive approach which includes assisting first home buyers to build a deposit inside superannuation and allowing older Australians to contribute downsizing proceeds into superannuation.
Here is an outline of changes in the 2017-2018 as relevant to individuals:
Personal tax rates – no change: 2% Budget deficit levy to end on 30 June 2017
The 2017-2018 Budget contained no changes to the personal income tax rates and thresholds. This means that the 2% budget deficit levy on incomes over $180,000 will not be extended beyond its initial 3 years. Therefore, this levy will cease at the end of the 2016-2017 financial year.
Medicare levy to be increased to 2.5% from 1 July 2019
The Government will increase the Medicare levy to 2.5% from 1 July 2019 (up 0.5% from the current 2% Medicare levy) to ensure the National Disability Insurance Scheme (NDIS) is fully funded and to guarantee Medicare. Other tax rates that are linked to the top personal tax rate, such as the FBT rate, will also be increased.
Low-income earners will continue to receive relief from the Medicare levy through the low-income threshold for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.
Medicare levy low-income thresholds for 2016-2017
For the 2016-17 income year, the Medicare levy low-income threshold for singles will be increased to $21,655 (up from $21,335 for 2015-2016). For couples with no children, the family income threshold will be increased to $36,541 (up from $36,001 for 2015-16). The additional amount of threshold for each dependent child or student will be increased to $3,356 (up from $3,306).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $34,244 (up from $33,738 for 2015-16). The family threshold for seniors and pensioners will be increased to $47,670 plus $3,356 for each dependent child or student.
Higher Education HELP changes announced: faster repayment and threshold changes
The maximum student contribution will increase from 1 January 2018.
A new set of repayment thresholds will be introduced from 1 July 2018, affecting all current and future Higher Education Loan Program (HELP) debtors – changing the timing and quantity of their repayments.
One-off payments to pensioners
To win the support of Senator Xenophon’s team to pass the Enterprise Tax Plan Bill, the Government agreed to provide a one-off payment to recipients of the Aged Pension, the Disability Pension and Parenting Payment – $75 for single recipients and $125 for couples. These payments were confirmed in the Budget.
New residential premises: purchaser to pay GST
Purchasers of newly constructed residential properties (or new subdivisions) will be required to remit the GST directly to the Tax Office as part of settlement. Currently, GST is included in the purchase price and it is the developer who remits any GST. However, some developers are failing to remit the GST (despite having claimed GST credits on their construction costs).
The measure is proposed to start on 1 July 2018.
Housing affordability measures – overview
The 2017-18 Budget contained a number of measures designed to improve Australians’ access to secure and affordable housing across the housing spectrum. These measures include:
- strengthening the CGT rules to reduce the risk that foreign investors avoid paying CGT in Australian;
- introducing a 50% cap on pre-approved foreign ownership in new developments;
- applying an annual charge to foreign owners who leave residential property unoccupied or not available for rent for 6 months or more each year;
- easing restrictions that are contributing to the supply of housing falling behind population growth and encouraging a more responsive housing market;
- improving outcomes in social housing and homelessness;
- assisting first home buyers to build a deposit inside superannuation; and
- allowing older Australians to contribute downsizing proceeds into superannuation.
Travel expenses related to inspecting, maintaining, or collecting rent for a residential rental property will be disallowed from 1 July 2017.
Increased CGT discount for investments in affordable housing
From 1 January 2018, the CGT discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.
Foreign ownership in new developments limited to 50%
A cap of 50% will be applied to foreign ownership in new developments through a condition on New Dwelling Exemption Certificates.
No major new super measures, but 1 July super reforms loom large
The Government did not announce any new major superannuation measures in the Budget. This will be a welcome relief for the super industry which already has enough on its plate with major reforms set to start on 1 July 2017. As is the case with any large-scale changes such as the 1 July 217 super reforms, refinements are often necessary to address unanticipated consequences as part of the implantation process.
Super borrowings – LRBA integrity measure for pension cap
As an integrity measure, the use of limited recourse borrowing arrangements (LRBAs) by superannuation will be included in a member’s total superannuation balance and for the purpose of $1.6m pension transfer balance cap from 1 July 2017. According to the Government, LRBA’s can potentially be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation to the retirement phase that is not captured by the $1.6m pension transfer balance cap. From 1 July 2017, the outstanding balance of
According to the Government, LRBA’s can potentially be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation to the retirement phase that is not captured by the $1.6m pension transfer balance cap. From 1 July 2017, the outstanding balance of a LRBA will be included in a member’s annual total superannuation balance. In addition, the repayment of the principal interest of a LRBA from a member’s accumulation account will be a credit in the member’s pension transfer balance account.
Super contributions of proceeds up to $300,000 from downsizing a home
The government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test, and the $1.6m total superannuation balance test for making non-concessional contributions (which applies from 1 July 2017).
The measure will apply to sales of a principal residence owned for the past 10 years or more. Both members of a couple will be able to take advantage of this measure for the same home. The measure seeks to reduce a barrier to downsizing for older people and enable more effective use of housing stock by freeing up larger homes.
Note that the proceeds from downsizing a home in this manner are not proposed to be exempt from the Age Pension assets test.
First home super saver scheme
The Government will encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings.
Concessional contributions and earnings that are withdrawn will be taxed at marginal rates, less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.
Under the measure, up to $15,000 per year and $30,000 in total can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure and combine savings for a single deposit to buy their first home together.