Summary & Key Highlights

The headline grabbers in this budget have been the First Home Super Saver Scheme, and allowing individuals over the age of 65 to contribute up to $300,000 from downsizing their principal residence into super.

The Government has devised a new strategy to allowing super contributions to be used as a deposit for first time home-buyers. From 1 July 2017, first home buyers will be able to make voluntary contributions to super – including salary sacrifice and deductible personal contributions – of up to $15,000 a year and $30,000 in total to provide a deposit on a first home. Since individuals can use pre-tax dollars, it is likely to be more successful than the First Home Savers Accounts that were unable to gain momentum.

A further change was to allow individuals over 65 to contribute the proceeds from downsizing their home into super without the need to meet a work test.  The contribution of up to $300,000 per person will also be exempt from the non-concessional contributions cap.

Some of the other key changes were;

• The major banks that will now be charged a levy of 0.06 per cent a year on liabilities, starting from 1 July 2017.
• Foreign residents will pay more in CGT withholding and lose the CGT main residence exemption from 9 May 2017.
• The Medicare levy will be increased by 0.5 per cent from 1 July 2019 to 2.5%. In respect of Social Security, the Liquid Assets Waiting Period has doubled.

Overall, while we welcome any attempt to help first time buyers access the overheated property market and provide some liquidity by encouraging retirees to downsize, we can’t help but feel this was a budget that was all “Gums and no Teeth”. We can’t help but feel that the real issue is the property values are too high and the solution lies in deflating property prices by addressing the incentives such as negative gearing, rather than further fueling the fire with another First Home Saver Scheme.

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

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Superannuation

First home super saver scheme

From 1 July 2017

Super can be used to assist with saving for a first home purchase. First home buyers will be able to save up to $15,000pa for a deposit by making voluntary superannuation contributions (concessional and non-concessional). Contributions will form part of the existing concessional and non-concessional contribution and caps and will be limited to a total of $30,000 under the scheme.

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.

This is similar to the abandoned First Home Saver Account scheme but allows investors to receive a tax deduction when salary sacrificing.

Contributing the proceeds from downsizing the family home into super

From 1 July 2018

People over the age of 65 will be able to make a one off non-concessional (after tax) super contribution of up to $300,000, using proceeds from the sale of the family home. This 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 be counted under the Age Pension Assets Test.

Although the $1.6 Million Balance Cap for individuals to be able to contribute into superannuation will not apply in this instance, the $1.6 Million Transfer Cap into pension phase remains. Ie individuals will benefit from the reduced tax environment of superannuation but remain limited to the overall $1.6 Million Transfer Cap into pension phase.

This does raise some exciting prospects for our advice clients when you consider the potential implications of estate planning. e.g. Is there an age limit? What defines downsizing? Could you rent? Could you sell up and move in with your children? 

SMSF borrowings

Expected to be from 1st July 2017

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.

Self Managed Super Funds and non-arm’s length arrangements

From 1 July 2018

SMSFs undertaking related party transactions will have to ensure that expenses which would normally apply in a commercial transaction are included when considering whether a transaction has been made on a commercial basis.

This appears to be an amendment to ensure that significant costs incurred with establishing certain transactions, such as related party loans or investments in related parties allowed under the SIS Act, include re-imbursements for ancillary costs. This helps ensure self-managed super funds do not gain an additional advantage in undertaking related party transactions.

Both these measures are a general tightening up the Superannuation rules

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Taxation & Social Security

Non-Resident Investors and Property

From: 7.30pm 9 May 2017

There are a number of changes affecting property investments by foreign residents:

• Foreign-owned residential property left vacant for more than six months in a year, will incur a charge (minimum $5,000). The amount will be equivalent to the foreign investment application fee paid at the time of application.
• Foreign and temporary tax residents will no longer be able to claim the main residence capital gains tax exemption when they sell property in Australia. For those who already own property on Budget night they will be able to continue to claim the exemption until 30 June 2019.
• Developers who are granted a New Dwelling Exemption Certificate will be subject to a condition which limits the sale to foreign investors of new dwellings in that development to 50%.

Additionally, from 1 July 2017 the Capital Gains Tax (CGT) withholding rate for foreign tax residents will be increased from 10% to 12.5% and the CGT withholding threshold reduced from $2 Million to $750,000.

Travel Expenses relating to residential properties

From 1 July 17

Effective from 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Additionally, the rules around claiming depreciation will change so that deductions for plant and equipment will only be allowed where an expense has actually been incurred.

This will not prevent investors from engaging third parties such as real estate agents for property management services as these expenses will remain deductible.

Medicare levy increase

From 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.

Small business accelerated depreciation

From 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.

HELP thresholds and rates

From 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%.

Reinstatement of the Pensioner Concession Card

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

From 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.

Enhanced Residency Requirements for Pensioners

From 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

From 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

From 1 July 2017

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

Liquid Assets Waiting Period

From 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.