2017 Federal Budget
by Mark Causer & Brendan Gallagher
The Treasurer, Scott Morrison, has now delivered the 2017 Federal Budget.
As with every Budget, from an individual’s perspective, there are perceived winners and losers.
This year, home ownership affordability and related activities to further liquidate the Australian property market takes a lot of the limelight.
Importantly however, these Budget proposals are exactly that, proposals. It is important to remember this, but equally relevant to consider the strategy(ies) that you may now be able to apply to suit your individual circumstances.
The key proposals at a glance
First Home Buyers
From as early as 1 July 2017, first home buyers (young and old) can make voluntary, before and after tax contributions to their existing super fund of up to $15,000 a year and $30,000 in total, to use towards a home deposit. Deemed maximum earning rates will apply. This proposal, while seeming simple in design, will require close review to ensure that the individual is indeed receiving a net real benefit.
From 1 July 2018, people aged 65 or over may contribute up to $300,000 each into their superannuation account from the proceeds of selling their home, that they have lived in for the past 10 years or more. This additional contribution will not be subject to any aged based work rules, will not be subject to the new super contribution caps or member balance limits ($1.6 million), that will come into effect from 1 July 2017. For those homeowners who have considered selling and moving to more manageable accommodation, this will be one proposal to watch closely.
In further proposals to free up the property market in Australia, the Treasurer has proposed (effective immediately) that foreign property owners no longer receive the Capital Gains Tax exemption on their property in Australia as their principal place of residence. A new CGT rate of 12.5% will apply.
The strategy, ‘buy an investment property on the Gold Coast and get paid to inspect it each summer’, (i.e. the ability to claim travel deductions) will be removed.
In addition, foreign-owned property that is left vacant and/or not offered up as rental accommodation for more than six months in a year will be subject to an annual vacancy charge of at least $5,000. To further discourage foreign investment, property developers will be prevented from selling more than 50% of new developments to foreign investors – a group of investors who have to this point, invested heavily in new, off the plan projects.
Self-Managed Super Funds who have borrowed via a Limited Recourse Borrowing Arrangement to purchase real property, the loan balance will now be included in the individual’s total super balance. This will reduce the potential for increased superannuation contributions for many over-geared SMSFs and cause them to question whether they should continue to own the property in question – this may in turn further liquidate the property market for first home buyers.
There is a proposed increase to Medicare levy, to come into effect from 1 July 2019. For those impacted, the Medicare Levy will increase from 2.0% to 2.5%, to fund the National Disability Insurance Scheme.
Pensioners, who lost their Pension Concession Card under the 1 January 2017 changes to the Assets Test, will have this benefit restored. It is also proposed that Age pensioners get a one-off energy payment of $75 for singles and $125 for couples (paid on 20 June 2017) – maybe a token payment for some!
Australia’s five biggest banks don’t escape the Treasurer’s gaze. It is proposed that they will pay a new 0.06% levy on their liabilities with the expectation that this will raise a further $6.2 billion over four years to assist with Budget repair. This ‘Band-Aid’ approach is unlikely to derail the Banks as no doubt they will find a way to pass costs onto clients.
It is proposed that this group have another year in which to immediately write off up to $20,000 per eligible asset within their business.
In a country that provides somewhat free university degrees and only asks that you repay once you enter the workforce earning a salary, tuition fees will increase and the salary threshold that you start to repay the loan, will be reduced from $51,975 to $42,000. It is possible that pre-tax contributions to the First Home Savers program might be a worthwhile consideration for this group once they do enter the workforce!
Family Tax Benefits
There will be sweeping changes to this group, with the Government looking to save $2 billion over the next four years. Once again, those in this group who might be renting and would still qualify as a First Home Saver, this new strategy will likely come into play.
The above represents a brief snapshot of the Treasurer’s proposals. As we watch the passage of legislation, to see what proposals are passed and those that are not, Financial Keys will work with you to ensure that your existing strategy(ies) continue to maximise the rules and regulations of Australia.
If you should have questions, please do not hesitate to contact Financial Keys.
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