It was a budget full of tax increases and increased spending that looked more like a Labor government budget than a Liberal one. The majority of us will be impacted by the increase in the Medicare levy and the new tax on banks which will flow through to either customers or shareholders. Other measures are more targeted, particularly targeting foreign property owners and students.
Below is a summary of some of the affected groups:
The Medicare levy is to increase from 2% of taxable income to 2.5% from 1/7/19. This will impact everybody who is above the Medicare levy threshold ($21,655 for singles, $36,541 for families and approximately $10,000 higher for pensioners). For a family earning $100,000 this would mean extra tax of $500 per year.
University fees will increase progressively to be 7.5% higher by 2021. Students will also need to repay their debt sooner as a new minimum repayment threshold of $42,000 will apply from 1/7/18. Once a person with a HELP debt has an income above $42,000 they will need to start repaying their debt at a rate of 1% of their income. The existing minimum repayment threshold was $55,874 at a rate of 4%. The rate will continue to increase as income increases until an income of $119,982 is reached when repayments will be at a rate of 10% of income.
Property Owners & Prospective Property Owners
The majority of budget measures affected property owners and included concessions for first home buyers and downsizers while attacking foreign property owners and preventing rental property tax deductions for travel and depreciation on plant and equipment purchased by a previous owner of the property. You can read more about the concessions for first home buyers and the impact on foreign property owners in our articles below:
There were also a couple of significant new imposts on property purchasers. Purchasers of new residential property will now be required to remit part of the purchase price directly to the ATO as GST rather than the seller being responsible. Also any one who purchases a property for more than $750,000 will be required to confirm whether the seller is a foreign resident, and if they are, direct 12.5% of the purchase price to the ATO. These measures create significant risks for purchasers, who need to take extreeme care to ensure they dont get stuck with a large tax liability. More details on the original foreign resident withholding rules can be found in our previous article Buyer Beware: You may need to withhold tax when settling a property purchase
There was very little in the budget affecting small businesses. The only measure of note was the extension of the existing immediate asset write off for assets under $20,000 for businesses with a turnover under $10m until 30 June 2018. This measure was previously due to expire on 30 June 2017.
After the significant changes to super in the last budget, this budget made very few changes to Super. The main change is the concessions given to first home buyers described above. Other changes included concessions for downsizing and a measure to discourage borrowing in super. The downsizing measure applies from 1/7/18 and allows people aged over 65 who sell their home that they have owned for at least ten years, to be able to use the proceeds to contribute an additional $300,000 per person on top of their existing contributions caps. The contribution can be made regardless of whether your member balance is over $1.6m, you are over 75 or if you are no longer working.
You should seek advice before taking action regarding any of the above proposals