How does the 2017 Federal Budget impact you?
On Tuesday 9 May 2017, the Treasurer, Scott Morrison, delivered a budget centred on fairness, opportunity and security. Others called it a budget reset, a “labour light” budget and one commentator ventured to title it a “Ginger Spice” budget i.e. not Scary, Posh or about Babies. Regardless of the title you give this year’s budget what was announced and how does it impact you?
Firstly, it’s important to note that at this point in time these proposed measures are not yet law and may be subject to change. Last year’s budget changes have been legislated. If you wish to understand how last year’s budget changes affect you check out this video
If you would prefer to watch a video explanation of this year’s budget check out this video
Additional super contributions for downsizers
From 1 July 2018, individuals aged 65 and over will be able to make an after-tax super contribution of up to $300,000 ($600,000 for couples combined) from the proceeds of the sale of their home. This measure will only apply following the sale of a principal home held for a minimum of 10 years.
The measure will allow eligible individuals to make contributions above the super caps, without being subject to work or age test requirements. This is helpful but because the measure will not attract any special Centrelink treatment and stamp duty in most states is still a large impediment it is not expected to be overly utilised but well worth considering if it fits your particular circumstances.
First home super saver scheme
To reduce pressure on housing affordability the Government will allow voluntary superannuation contributions to be withdrawn for a first home deposit.
- From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year, up to $30,000 in total, to superannuation for the purposes of this measure. Voluntary contributions can be made before or after tax and are subject to the relevant contribution caps.
- From 1 July 2018 those voluntary contributions (along with deemed earnings) can be withdrawn for a first home deposit.
- Withdrawals will be taxed up to an individual’s marginal rate, less a 30% offset. Withdrawals of after-tax contributions will not be taxed.
Labour’s First Home Saver Accounts announced in 2007 were abolished on 1 July 2015 due to lower than forecast take up rates. It’s not clear that this new arrangement will lead to a significantly different outcome but if you are eligible it can boost your deposit by $6,000 (mainly through tax savings) with a couple of financial years.
Whilst using the superannuation system to implement this initiative puts an additional compliance burden on super funds one potential upside is that young people will engage with their superfunds earlier.
One thing to consider is which investment option you want your contributions to go into. Many young people are in the default MySuper option which is invested in 70% growth and 30% defensive assets. In the short term this could mean contribution may reduce in value if markets are negative. It is always good to review which investment option you are in and consider if it is right for you.
Pensioner Concession Card reinstatement
Good news for those of you who lost your Age Pension as a result of the 1 January 2017 Age Pension changes. From 9th October 2017 the Government will reinstate your Pensioner Concession Card (PCC) and you can also retain your Commonwealth Seniors Health Card to ensure you continue to receive the Energy Supplement. Your Low Income Health Care Card will be deactivated if you receive the PCC.
Energy Assistance Payment
From 26 June 2017, the Government will make a one-off Energy Assistance Payment of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017, and who reside in Australia. The payment is not taxable and will not be counted as income.
Qualifying payments include:
- Age Pension
- Disability Support Pension
- Parenting Payment Single
- Veterans’ Service Pension, Veterans’ Income Support Supplement, Veterans’ disability payments
- War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.
- Revised residency requirements for pensions
The Government will revise the residency requirements for claimants of the Age Pension and the Disability Support Pension (DSP) from 1 July 2018. Generally, claimants will now need to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP unless certain conditions or an exemption applies.
Whilst we need to understand the detail of this measure it will be important for returning missionaries to consider the implications for their eligibility to the Age Pension.
Working age payments reforms
The Government will progressively consolidate seven working age payments and allowances into a new JobSeeker Payment or transition recipients to Age Pension.
The working age payments affected are:
- Newstart Allowance
- Sickness Allowance
- Widow Allowance
- Partner Allowance
- Widow B Pension
- Wife Pension
- Bereavement Allowance.
Liquid assets waiting period increasing
From 20 September 2018, the period that a person must wait before being paid an allowance (for example Newstart), if they have 'liquid' assets like cash in the bank will increase from 13 weeks to 26 weeks.
Family Tax Benefits
The Government will continue to keep the Family Tax Benefit (FTB) payment rate fixed until 1 July 2019. Indexation in line with the Consumer Price Index will resume from that date.
From 1 July 2018, all families with total income over $94,316 will have their Family Tax Benefit (FTB) Part A reduced by 30 cents for every dollar above $94,316.
0.5% increase in Medicare levy
From 1 July 2019, the Medicare levy will increase by 0.5% to 2.5% of taxable income. The increase ensures the National Disability Insurance Scheme (NDIS) is fully funded.
Increase to Medicare levy low-income thresholds
The 2016-17 financial year Medicare levy low-income threshold will be increased as follows:
Single, eligible for seniors and pensioners tax offset (SAPTO)
Couple, eligible for SAPTO
Additional threshold for each dependent child
Reduced residential property deductions
From 1 July 2017, the Government will no longer allow deductions for travel expenses related to inspecting, maintaining or collecting rent for residential rental property. However, investors can continue to deduct those types of expenses incurred by third parties such as real estate agents and property management services.
In addition, from 1 July 2017, depreciation deductions on plant and equipment (for example dishwashers and fans) will be limited to outlays actually incurred on residential properties. For plant and equipment purchased after 9 May 2017, deductions are claimable over the effective life of the asset only by the investor who bought the items.
For investors with existing investments as at Budget night, grandfathering rules will apply, broadly allowing deductions to continue until either the investor no longer owns the asset or the asset reaches the end of its effective life.
The Government will make a number of changes over the next two years impacting the operation of aged care, including extending the Commonwealth Home Support Program, Regional Assessment Services funding arrangements and palliative care services.
The programs contribute to essential home support services, such as meals, personal care, nursing, domestic assistance, home maintenance, and community transport to assist older people who would like to remain in their home for care.
Extending the immediate deductibility threshold for small businesses
The Government will extend the accelerated depreciation rules for small businesses by 12 months to 30 June 2018. This allows small businesses, with aggregate annual turnover of less than $10 million, to immediately deduct purchases of eligible assets up until 30 June 2018, provided the asset costs less than $20,000. Assets valued over $20,000 or more can be depreciated at 15% in the first income year and 30% each income year thereafter.
Foreign investors and property
From 7.30pm on Tuesday 9 May 2017 there will be a number of changes affecting property investments by foreign residents. These include an additional charge if the property is left vacant for more than six months in a year, the removal of the main residence capital gains tax exemption (for properties purchases after Budget night) and from 1 July 2017, a 12.5% capital gains tax withholding regime for property transactions of $750,000 or above.
To find out more about these proposed changes and how they may affect you, check out the video explanation here, call the help desk on 1300 360 907 or call Cornerstone Wealth on 1300 275 428.
If you would like to watch the 5 minute video explanation of this year’s budget click here
This article has been prepared without taking into account the personal objectives, financial situation or needs of any person. You should consider the appropriateness of the information presented having regard to your own objectives, financial situation and needs and obtain professional financial advice prior to making any decision.
Before making any decision about whether to acquire any financial product, you should obtain and consider the information contained in the relevant Product Disclosure Statement.
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