Federal Budget 2017/18

Published on 10/05/2017

The Federal Budget was delivered on 9 May 2017 by Treasurer Scott Morrison and below we have highlighted some of the proposals coming out of the Federal Budget for 2017/18.

Housing Affordability

First Home Super Saver Scheme

The Government is proposing voluntary contributions to superannuation, made by first home buyers from 1 July 2017, are going to be accessible for the purpose of a first home deposit. These contributions along with associated deemed earnings can be withdrawn. Withdrawals under the scheme will be allowed from 1 July 2018.

The First Home Super Saver Scheme sets the limit on the amount of voluntary contributions for the purpose of first home deposit — up to $15,000 per financial year and $30,000 in total over a taxpayer’s lifetime, however both members of a couple can take advantage of this measure to buy their first home together.

Note that this scheme does not allow any additional contributions to be made over and above the existing contribution caps.

Concessional contributions and deemed earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Non-concessional contributions withdrawn under the scheme will not be taxed.

It is proposed that the amount of deemed earnings that can be released together with voluntary contributions will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3%. The rate for June 2017 quarter is 4.78%. The First Home Super Saver Scheme will be administered by the ATO who will determine the amount of contributions that can be released and instruct super funds to make these payments accordingly.

The withdrawn amounts under the scheme, although they form part of a person's taxable income, will not affect social security benefits, such as the family tax benefit, HECS/HELP or other benefits.

The proposal affects taxpayers who will purchase their first home and have made voluntary contributions of any type:

non-concessional contributions
personal concessional contributions, and
salary sacrificed contributions.

Note that mandatory employer contributions (currently at 9.5%) are not voluntary, and neither are contributions made under enterprise bargaining and similar agreements.

Superannuation Contributions From Proceeds of Downsizing

The Government has announced it 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. Such contributions will be exempt from:

the restriction on non-concessional contributions for those with $1.6 million total superannuation balance
the work test
the age test.

Therefore, taxpayers with a total superannuation balance in excess of the general transfer balance cap, set at $1.6 million for 2017-18, as well as those over 65 and not working, and those aged over 75, will be eligible to make the proposed “downsizing” contribution of up to $300,000.

This will affect taxpayers aged 65 and over selling their principal residence that they have owned for the past 10 or more years. Both members of a couple will be able to take advantage of this proposed measure for the same home, meaning up to $600,000 per couple can be contributed to superannuation through the downsizing cap.

Small Businesses

$20,000 Instant Asset Write-Off Extended

It is proposed that the instant asset write-off for small businesses purchasing eligible assets less than $20,000 will be extended for another 12 months until 30 June 2018. This was due to revert to $1,000 on 1 July 2017. This will impact taxpayers carrying on a business and have aggregated annual turnover of less than $10 million.

Under this measure, small businesses (with aggregated turnovers of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Some assets are not eligible (such as horticultural plants and in-house software).

It is proposed that the instant asset write-off will revert to $1,000 on 1 July 2018.

Small Business Capital Gains Tax Concession

The Government will amend the small business capital gains tax (CGT) concessions to ensure that the concessions can only be accessed in relation to assets used by a small business or ownership interests in a small business.

The concessions assist owners of small businesses by providing relief from CGT on assets related to their business that helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business.

This will affect taxpayers:

that are small businesses with annual aggregated turnover of less than $2 million, or
whose asset was used in a connected small business, or
who have a maximum net asset value not exceeding $6 million.

Healthcare

Medicare Levy Increase

The Medicare levy will increase from 2% to 2.5% to ensure that the National Disability Insurance Scheme (NDIS) is fully funded.

Other tax rates that incorporate the top personal tax rate, such as the fringe benefit tax (FBT) rate, will also increase.

The increase in the Medicare levy will reduce the benefits that arose for some taxpayers with last year’s tax cuts for individuals with taxable incomes exceeding $80,000