Individual tax update

2017 has been largely about housing. On the good news front, we finally had the removal of the 1.5% budget repair levy from 1 July 2017 for those with taxable incomes over $180,000.  It is worthy of note that there is currently a proposal to reintroduce the temporary budget levy for high income earners.

The government has also announced that the Medicare levy will increase from 2% to 2.5% from 1 July 2019.

Also of note are the upcoming changes expected regarding super guarantee and employee wage reporting.

Residential Property Investors

There have been a host of changes around the way that properties are taxed following the budget. Most are now legislated or in the process of being passed without significant dissent.

Of note, with application from 1 July 2017 is the denial of travel costs to visit residential rental properties and limiting of deductions for depreciation of residential property fixtures, plant and equipment by property investors.

Prior to 9 May 2017, a deduction for depreciation is available when an investor purchases plant & equipment and fixtures as part of a residential property. Usually the deduction becomes available with the release of a quantity surveyors report.  From 1 July 2017 an investor can only claim a depreciation deduction for expenses actually outlaid for new items or acquired as part of a new property. Deductions for capital works are not affected by these changes.

Work Related Car Expenses

Individuals who claim the maximum allowable deduction on the cents per kilometre method are likely to get an ATO review based on a recent media release warning by the ATO.

The key message of the media release is to make taxpayers aware that the claim for motor vehicle expenses is not an entitlement. You must be able to prove that you were required to use your car for work purposes (not for travelling from home to work and back).

$1.6m Super Transfer Balance Cap

The new superannuation regime is now in place involving the $1.6m cap on contributions and commuting into pension phase, along with reductions to annual contribution limits. This will continue to involve some compliance and planning headaches during completion of the June 2017 accounts and Tax Returns as many pension phase SMSFs need to commute amounts back into accumulation phase.

Of particular note for many is the way the new rules apply to borrowing arrangements (LRBAs), borrowings by the super fund do not offset the asset value and payments to the loan from a non-pension phase source can count towards the contribution cap. This may make borrowings in super less appealing for those closer to the caps. 

Contributing the proceeds from downsizing into super

A motivation to sell property is created by the new downsizing super incentive, allowing significant contributions into the super environment.

From 1 July 2018, a person aged 65 years or older will be able to make a contribution into superannuation of up to $300,000 from the proceeds of selling their main residence. This contribution will be outside the current non-concessional rules.

To be eligible, the individual must have owned their main residence for at least 10 years.

Most likely less motivating is the new First Home Super Saver Plan, allowing certain withdrawals from super and the new CGT incentive when investing in low-rent affordable housing.

CGT and Land Tax Changes for Foreign Residents

Non-residents with property in Australia have also been attacked with the new charge for vacant properties and also the removal of the main residence exemption from 1 July 2019 (and any properties purchased post budget).

Following the lead of Victoria, NSW has also significantly increased the stamp duty and land tax surcharges on foreign persons, at least doubling the surcharges to 8% for stamp duty and 2% for land tax.  Complications can arise for companies and trusts where ownership exists overseas. In particular, trusts can be found to be a foreign person where a non-resident is a potential beneficiary. This has forced many to consider whether to amend the trust deed to remove certain beneficiaries.

CGT Withholding Clearance Certificates

All Australian resident vendors are now likely to need clearance certificates from the ATO to certify residency when selling a property. The foreign resident capital gain withholding regime now applies to properties worth $750,000 or more (it was previously $2m). The rate of withholding has also increased from 10% to 12.5%.

Don’t forget that the obligation rests with the purchaser to withhold the tax a remit the funds to the ATO at the time of settlement where no clearance certificate has been provided.

First Home Buyers

NSW has revamped stamp duty exemption for first home buyers of properties worth up to $800,000, with a zero stamp duty rate up to $650,000 (vacant land thresholds are between $350,000 and $450,000).

First home buyers lose access to the $10,000 grant for properties worth over $600,000 (or owner builder up to a total value of $750,000).

Proposal to change superannuation guarantee rules

The government has proposed to change the superannuation guarantee rules so that compulsory super is payable on salary sacrificed amounts. Currently if you sacrifice into super, unless the employment contract stipulates otherwise, employees may lose a portion of the super guarantee amount. The proposed changes seem fair enough and perhaps overdue. These changes should be kept in mind when reviewing any new contracts with employers.

Single Touch Payroll is coming

Employers with 20 or more staff will be required to commence using the new automated reporting system from 1 July 2018. The remaining employers will need to start using the system from 1 July 2019. If affected, employees will then be able to access their payroll and super contribution information from their MyGov account. This will include payment summaries.

For those remaining taxpayers who have not yet registered with MyGov, it will be an additional reason to do so. Keep in mind registration with MyGov can impact on where ATO notices are sent, so your tax agent may inadvertently cease to be the initial recipient of correspondences. Contact your tax adviser if you are unsure.

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