Overview Federal Budget Wrap Up

Transcription

1 2017 Federal Budget Wrap Up Session 1 Overview Federal Budget 2016 Enterprise Tax Plan Federal Budget 2017 Analysis of proposed changes Small Business Negative gearing Superannuation GST Individuals Superannuation changes Implementation & checklist preparing for looming changes 1

2 Company Tax Rates Enterprise Tax Plan Parliament has finally passed most of the business tax relief package announced in the last Federal Budget, but with some amendments The legislation, which has finally passed the Senate, brings into effect the following changes for small business: Progressive cuts to the company tax rate An increase to the small business entity threshold from

3 Enterprise Tax Plan Progressive cuts to the company tax rate: The tax rate will be progressively reduced to 27.5% from to for companies that are carrying on a business and have an aggregated turnover of less than $50 million. The 27.5% rate for those entities will be progressively cut to 25% by An increase to the small business entity threshold from : The aggregated turnover threshold for access to most small business tax concessions will be $10 million, with the exception of the below concessions. The threshold for the small business income tax offset will be $5 million. The threshold for the small business CGT concessions will remain at $2 million Enterprise Tax Plan A progressive increase to the small business income tax offset rate to 16% by (it is 8% for ). The income tax offset rate for unincorporated small businesses is set to increase progressively to 16% by First to 8% for until , then 10% for , 13% for , and finally to 16% the following financial year. It is important to note however that there is a limit to the monetary outcome of this offset. The offset will remain capped at $1,000 per taxpayer per year, regardless of the rate. 3

4 Company Tax Rate The business tax cuts are to be restricted to companies with an aggregated turnover of less than $50 million (which includes the turnover of connected entities and affiliates). For all other companies the rate will remain at 30%. Imputation impact From , the imputation system will be based on a company s corporate tax rate for a particular income year, worked out having regard to the company s aggregated turnover for the previous year. This is because a company will not know its aggregated turnover for the year in which it pays a dividend (and therefore its corporate tax rate for the year) until after the end of that year. For the purposes of applying imputation rules, companies will now use the corporate tax rate for imputation purposes. This is generally defined to mean the company s tax rate for the current year, worked out on the assumption that the company s aggregated turnover for that year is equal to its aggregated turnover for the previous year. For shareholders, one noticeable outcome will be an increase in top-up tax on dividends received from companies eligible for the tax cuts (as the company tax rate decreases). Ultimately, the total tax liability on the company s pre-tax profits will still be at the shareholder s marginal rate, but a greater proportion of the burden will shift from the company to the shareholder over time. The available concessions for small businesses, depending on thresholds, can be summarised as follows. Tax Concessions summary 4

5 ACCESS TO SUPER FOR FIRST HOME DEPOSIT Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn subsequently for a first home deposit. The contributions can be made from 1 July 2017 and must be made within an individual s existing contribution caps. From 1 July 2018 onwards, the individual will be able to withdraw these contributions and their associated deemed earnings for a first home deposit. The withdrawals will be taxed at an individual s marginal tax rate, less a 30% tax offset. 5

6 ACCESS TO SUPER FOR FIRST HOME DEPOSIT Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation. Example :A couple earning $60,000 each per annum making the maximum additional contribution of $15,000 will save an aggregate amount of about $9,200 arising from the effective tax rate of 17.25% on the contributions made to their respective superannuation funds. SUPER CONTRIBUTIONS FROMDOWNSIZING A person aged 65 or over can make a nonconcessional contribution into superannuation their principal residence. They must have owned their principal residence for at least 10 years. This measure will apply from 1 July 2018 and is available to both members of a couple for the same home. These contributions are in addition to existing rules and caps and are exempt from the age test, work test and the $1.6m total superannuation balance test for making nonconcessional contributions. This is the first introduced addition or exemption to the $1.6m superannuation balance test potentially offering a couple an additional $600,000 in non-concessional, test-exempt contributions and a final chance to top-up superannuation. 6

7 TRAVEL EXPENSES RELATED TO RESIDENTIAL RENTAL PROPERTIES DISALLOWED Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July Proposed as an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible. No cost base uplift DEPRECIATION DEDUCTIONS LIMITED FOR RESIDENTIAL RENTAL PROPERTIES Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017 Plant and equipment items are usually mechanical fixtures or those which can be easily removed from a property such as dishwashers and ceiling fans. This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. 7

8 DEPRECIATION DEDUCTIONS LIMITED FOR RESIDENTIAL RENTAL PROPERTIES Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors. These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017(including contracts already entered into at7:30pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life. Investors who purchase plant and equipment for their residential investment property after9 May 2017 will be able to claim a deduction over the effective life of the asset. However subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property Impact - This may significantly impact depreciation advantages currently enjoyed by purchasers of relatively new residential property for investment purposes CGT DISCOUNT INCREASED FOR AFFORDABLE HOUSING INVESTMENTS The CGT discount will be increased from 50% to 60% for Australian resident individuals investing in qualifying affordable housing. The conditions to access the 60% discount are: the housing must be provided to low to moderate income tenants rent must be charged at a discount below the private rental market rate the affordable housing must be managed through a registered community housing provider, and the investment must be held for a minimum period of three years. This measure will apply from 1 January

9 CGT DISCOUNT INCREASED FOR AFFORDABLE HOUSING INVESTMENTS The higher discount will flow through to resident individuals investing in affordable housing via managed investment trusts as part of the tax measure enabling such trusts to invest in affordable housing Measure will apply to both new and old residential properties that meet the qualifying conditions It will be interesting to see how this initiative plays out in the market. That is, how a property fund that is required to derive 80% of its revenue from below market rental rates will attract investors(other than for altruistic reasons) in a competitive investment market remains to be seen. The economics seem questionable can the 10% increase in the CGT discount make up for the potential lower growth as a function of the lower than market rentals? FOREIGN AND TEMPORARY RESIDENTS CGT MAIN RESIDENCE EXEMPTION REMOVED FOR FOREIGN AND TEMPORARY RESIDENTS Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm(AEST) on 9 May 2017.Existing properties held before this date will be grandfathered until 30 June EXPANSION OF FOREIGN RESIDENT CGT WITHHOLDING REGIME The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July Currently, the foreign resident CGT withholding obligation applies to Australian real property and related interests valued at $2m or more. This threshold will be reduced to $750,000 from 1 July 2017, increasing the range of properties and interests that will come within this obligation 9

10 FOREIGN AND TEMPORARY RESIDENTS Clearance certificates The reduction in this threshold means a significantly increased application of the withholding regime. Given the high average housing prices in our major cities, this will mean more people are required to obtain certificates from the ATO in advance of settlement ANNUAL LEVY FOR FOREIGN-OWNED VACANT RESIDENTIAL PROPERTIES Foreign owners of vacant residential property, or property that is not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5,000. The annual levy will be equivalent to the relevant foreign investment application fee imposed on the property when it was acquired. The measure will apply to persons who make a foreign investment application for residential property from 7.30pm (AEST) on 9 May Aim to discourage foreign absentee residential owners from continuing to hold underutilised assets in Australia. FOREIGN OWNERSHIP IN NEW DEVELOPMENTS RESTRICTED TO 50% A 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates. The cap will be included as a condition on new dwelling exemption certificates where the application was made from 7:30pm (AEST) on 9 May The measure will ensure that a minimum proportion of developments are available for Australians to purchase. 10

11 Cash Economy INTERIM REPORT INTO BLACK ECONOMY The Black Economy Taskforce has delivered the government has accepted the following recommendations for immediate action: extending the taxable payment reporting system (TPRS) to two high-risk industries cleaning and couriers to ensure payments made to contractors in these sectors are reported to the ATO banning the manufacture, distribution, possession, use or sale of sales suppression technology. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system, and providing funding for ATO audit and lodgment activities to better target black economy risk Cash Economy INTERIM REPORT INTO BLACK ECONOMY In addition, the government has agreed to a recommendation that government processes encourage good tax behaviour. The Taskforce will develop a proposal in conjunction with government agencies for the 2017/18 Midyear Economic and Fiscal Outlook. The Taskforce will consult widely and the public are invited to make submissions at by 30 June PUBLICISING TAX INTEGRITY MEASURES The government will provide $8.1m over two years from 2016/17 to communicate the key tax integrity measures to the Australian business community and the general public. 11

12 Cash Economy Government procurement opportunities limited to firms which have a good tax record Tax and other incentives to adopt non cash model Tax Payment Reporting System No deduction on cash wage payments where business did not make or report PAYG payments, issue payment summary or make applicable SG contribution No deductions for payments to contractors where a valid ABN is not quoted and payer has not withheld under no ABN withholding Robust real time business identification and verification system Medical practitioner set up a practice obtained an ABN and was paid by Medicare for 16 years even though they did not lodge tax returns and pay tax Cash Economy Cash payment limit economy wide Sharing economy reporting regime Bright line test for the hobby business income distinction Withholding arrangements 12

13 Cash Economy France Cash payments over 1000 euros banned Denmark Gaol of eradicating cash by 2030 Spain bonuses for tax staff for meeting tax fraud detection targets, cash payment limits Sweden Certified cash register for businesses dealing in cash which provides real-time information on business activities Norway Individual tax returns are posted online and are available for public inspection Hong Kong Octopus contactless smart card Portugal Government lottery for people who demanded receipts India Policies to encourage non-cash payments UK Publicity campaigns to encourage people to report undeclared income/data from payment providers to identify hidden economy Small Business CGT SMALL BUSINESS CGT BREAKS TO BE TIGHTENED Access to the small business CGT concessions will be tightened from 1 July2017 to deny eligibility for assets which are unrelated to the small business. The concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business. However, some taxpayers are able to access these concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions. The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2m or business assets of less than $6m. 13

14 INSTANT ASSET WRITE-OFF EXTENDED FOR 12 MONTHS The $20,000 instant asset write-off for small business will be extended by 12 months to 30 June 2018, for businesses with an aggregated annual turnover of less than $10m. Small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 provided they are first used, or installed ready for use, by 30 June Only a few assets are ineligible (such as horticultural plants and inhouse software). Depreciating assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year, and 30% for each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). PURCHASERS OF NEW RESIDENTIAL PROPERTIES TO REMIT GST Purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement from 1 July Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. The new measure is an integrity measure to strengthen compliance with the GST law. Note: this measure applies to all settlements occurring from 1 July Consequently, contracts entered into before this date for new residential properties but settled thereafter may also require the purchaser to remit GST directly to the ATO. 14

15 DOUBLE TAXATION OF DIGITAL CURRENCY REMOVED The GST treatment of digital currency (such as Bitcoin) will be aligned with that of money from 1 July Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency, and again on its use in exchange for other goods and services subject to GST. This measure will ensure purchases of digital currency are no longer subject to GST. Removing double taxation on digital currencies will remove an obstacle for the financial technology (fintech) sector to grow in Australia The recognition of bitcoin as money shows promising signs that the tax system is finally catching up with the digital economy LRBAS INCLUDED IN SUPER BALANCE AND TRANSFER BALANCE CAP The use of limited recourse borrowing arrangements (LRBAs) will be included in a member s total superannuation balance and transfer balance cap from 1 July LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of an LRBA will now be included in a member s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member s accumulation account will be a credit in the member s transfer balance account. 15

16 Superannuation Changes Superannuation is a financial product hence be careful not to offer advice unless suitably licenced under FOFA How the AFS licensing regime applies to SMSF services provided by accountants Consider limits of professional indemnity insurance Changes impact almost everyone Not just those with balances > $1.6M 10 per cent rule, lower concessional caps, Div 293, Spouse contribution rebate, LISTO, TTR Superannuation Changes Estate planning using super for HWI turned on its head Other options become viable depending on circumstances Family trust Income splitting/cgt discount Investment bonds tax free after 10 years Property Transfer balance cap per person (Rebalancing between Husband/Wife) $1.6M Cap per person which could disadvantage certain couples Beneficiary of death benefit counts towards transfer balance cap Also depends on level of assets held outside of super as individuals benefit from tax free threshold Funds held in accumulation account subject to 15% tax rate so still concessionary taxed and benefit from imputation credits. No limit on amounts in accumulation account 16

17 Superannuation Changes Re-contribution strategy minimise taxable components to save tax when death benefits paid to non financial beneficiary Withdraw money from super if you over 60 years of age, retired/over preservation age and recontribute as a non concessional contribution If you are under 65 three year bring forward rule for non-concessional contribution allows recontribution of $540,000 After 1 st July the transfer cap will restrict making non-concessional contributions unless superannuation balance is less than $1.6 Strategy will only benefit those with balances less than $1.6M after 1 st July 2017 A pre-30 June superannuation checklist Reduced non-concessional contribution (NCC) caps The 2017 financial year is the last chance to contribute up to $540,000 before changes to caps, bring-forward provisions and loss of eligibility to contribute for those with balances in excess of $1.6 million Ensure bring-forward provisions have not already been triggered in the past two years Members must be under 64 at some time during the current financial year to be eligible to access bring-forward provisions and if aged 65 or over at the time of the contribution, the work test must be satisfied as well If the full $540,000 is not contributed this financial year transitional NCC cap apply from 1 July

18 Super Changes Non-Concessional Contributions Reduction in NCC caps /18 Age < 65 years at 1 July - Annual cap - 3 year cap $150,000 $450,000 $180,000 $540,000 $100,000 $300,000 Age > 65 years at 1 July - Annual cap $150,000 $180,000 $100,000 If TSB > $1.6m unable to make NCCs Super Changes Non-Concessional Contributions NCC Cap Example 1 Example 2 Example 3 Example /15 540, , , , /16 540, , , /17 540, , /18 300, /19 300, , /20 300, , /21 300, /22 300,000 18

19 Super Changes Non-Concessional Contributions NCC Cap Total Super Balance Maximum NCCs Bring forward years Less than $1.4m $300k 3 $1.4m $1.5m $200k 2 $1.5m - $1.6m $100k n/a Greater than $1.6m $nil n/a A pre-30 June superannuation checklist Existing income streams transfer balance cap Individuals with pension accounts in excess of $1.6 million will need to commute amounts in excess of this balance back to accumulation accounts If you have multiple super accounts, ensure the transfer balance cap is not exceeded in total as penalties can apply Where income streams are being received from a defined benefit fund or a constitutionally protected fund or where the income stream is a marketlinked (term allocated) pension, a notional transfer balance cap will need to be calculated using a set formula. While these notional amounts will not of themselves result in a breach of the transfer balance cap, the notional balance will be necessary to determine how much can be used for a pension with other super accounts. 19

20 A pre-30 June superannuation checklist Capital gains tax relief Capital gains tax (CGT) relief is only available to those with income streams already in place on 9 November 2016 that are either transition-to-retirement income streams (TRIS) or have underlying balances above $1.6 million. In both cases, an amount will be required to be transferred out of the pension back to accumulation to comply with the new laws Different methodologies for calculating CGT relief are available depending on whether assets are segregated or unsegregated. The date that can be used for calculating CGT can also differ Irrevocable elections need to be made in order to access CGT relief, including whether to use the relief available and whether to defer any tax liability One third CGT discount more valuable than the cost base reset if asset likely to be sold before 30 th June 2018 A pre-30 June superannuation checklist Anyone undertaking salary sacrificing arrangements for additional super contributions may need to adjust these to ensure they stay under the new, reduced $25,000 CC cap Tax offsets for spouse contributions will be more widely available with the eligibility threshold increasing from $13,800 to $40,000 20

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