2017 Pre financial year end and post Budget presentation

www.hanrickcurran.com.auwww.hanrickcurran.com.au
Pre Financial Year End &
Post Budget Update
18 May 2017

Agenda
 Tax Update – Jamie Towers, Partner
 Superannuation Update – Clive Todd, Partner
 Questions
experience. new thinking www.hanrickcurran.com.au

2017-18 Federal Budget
Tax Update
Jamie Towers

2017-18 FEDERAL BUDGET UPDATE
 Individuals
 Business
 GST
 What does this mean for tax planning?

FEDERAL BUDGET
 $29.4 Billion Deficit Forecast
 Returning to surplus by 2021
 Significant Infrastructure Spends
 Bank Levy

INDIVIDUALS
 No new announced tax changes for 2017/2018
 End of Budget Deficit Recovery Levy (2%)
confirmed (from 1/7/2017). Top Marginal tax rate
+ Levies drops back to 47%
 Increase in Medicare Levy to 2.5% (currently 2%)
from 1 July 2019 to help fund NDIS
 Medicare Levy Thresholds increased to $21,655
(single), $36,541 (couple) + $3,356 per child

INDIVIDUALS
 HELP Debt repayment threshold lowered to
$42,000 from 1 July 2018 (currently $55,874)
 Graduated repayment levels including:
 > $42,000 – 1%
 > $55,874 – 4%
 >$103,766 – 8% (top rate)
 Therefore individuals earning > $180,000 will lose
55% of their taxable income in taxes, levies and
HELP repayments
 No discount for early repayment of HELP

INDIVIDUALS – Negative Gearing
 Negative Gearing Remains, but CHANGES for
Residential Properties
 Deduction for Travel Expenses to inspect
residential properties not allowed from 1 July
2017.
 Acquirers of second hand residential properties
purchased after 9 May 2017 (Budget night) denied
deduction for depreciation expenses on Plant &
Equipment incurred by previous owner

 Division 43 – Building allowance still allowed on
second hand properties as it is not Plant &
Equipment
 Existing Owners of second hand residential
property can continue to claim depreciation on
properties owned on Budget night
 Plant and Equipment actually purchased by a new
owner of second hand property will attract a
depreciation deduction

 Changes only impact Residential Properties
 Other types of property (industrial / commercial
etc) unaffected by changes

 60% CGT Discount will apply to certain residential
property owners from 1 July 2018:
 Lease property to Low to moderate income tenants
using a registered community housing provider
 Hold property for > 3 years
 Rent out home at a discount
Comment: Additional 10% CGT discount not be
enough to justify reduction in rent in many cases

 60% CGT Discount will also be extended to
Managed Investment Trusts (MIT) who hold a
property for > 10 years and lease to low /
moderate income individuals as per previous slide
 Designed to attract foreign capital to increase
affordable housing
 MIT have a capped 15% withholding tax on income
distributed to foreign investors

INDIVIDUALS – What Didn’t Change?
 Negative Gearing overall remains
 Capital Gains Tax – 12 month general discount
remains at 50%
 Small Business CGT Concessions Remain for
business with < $2M turnover or <$6M assets

INDIVIDUALS – Foreign Residents
 Main Residence exemption removed for Foreign
Residents and Temporary Residents
 Grandfathered until 1 July 2019 for existing
properties
 Will affect New Zealand citizens

 CGT Withholding Levy on sale of property by
foreign residents will increase to 12.5% (currently
10%)
 Threshold will reduce to $750,000 (currently $2
Million)
 Expected to impact more Australian property
developers and property owners who will have to
register for an exemption certificate – unnecessary
red tape

 Foreign Investor Empty Home Levy will apply to
foreign residents who acquire property after budget
night, but do not live in or rent out the property for
> 6 months
 $5,000 per annum (equal to the Foreign Investor
Application Levy)
 New Developments restricted to selling a max of
50% to foreign residents

BUSINESS – Company Tax Rate Cut
 Tax Rate Cut of 5% to 25% over 10 years
 Passed for companies with up to $50 Million
turnover, but not passed for others
Company Tax Rate Cut to 27.5%
Year Turnover $
2016/7 10,000,000 Passed
2017/8 25,000,000 Passed
2018/9 50,000,000 Passed
2019/20 100,000,000 Proposed
2020/21 250,000,000 Proposed
2021/22 1/2 Billion Proposed
2022/23 1 Billion Proposed
2023/24 All companies Proposed

 Tax Rate Cut to 27% in 2024/25
 Passed for companies with up to $50 Million
turnover
 Still proposed for other companies

Lets Put this into Perspective
 Ireland Tax Rate is 12.5% - trading income (25%
other)
 UK – Reducing to 17% in 2020
 Singapore – 17% (+ exemptions)

 Hong Kong – 16.5% (+ exemptions)
 USA (above $18.33M – 35%)
 Proposed 15%
 Germany – 15% + Surcharges + State taxes (total
approx. 30%)
 Global Average – 23.87% 2015 (source KPMG)

 A good start, but this needs to happen sooner
 In 2027 average global company tax rate will likely
be much lower than 23.87%
 Australia needs to lower rates to remain
competitive (but at what cost?)

BUSINESS – Small Business
 What is a ‘SMALL’ Business?
 Turnover:
• $2M?
• $5M?
• $10M?
• $20M?

 Definition of ‘Small’ Business Expanded to $10
Million turnover (up from $2M) from 1 July 2016
(legislation passed)
 Applies to Small Business Measures (Division 328)
 Small Business CGT Measures Turnover still $2M
 Small Unincorporated business discount turnover
now $5M

 Definition of ‘Small’ Business Expanded to $10
Million turnover (up from $2M) from 1 July 2016
(only passed last week)
 Applies to Small Business Measures (Division 328)
 $20K Instant Asset Write-Off (EXTENDED TO
30/6/2018)
 Accelerated Depreciation
 Trading Stock Rules
 GST – Cash Basis
 PAYG
 FBT

Small Business CGT Measures – Still $2M turnover
 15 Year Exemption
 50% Active Asset Reduction
 Retirement Exemption ($500,000 cap)
 Small Business Roll-over

 Unincorporated Small Business Discount – turnover
definition $5M
 Discount % Increases from 5% (2016) to 16% over
10 years (8% 2016/7)
 Individual cap of $1,000 remains
 2016/17 budget announcement passed

 Crowd Sourced Equity Funding – applies to
Proprietary Companies:
 Minimum of 2 directors
 Financial reporting in accordance with accounting
standards
 Audit requirements
 Related party transactions restricted
 Minimum shareholder rights on exit
BUSINESS – New Companies / Start-Ups

BUSINESS – Foreign Worker Changes
 Significant Changes to 457 Visas
 New Foreign Worker Levies:
 Small Business - $3,000 up front for 186 visa plus $1,200
pa for a temporary skill shortage visa
 Larger Business - $5,000 up front plus $1,800 pa
 Levies contribute to the ‘Skilling Australians Fund’

BUSINESS – Taxable Payments Reporting
 Currently applies to Building Industry – reporting
on all payments to contractors – even with an ABN
 Will be expanded to Cleaning and Courier
Industries

BUSINESS – Larger &
International Business
 Multinational Anti-Avoidance Laws expanded to
apply to partnerships and trusts (currently just
companies)
 Government recently had a significant Transfer
Pricing win in Full Federal Court (Chevron) about
non-arm’s length interest charged – will have
ammunition to apply to other companies
 New Draft Practical Compliance Guidelines released
yesterday

GST
 GST will apply to Low Value Good Imports from 1
July 2017 – not yet passed. Senate Economics
Committee pushing for delayed start until 1 July
2018
 Current GST import exemption threshold is $1,000
– Proposed to reduce to $0
 How to enforce small vendors to become
registered?
 Certain large vendors may restrict sales to Australia

GST
 Reminder – Netflix tax to apply from 1 July 2017 so
all consumer Digital Data Downloads from overseas
companies will include GST
 Business to Business downloads may be excluded
 More Simplified GST Registration for non-residents
– ATO announced will be ready by 26 June 2017

GST
 GST to be excluded from purchase of Bitcoin /
Digital Currencies – same treatment as cash

GST – New Properties
 GST on purchase of new properties to be paid to
ATO as part of the settlement of a property
purchase – From 1 July 2018
 Who will be liable if GST calculation is incorrect?
 What about Margin Scheme – how to calculate?
 Creates additional conveyancing work – more costs
for the purchaser
 All legal contracts for settlements post 1 July 2018
will need reviewing

Key Tax Planning Measures
from the Budget
 Travel to Inspect Rental Properties before 1 July
2017
 If buying another property – New properties will
have better tax characteristics than existing
properties due to depreciation claim
 Individuals with income > $180,000 should try to
delay additional income until after 30 June 2017 to
save 2% tax (eg bonus, commission, capital gain)
 Consider prepayment of expenses before 30 June
(eg prepay interest on investment loan)

from the Budget
 Consider business structures with company tax rate
at 27.5%
 If able to income split eg partnership or trust with 2
adult beneficiaries, company becomes more tax
effective than partnership / trust when taxable
business income exceeds $225,000
 However, if spending all profits immediately, then
no real tax benefit of a company

from the Budget
 Businesses close to $10M turnover should consider
taking advantage of $20M asset write-off while
they qualify (must be <$10M turnover this year or
previous year)

from the Budget
Paying Franked Dividends
 Reduction in company tax rate affects franking
credits
 Franking Rules changed – A company can frank a
dividend equal to the tax rate paid in the
immediately previous year.

from the Budget
Example:
 If turnover of a company was $5M in 2016 year and
profit was $1 million before tax – pay tax at 30%
($300,000). Therefore profits after tax capable of
being franked are $700,000 with $300,000 franking
credits available
 If Pay a dividend in 2017 year – can frank the
dividend to 30% (equal to 2016 tax rate) –
maximum credit of $300,000

from the Budget
 Potential franking credit trap. If you don’t pay out
all franked profits in the year the tax rate reduces,
then it can become trapped in the company
 Eg if the $700,000 was not paid out in 2017 year,
but delayed until 2018 year then franking credits
on dividends are capped at the 27.5% tax rate (tax
rate in 2017 year)
 $700,000 x (27.5/72.5) = $265,517 – maximum franking
credit

from the Budget
 Potential of $34,483 of tax credits trapped in the
company.
 Consider paying out retained profits as a dividend
pre 30 June to minimise tax credits trapped

2017-18 Federal Budget
Superannuation Update
Clive Todd

43experience. new thinking
 All the announcements from 2016/17 Budget
 Tax-free withdrawals for over 60’s
 Maximum tax rate on earnings still 15%
 Access rules to superannuation
What didn’t change?

Downsizing exemption
 Individuals age 65 and over are able to contribute
$300,000 from proceeds of selling the family home
 From 1 July 2018
 Not subject to current age restrictions or work test
 Not counted towards concessional or non-
concessional caps

 Not taxed
 Per individual – therefore a couple can contribute
up to $600,000 for sale of same house
 $1.6m total superannuation balance eligibility does
not apply
Downsizing exemption

The Catch?
 Only available for sale of principal place of residence
held 10+ years
 Will count towards Centrelink Age Pension assets test
 Incur selling costs and buying/moving costs
 No details regarding timeframes for making
contributions or what constitutes “downsizing”

Flashback
 Labor announced similar policy in May 2013 Budget
 $200,000 if selling principal place of residence
owned for 25 years into special account
 DIDN’T count towards Centrelink Age Pension
assets test
 Labor lost September 2013 election

First Home Super Saver Scheme
 Individuals able to make voluntary super
contributions up to $15,000 per year and $30,000 in
total to purchase first home
 Contributions can be made from 1 July 2017
 Concessional contributions (salary sacrifice or
claimed as deductions in personal tax return)
 Taxed at 15%
 Counts towards cap of $25,000 from 1 July 2017

 Non-concessional contributions can also be made
 Can be withdrawn along with associated earnings
from 1 July 2018 to fund home purchase
 Withdrawals taxed at individual’s marginal tax rate
less 30% tax offset
First Home Super Saver Scheme

The Catch?
 “Deemed” earnings added not real earnings
 90 day Bank Bill rate plus three percentage points
 Currently 4.78%
 Existing super balances are unable to be accessed
 Administered by the ATO
 Is it enough?

Flashback
 Remember First Home Saver Accounts introduced in
2008?
 Remember how they worked?
 I don’t

Integrity of Non-arm’s length
arrangements
 Amendments to rules to ensure expenses as well as
income is taken into account in related party
transactions
 Essentially reducing opportunity to falsely increase
super

Limited Recourse Borrowing
Arrangements (LRBAs)
 Outstanding balance of loan will be counted towards
total superannuation balance each year
 If $1.6m exceeded the contribution restrictions
apply
 Only applies to new LRBAs once legislation has
passed
 Unclear how it will be allocated in multi-member
funds

2016/17 Budget Recap
Changes effective 1 July 2017:
 CC cap cut to $25,000
 NCC cap cut to $100,000 (plus $1.6m restriction)
 $1.6m cap on amount in pension phase
 Income limit reduced to $250,000 for extra
contributions tax
 Increased access to concessional contributions
 Exemption on tax on earnings of TRIS cease

Questions?

This document contains information in summary form and discusses proposed but
not legislated rules and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research or the exercise of
professional judgement. It does not purport to be comprehensive or to render
professional advice. The reader should not act on the basis of any matter contained
in this publication without first obtaining specific professional advice.
We believe that the statements made by us in this document are accurate but no
warranty of accuracy or reliability is given. Our conclusions are based on
interpretations of accounting standards and other relevant professional
pronouncements and legislation current as at the date of this document. Should
the interpretations, accounting standards, other relevant professional
pronouncements or legislation change, our conclusions may not be valid.
© Hanrick Curran, 2017
All rights reserved
Disclaimer

Thank you
www.hanrickcurran.com.au

2017 Pre financial year end and post Budget presentation

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to 2017 Pre financial year end and post Budget presentation

Similar to 2017 Pre financial year end and post Budget presentation (20)

More from Mazars Qld (Formerly Hanrick Curran)

More from Mazars Qld (Formerly Hanrick Curran) (20)

Recently uploaded

Recently uploaded (20)

2017 Pre financial year end and post Budget presentation