Netwealth's Technical Services team discuss how this year's Budget announcement may impact you and your clients, and provide you some key strategic considerations.

1. Whatwillthe2017
FederalBudget
meanforyou?
Presented by
Keat Chew, Head of Technical Services
Nigel Smith, Technical Services Consultant
11 May 2017

2. | netwealth
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2
Housekeeping
2017 Federal Budget Review

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Keat Chew
Head of Technical Services
Netwealth
Nigel Smith
Technical Services Consultant
Netwealth
2017 Federal Budget Review3
Meet today’s speakers

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Session overview
1. Taxation
2. Superannuation
3. Social Security
4. Winners and losers
5. Where to from here
4 2017 Federal Budget Review

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Taxation
2017 Federal Budget Review

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Immediate depreciation of assets costing less than
$20,000
• Extended to include assets acquired and installed ready
for use by 30 June 2018
• Assets more than $20,000 can continue to be put in the
simplified depreciation pool, depreciated at 15% in first
year and 30% thereafter
• Pool if under $20,000 over this period can be written off
immediately
• Majority of assets can access accelerated depreciation
(exception such as horticultural plant)
• From 1 July 2018, revert back to existing arrangement of
$1,000
Strategic considerations and impacts:
• Advance depreciation facilitates additional cashflow for
the business (and could be directed to fund
superannuation for example)
• Any major asset purchase should be bought during this
period to maximise claim in shortest time period
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Small business depreciation
2017 Federal Budget Review

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From 1 July 2018, minimum HELP debt repayment
threshold
• Reduced to $42,000 with 1% repayment ($55,874 with 4%
repayment)
• Upper threshold of $119,882 with a 10% repayment
($103,766 with a 8% repayment)
From 1 July 2017, disallow travel expenses related to
• Inspecting, maintaining or collecting rents on residential
rental property
From 1 July 2017, plant and equipment depreciation for
residential rental property only available
• If incurred and paid for by taxpayer
• Existing investments grandfathered as at 9 May 2017 can
continue depreciation
Small business CGT concession
• Strengthening measure to ensure relief only available for
small business e.g. arrangement that ownership in larger
businesses did not count for test for eligibility
Strategic considerations and impacts:
• An acceleration of the HELP repayment schedule
– Repayment amount and timing based primarily on
taxable income, so normal deduction will reduce
income for HELP assessment
• Travel expenses in relation to rented residential property
where eligible brought forward to current year
• Bona fide small businesses should continue to get small
business concessions
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Other tax related changes
2017 Federal Budget Review

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Capital gains tax changes for foreign investors
• From 7.30pm, 9 May 17, foreign and temporary tax
residents will lose principal residence exemption
• Existing properties grandfathered till 30 June 19
• From 1 July 17, CGT withholding tax on foreign investor
selling increase to 12.5% (previously 10%)
– Threshold for withholding decrease to $750,000
(previously $2m)
• Other anti-avoidance measures to strengthen collection
Annual charge for foreign owners of underutilised
residential property
• If property not occupied or genuinely available for rent
for at least 6 months out of a year
• Charge levied annually- equal to foreign investment
application fee (at least $5,000)
Strategic considerations and impacts:
• Additional rules may discourage foreign investors in the
housing market
– Perhaps tempt them with other Australian
investments with less restrictions
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Changes for real estate owned by foreign investors
2017 Federal Budget Review

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From 1 July 2019, Medicare levy will increase to 2.5%
ML low income threshold increase by CPI, from the
2016/17 income year:
• $36,541 for families (up from $36,001) (plus $3,356 per
dependant child)
• $21,655 for individuals (up from $21,355)
• $34,244 (up from $33,738) for single Seniors and
Pensioners
Strategic considerations and impacts:
• Other tax rates that linked to top personal tax rate e.g.
FBT will also increase with the Medicare levy increase
• Bear in mind the thresholds (particularly if close to the
threshold) to reduce or eliminate payment of Medicare
levy
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Medicare levy changes
2017 Federal Budget Review

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Superannuation
2017 Federal Budget Review

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From 1 July 2018, additional non-concessional
contributions
• From proceeds of downsizing home- up to $300k
downsizing cap
• Available for those over Age 65
• In addition to the normal caps
Further conditions to make downsize contributions
• Exempt from existing Age test, work test and $1.6m
balance test
• Applies only on disposal of home owned for past 10 years
or more
Each member of a couple able to take advantage of $300k
each
These contributions into super not exempt from
Centrelink, unfortunately
Strategic considerations and impacts:
• Finally, someone Age over 75 can contribute
• Couples can get total of $600k into super under this rule
• Potentially can contribute $800k non concessional and
$50k concessional (or $300k with 5 year carry forward)
• No work test required
• Enables those with more than $1.6m to contribute one
last time
• Great estate planning tool, swapping $600k taxable for
$600k tax free component
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Contributing proceeds of downsizing
2017 Federal Budget Review

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From 1 July 2017, can make voluntary contribution
• Up to $15,000 per annum (within existing cap)
• Total able to be contributed to purchase first home is
$30,000
• Each member of couple gets $30,000 limit
From 1 July 2018, access to super for first home deposit
• Can be withdrawn with associated deemed earnings (90
day bank bill + 3%)
• Administered by ATO who will determine the released
amount and instruct fund
• Concessional contributions and earnings withdrawn
taxed at marginal rates
– A 30 % tax offset given
Contributions from pre tax income
• Salary sacrifice
• Personal contributions and take a tax deduction
Strategic considerations and impacts:
• More compliance for the industry
• Seems simpler than the previous first home savers
scheme
• Some tax arbitrage advantage and tax concessions
whilst in super
• Release although taxable income will not flow through to
other income test such as HELP repayment
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First home super saver
2017 Federal Budget Review

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From 1 July 2017, LRBA will adversely impact
• Total superannuation balance (primarily for purpose of
NCC and 5 year c/fwd CC)
• Transfer balance account – see next slide example
• Draft legislation already for comments and submission
closed
– Basically resulting in the loan part to be included in
the balance in both accounts
Non arms length arrangement and provisions
• Strengthened provisions in regard to expenses that are
not commercial (rather than just income)
Strategic considerations and impacts:
• Further complexities with SMSFs and LRBAs
• Need to seriously consider impact of LRBA on TSB and
TBA
– May need to wind back the LRBA
• Potentially administration nightmare – accountant might
just give up!
• Review any related parties arrangement to make sure
not caught
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Other super changes
2017 Federal Budget Review

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• Bob is the only member in the SMSF
• Super interest is $3m all cash in accumulation
• Acquires a $2m property after 1 July 2017, with $500k
cash and $1.5m LRBA borrowing
• Start account based pension at same time, back by
property with LRBA
• Transfer balance account initially ‘credited’ with net
$500k
• Remaining amount of $2.5m cash in accumulation
• Monthly repayment of $10,000 on LRBA
– Funded by $5,000 rental income received and $5,000
from cash in accumulation
• Each month there will be a transfer balance credit of
$5,000 representing increase in value of income stream
– The other $5,000 funded from rental income does not
create a credit as it does not increase value of income
stream
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LRBA example - transfer balance cap
2017 Federal Budget Review

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Social
Security
2017 Federal Budget Review

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Pensioner concession card
• Re-instated for pensioners who lost entitlement as result
of 1 Jan 17 assets test
Residency requirements
• From 1 July 18, need 15 years of continuous Australian
residence to be eligible for Age pension of Disability
Support pension unless have either
• 10 years’ continuous Australian residence , with 5 years
residence whilst working
• 10 years’ continuous Australian residence, without
income support payment for 5 years
Liquid assets waiting period
• From 20 Sep 18, increase to 26 weeks from 13 weeks
when liquid assets equal to or exceed $18,000 for singles
and $36,000 for couples
Strategic considerations and impacts:
• A further tightening up of social security payments
following recent changes
– Clearly pushing closer to objective of social security
as a safety net as opposed to an entitlement
– Expect this trend to continue
• Review any clients who may be impacted
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Social Security
2017 Federal Budget Review

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Winners
& Losers
2017 Federal Budget Review

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Winners
• First home buyers marginally
• Super older Australians
• Small businesses
Losers
• SMSFs
• Foreign investors
• Centrelink recipients
• Major banks
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Winners and losers
2017 Federal Budget Review

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Where to
from here
2017 Federal Budget Review

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No immediate action with this budget, can generally wait
• Other than foreign investors
• LRBAs
More to do from last budget
• Still need to understand
• Last minute contributions
• Plan to meet the pension cap
• Review TTRs
• CGT relief or not
• Estate planning in conjunction with all above
• Don’t forget Defined benefit pensions and TAPs
implications
• Planning for next year
Don’t panic, keep grinding!
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What next and where to focus
2017 Federal Budget Review

21. Questionsandanswers

22. Contact
Thank you
Keat Chew
Head of Technical Services
1800 555 223
keat@netwealth.com.au
Nigel Smith
Technical Services Consultant
1800 555 223
nigel@netwealth.com.au

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Disclaimer
This information has been prepared and issued by Netwealth Investments Limited (netwealth), ABN 85 090 569 109, AFSL 230975, RSE L0000192). It
contains factual information and general financial product advice only and has been prepared without taking into account your individual
objectives, financial situation or needs. The information provided is not intended to be a substitute for professional financial product advice and
you should determine its appropriateness having regard to your particular circumstances and seek any independent financial or other professional
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Netwealth, or any other member of the netwealth group of companies, accepts responsibility for any loss suffered by any person arising from
reliance on this information.