What are the big changes for Small Business
Small Businesses certainly were not the focus of this years budget, however there are a couple of good things to report on:
The Instant Asset write-off has been extended for another 12 months and is now available to businesses with a turnover of up to $10 million. This means any asset you purchase for your business that costs less than $20,000 can be claimed as a tax deduction in the year you purchase (as opposed to being claimed over the life of the asset). It's important to note this is a tax deduction only, so you need to be a) making a profit and therefore paying tax for this to be of benefit and b) you need to ensure you can afford to purchase the asset.
More red tape for the courier and cleaning Industries to kick in from 1 July 2018. Just like the building & construction industry, the courier and cleaning industries will need to complete taxable payments reporting each year - ie more paperwork to be lodged with the ATO to report on contractors.
Great news if you contract to government agencies. We all know cash is king for all small businesses and getting paid in 60 or 90 days is a nightmare. Governments will now be required to pay invoices in 15 days if your contract is less than $1 million.
The small business threshold has been increased from $2 million to $10 million which means access for more businesses to the small business concessions, such as simplified depreciation pools. The bad news is the CGT concessions on sale of business are now a target and the threshold hasn't been increased (ie to access you have to turnover less than $2 million or have net assets of less than $6 million)
Interestingly the ATO now have an additional $32 million to target the 'cash economy'. This will include site visits by the ATO to review your processes for dealing with cash and a crackdown on POS suppliers to ensure an audit trail exists. Expect many more audits in this area with additional data matching capabilities.
Good to see some changes for digital currency. At the moment people who use bitcoin to pay for purchases can be paying GST twice. Digital currency will now be treated effectively the same as money not as an intangible asset.
What are the big changes for foreign workers
This has been a hot topic for the last few weeks with the removal of the 457 visa program.
From March 2018 businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will fund the new Skilling Australians Fund. The payment will be $1,200 upfront payment per visa per year and $3,000 for those sponsored for permanent employer nomination scheme. (These are the levels if your turnover is less than $10 million)
What are the big changes for Super
With the focus on Superannuation for the last 2 years, it's good to see a slow down in the changes.
Good news if you are over 65 and want to downsize your house. You can contribute up to $300,000 from the proceeds of selling your home to Super from 1 July 2018. Why is this good news? This amount is exempt from your existing contributions caps and you don't need to pass the work test or the $1.6 million balance test. The catch! The proceeds have to come from the sale of your principle place of residence that you must have owned for at least 10 years.
A little technical, but the $1.6million pension phase cap is on Total Assets not Net Assets - ie we can't be fancy and put a property with borrowing outside of the $1.6million cap.
Some more red tape, but the ATO are cracking down on related party transactions for SMSF's. We expect this will just require some additional documentation.
What are the big changes for Individuals
No changes to the current tax rates. The Medicare Levy will increase by 0.5% from 1 July 2019.
First Home Owners have a new superannuation saver scheme designed to help build a deposit. You can contribute an extra $15k to your super fund each year (up to a max of $30k) which is taxed at 15% (instead of having to save for a deposit with your after tax money which could be taxed up to 47%). You can then withdraw these extra contributions + the earnings from 1 July 2018 for a first home deposit. Confused? Check out the great calculator on the tax savings here.
As predicted before the budget the thresholds for repayment of HELP debts will change from 1 July 2018. At the moment you don't have to repay your HELP debt until you earn over $51,957. From 1 July 2018 you will need to start repaying your HELP debt if you earn more than $42,000. Starting at 1% of your income and increasing to 4% of your income when you earn $57,730.
What are the big changes for property
There are certainly a few changes for people who own Rental Properties.
From 1 July you will no longer be able to claim tax deductions for travelling to inspect or maintain your rental property.
One of the big things not being talked about are the huge changes to depreciation on rental properties. No more depreciation schedules :disappointed: Anyone with an existing property (and depreciation schedule) at 9 May 2017 will still be able to claim depreciation as per usual. Any property purchases after 9 May will only be able to claim depreciation on plant that they purchase. This is something that certainly needs to be looked at when purchasing a property as the depreciation on plant & equipment items is generally what results in negative gearing & therefore a tax benefit. Mike from MCG explains this here.
A little change for GST on residential property. The purchaser will be required to pay to the ATO the GST directly.
Capital Gains Tax Discount increases from 50% to 60% to encourage investment in new and existing affordable rental housing. The rental needs to be managed via a registered community housing body, be rented by tenants on low to moderate incomes and be held for a minimum of 3 years.
Foreigners will no longer be able to access the CGT main residence exemption.
Foreigners will be charged a $5,000 (ghost tax) on residential property where the property is not occupied or genuinely available for return for at least 6 months per year.
Foreign ownership in new property developments will be capped at 50%
Things to note
There are a few things to note that the finer details are yet to be released. We will certainly keep you updated once the details are released:
State Governments have been given $300 million to slash red tape for small businesses
National Skills Fund has been provided $1.5 billion over the next 4 years to prioritise apprenticeships & traineeships for occupations in high demand.
Rural & Regional study hubs and scholarships are set to have an injection of $24 million over 4 years to "improve educational attainment, skills development, and employment opportunities"
There is also a $100 million Advanced Manufacturing Growth Fund to promote research & capital development for high technology manufacturing businesses.
There are plans to introduce Crowd Sourced Equity Funding for proprietary companies & additional measures to increase competition & access data in the banking sphere.
Recap on prior year changes
There are a lot of announcements in the previous years budget's that are now in play. Let's take a look:
Company Tax Rate cut to 27.5% from 1st July 2016 for all companies with a turnover less than $10 million
Superannuation contributions (concessional) capped at $25,000 from 1 July 2017 (yes you can still do $30k this year)
Non-Concessional Superannuation contributions are reducing to $100k/year (or $300k now and nothing for following 2 years). This year you can still contribute up to $540k.
If your taxable income is more than $250,000 from 1 July 2017 you will now pay 30% not 15% on your Superannuation contributions.
The magic $1.6million pension phase cap kicks in 1 July 2017
Investors in Early Stage Innovation Companies are eligible for 20% tax offset. Ie invest $200k and get a $40k tax offset + exemption from CGT.
Action Items
As always this is a general overview of how the budget is set to affect you. The next step is for Growthwise to embark on your personal tax planning, ie what you need to do before 30th June to pay less tax. Look out for your personal checklist of action items over the coming weeks.
Head on over to our facebook page if you have any questions or to join the discussions.
