The Backflip Budget

[ What SME's and Family Businesses need to know from the 2017 Budget ]
by Michael Garrone Published

With many suggesting the 2017 Budget is a complete political backflip by the government from their previous policy positions, it is not like they had much choice with an uncooperative senate.

Big spending on infrastructure, medical and education is to be paid for by tax increases to most Australians through an increase in the Medicare Levy and a new tax on the banks.

With the lowering of company tax rates already law, the bits relevant to SME’s and family businesses are focused around the impact of changes in the Medicare Levy on the people in and behind your business.

1. Immediate deduction for assets costing less than $20k extended to 30 June 2018

While there was not much in the budget for small business, this concession has been extended for one further year. Businesses with turnover of less than $10m will be able to claim an immediate deduction for depreciable assets worth less than $20,000.

[ This will prove a useful end of year tax planning tool for businesses who want to bring forward capital expenditure by 30 June 2017 ]

2. The government remains committed to reducing the corporate tax rate

While already announced, taxpayers with turnover of less than $10m will enjoy a 27.5% tax rate in the 30 June 2017 financial year. The government has re-iterated its commitment to bringing this rate down to 25% by the 2027 financial year for companies with less than $50 million in turnover.

[ This is great news for company’s looking to re-invest their cash in growing the business or repaying debt, and another reason to consider restructuring businesses into a company structure ]

Word of warning: If you are taking the cash out of the company as dividends you still have to pay the top-up tax based on your individual tax rate – this is likely to be a greater amount going forward given you will now only get a franking credit at the rate of 27.5% instead of 30%.

3. GST on the purchase of new residential property payable direct to ATO

Unexpectedly, From 1 July 2018, the government has announced that the purchaser of new residential property will need to pay the GST on the purchase direct to the ATO. It is understood that the amount will be deducted at settlement like sales commission, rates and alike.

Since GST commenced on 1 July 2000 it has been the role of the property developer to calculate and pay the GST. This is a significant and unexpected new GST rule, which is bound to lead to significant extra time in settling contracts.

[ While unlikely to be a cashflow problem for many property developers, this will be another item of red tape affecting settlement of transactions in the off-the-plan apartment market and sales subject to the GST Margin Scheme ]

4. Crowdfunding to be extended to proprietary companies

While not directly a tax measure, the start-up industry will welcome the introduction of crowd funding to small companies. To qualify though, further corporate governance will be required with a minimum of two directors, an audit and other targeted requirements.

[ A great sign of continued support for the Innovation Agenda ]

5. Temporary Budget Repair Levy Gone

As expected, the budget repair levy of the extra 2% will cease on 30 June 2017. This brings the top marginal individual tax rate [including Medicare Levy] down to 47% from 1 July 2017 [from 49%].

6. Medicare levy increased from 2% to 2.5% from 1 July 2019

The Medicare Levy would have to be one of the most efficient taxes in the Australian tax system. It is a flat rate payable by most on every dollar of income they earn and with only a few exceptions for low income earners and those under Defence force arrangements or with Veterans Health Card.

Although high income earners [earning over $180,000] will save the 2% temporary budget repair levy on income over $180,000, they will from 1 July 2019 need to pay an extra 0.5% on all of their income.

The top marginal tax rates [for those with a taxable income greater than $180,000] are now proposed to be as follows:

Year ended 30 June 2017 = 49%

Year ended 30 June 2018 = 47%

Year ended 30 June 2019 = 47%

Year ended 30 June 2020 = 47.5%

7. Higher Education HELP payments will now start sooner

By reducing the payment thresholds, those with HELP debts will now start repaying their loans when their income reaches $42,000. Once their income is over $119,882, they will now be repaying up to 10% of their income. These changes will apply from 1 July 2018.

[ If you distribute income to the kids via a trust and they have HELP debt, it will now be less appealing to do so ]

8. Limits on rental property depreciation deductions 

Where an owner buys a property after 9 May 2017 they will no longer be able to use a quantity surveyors report to increase depreciation deductions. To qualify for the depreciation deduction they will need to incur the amount themselves [for example buying a new dishwasher]. While the extra depreciation claim has been lost, this will at least leave a higher cost base on the property reducing any future capital gain.

No mention has been made in the budget about reducing the 2.5% building and construction write-off, so it would seem safe to assume that the government has not totally removed the need for a quantity surveyors report, but simply reduced the benefit from doing so.

[ Although there are no direct changes to negative gearing in the budget, this will reduce the deductions available when purchasing a rental property ]

9. No more deductions for travel expenses to inspect your rental property 

From 1 July 2017, taxpayers will no longer be able to claim travel expenses such as their car and flights that relate to inspecting, maintaining or collecting the rent.

Want to know more?

Confused about what the federal budget means for you and your business? Send me an email at m.garrone@businessdepot.com.au or call me at  [07] 3193 3002 and ask me anything.

Click here to read Megan Kelly's blog on Budget 2017 and the impact on your superannuation.

Are you a real estate principal or work in a real estate business?  Click here to read John Knight's blog on Budget 2017 for real estate businesses.

Michael Garrone
read more by Michael Garrone

Michael is our Tax Specialist Director as well as the head of our business advisory niches of Building and Construction and Property.

With Michael's extensive experience and a real interest in these niche areas he is able to provide practical business and tax advice that is unique to the Building and Construction and Property industries. His tailored advice helps guide these businesses through start-up phase to succession and sale. Michael has many years’ experience in solving complex problems involving corporate tax, restructures, international taxation, Capital Gains Tax and GST. 

Michael also has a strong background in self-managed superannuation and is an authorised representative of superannuationDEPOT. In this area Michael provides strategic advice on SMSF structures and in particular limited recourse borrowing arrangements. Through this diverse experience Michael has developed expertise within a wide range of industries including building and construction, property, professional services (legal, engineering & finance), technology and software and manufacturing.

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