2017 Budget – Implications for Investors

With investors still working through the wide-reaching and complex superannuation changes from last year’s Budget, the minimal changes this year provide a welcome relief.

The main change impacting superannuation involves allowing people aged 65 and over to downsize their home and add the proceeds to superannuation, a First Home Super Saver Scheme and the rounding up of minor technical changes already announced.

Super contributions from downsizing the home

From 1 July 2018, individuals aged 65 or older will be able to make non-concessional (after tax) super contributions of up to $300,000, using proceeds from the sale of the family home. This limit will:

  • apply on a per person basis
  • be in addition to the ordinary non-concessional contribution cap, and
  • be available where the home has been owned for at least 10 years.

Unlike other non-concessional contributions, it will not be necessary to meet a work test or have a ‘total super balance’ under $1.6 million. The amount contributed will not be exempt from the assets test used to assess eligibility for the Age Pension.

First Home Super Saver Scheme

First home buyers will be able to save for a deposit by making voluntary concessional and non-concessional super contributions. Contributions will be limited to $15,000 per year (up to a total of $30,000) and will count towards the relevant contribution cap.

Withdrawals can be made from 1 July 2018. Concessional contributions plus assumed earnings withdrawn will be taxed at the person’s marginal tax rate, less a 30% tax offset.

SMSF borrowings

Broadly, when new limited recourse borrowing arrangements are established, the loan balance will be included in an individual’s ‘total super balance’. The total super balance is used to determine a person’s ability to:

  • make non-concessional contributions
  • qualify for a Government co-contribution or a spouse contribution tax offset, and
  • make catch-up concessional contributions above the annual caps from 1 July 2018, where certain conditions are met.

Also, repayments made from the SMSFs accumulation balance will count towards the member’s transfer balance cap, if the borrowing supports a pension account. The transfer balance cap limits the total lifetime transfers a person can make to retirement phase pensions.

Pensioner Concession Card

Individuals who lost entitlement to the Pensioner Concession Card as a result of the 1 January 2017 assets test changes will be reissued with the card.

Negative Gearing

Negative gearing remains; however, some rules have been tightened around what can be claimed, specifically travel expenses and depreciation deductions.

Under new rules coming into effect from 1 July 2017, depreciation deductions for plant and equipment items such as washing machines and ceiling fans will only be allowed if the investor actually bought them.

The “integrity measure”, is intended to address concerns that such items are being claimed as tax write-offs by successive investors in excess of their actual value. The changes will apply to any items purchased after budget night, but existing investments will be grandfathered.

Meanwhile, investors will no longer be able to claim tax deductions for travel expenses “related to inspecting, maintaining or collecting rent for a residential rental property” from 1 July 2017.

Other changes

  • The Government will introduce a major bank levy which will raise $6.2 billion in the next four years.
  • The Government will introduce a new single body external dispute resolution scheme for financial services from 1 July 2018.
  • The Medicare Levy will be increased from 2% to 2.5% from 1 July 2019.