The state budget usually plays second fiddle to the Federal budget however there were a few items worth noting in the most current Victorian State Budget including:

  • From 1 July 2017 property transfers between spouses involving commercial properties or investment properties will no longer be exempt from stamp duty. Therefore if you are planning on restructuring, you may wish to consider doing so prior to 1 July 2017.
  • Introduction of a vacant property tax of 1% of the property’s capital improved value
  • Introduction of yearly land tax valuations instead of every 2 years commencing 1 January 2019
  • Payroll tax free threshold to increase to $650,000 from 1 July 2018.
  • Lower payroll tax rate of 3.65% will apply form 1 July 2017 for employers who have at least 85% of their employees in regional locations.

Scott Morrison handed down his Federal Budget for 2017-18 last night. He believes the budget will secure better days ahead and uses the catch cries of Fairness, Opportunity and Security. According to the Treasurer we have choices to make and he believes the budget is a fair and responsible way back into surplus (year 2020/21). Many commentators have called it a “very labor budget”, “reset or reboot budget”, “buries the 2014 budget” which destroyed the Liberals and is a budget based on the “political reality of dealing with the senate”. As you would expect Chris Bowen Labor Shadow Treasurer, the greens and independants were not overly happy with the budget, with Chris Bowen calling it a “desparate, failed attempt at a catchup budget.”

The budget ultimately was a big spend on infrastructure, Health care, more pain for foreign investors, additional money for ATO and ACCC and a nice tax ($6.2b) on the 5 big banks in Australia (4 majors plus Macquarie).

The key big things missing from the budget was any real tax reform, however we got a fair bit of that last year through the enterprise tax cuts which have only just been passed thanks to Nick Xenaphon, CGT discount changes and negative gearing changes.

Key Items from the budget are:

Personal tax/Investing

  • Increase in medicare levy of 0.5% from 1/7/19 to help fund the shortfall in NDIS
  • Lapsing of 2% budget deficit levy for those earning over $180,000pa
  • Restriction on claim travel expenses for property investors from 1/7/17
  • Removing the availability of claiming depreciation deductions on P & E on purchase of property (ie Quantity Surveyors reports) from 9/5/17
  • New tax incentives for affordable housing through MIT and an increase in the CGT discount to 60% for certain housing

Businesses

  • An extension of the $20,000 immediate tax write-offs for small business (now <$10m turnover) until 30 June 2018
  • Tightening access to small business concessions from 1/7/17
  • Extension of Taxable Reporting Regime to contractors in the courier and cleaning industries from 1/7/18

International

  • Foreign tax residents and temporary tax residents will not be able to gain access to the main residence exemption on sale of a house in Australia
  • Foreign withholding tax regime has been expanded for sales of residential property by non residents by reducing the threshold to $750,000 properties and increasing the withholding tax rate to 12.5%
  • Investments to new property development will mean that the developers will be limited to selling less than 50% of the properties to non residents
  • Annual levy on vacant property held by non residents (at least $5,000)

Superannuation

  • Ability for any person if they are downsizing their home to put a max of $300,000 into super which will not be counted towards any contribution limits (be careful that you don’t lose your aged pension as a result)
  • Use of direct contributions into super for first home owners up to a max of $30,000 ($15,000pa) and then being able to withdraw it to buy the house
  • Inclusion of the borrowed amounts in your pension transfer balance cap for instalment warrants
  • Tightening of non arm’s length transactions for smsf

Infrastructure

  • $20b funding for national rail program including Geelong to Waurn Ponds line, Snowy Mountains Hydro Scheme, Brisbane rail link, new Western Sydney airport and study on a rail link for the Tullamarine Airport.

Health

  • Full funding of NDIS
  • Lifting the freeze on medicare
  • Increased hospital funding
  • Increased spending on mental health funding and research

For all those clients who had a strategy of contributing to superannuation the maximum amount allowed and then take a pension out of their super fund, the window of the benefits of this strategy is about to cease from 1 July 2017. From 1 July 2017 the Government has changed the tax exemption allowed on the investment earnings of this type of pension – no longer will the earnings be tax free but will be taxed in the same way as an accumulation member (15%). Therefore, people should be considering whether they can meet the appropriate conditions of release to change the pension to an account based pension, which keeps the tax exemptions, or should they roll back their transition to retirement pension back to accumulation phase. Each answer will be different for each client – no single rule fits, due to different circumstances and aims in life.

We suggest all clients who already have a transition to retirement pension in place contact either Matthew Grapsas, Simon Flowers or Cathy Walley to discuss your options going forward from 1 July 2017.