On 9 May, the Federal Treasurer, Scott Morrison, handed down the 2017-18 Budget. Not surprisingly, a significant focus of Treasurer Morrison’s second Budget was addressing the housing affordability issue and creating new jobs. The following is a summary of the key announcements contained within the Budget that will be of most interest to planners and their clients.

Superannuation

Downsizing and contributing to super

From 1 July 2018, the Government has proposed that clients aged 65 and older will be able to contribute proceeds from the sale of their home to superannuation. A client will be able to make a non-concessional contribution of up to $300,000 regardless of their age, work status or total super balance. The home must be their principal place of residence and it must be held for at least 10 years.

A couple can contribute up to $300,000 each from the sale of the same home, making this a $600,000 contribution to super.

A contribution made under this concession will still count under a client’s Transfer Balance Cap if it was used to commence an income stream. Furthermore, any contribution would be assessable under the Centrelink and DVA assets and income tests.

“The aim of this incentive is to encourage the baby boomer generation to sell, freeing up larger houses for younger families upgrading into more suitable homes,” said FPA chief executive officer, Dante De Gori. “While we support this initiative, these changes add to the complexity of the superannuation system and are only tinkering with the housing affordability problem.”

First Home Super Saver Scheme

Under this scheme, from 1 July 2017, first home buyers will be able to make voluntary contributions to super and withdraw them, along with associated earnings, to purchase their first home. Withdrawals will come into effect from 1 July 2018. Withdrawals will be taxed at the client’s marginal tax rate, with a 30 per cent offset applied.

Existing contributions caps will apply. In 2017-18, the concessional cap is $25,000 and the non-concessional cap is $100,000. However, contributions made under this scheme will be limited to $15,000 per year, and withdrawals will be limited to a maximum of $30,000 (plus interest). The withdrawal amount will be less any contributions tax payable on concessional contributions.

Members of a couple can both use this scheme to purchase their first home, which can effectively double the amount available to them. However, SG contributions will not be able to be withdrawn under this scheme.

As well as contributions made under this scheme, associated deemed earnings associated will also be able to be withdrawn.

De Gori said that while he supported initiatives to make housing more affordable, he believed accessing super was not the solution to the housing affordability issue and was not in the national interest.

“FPA members are concerned that changes that reduce retirement savings of future retirees, will only add extra pressure on the Age Pension,” De Gori said.

Non-arm’s length arrangements

From 1 July 2018, the non-arm’s length provisions that apply to superannuation will ensure that expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis. This will limit the opportunities for members to use related party transactions on non-commercial terms to increase their superannuation savings.

Financial services

New external dispute resolution body

The Government has announced the establishment of a new dispute resolution body, the Australian Financial Complaints Authority (AFCA), effective from 1 July 2018. The AFCA will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal (SCT).

The new body will be funded by the financial services industry and its decisions will be binding on members.

While acknowledging the benefits of combining the external dispute resolution schemes and the SCT into one new body, De Gori was concerned about the operating cost of the AFCA, which will be funded by a new industry levy, adding additional cost pressures on consumers.

Taxation

Medicare levy

The Government has announced the Medicare levy will increase by 0.5 per cent to 2.5 per cent from 1 July 2019. This increase will be used to help fund the National Disability Insurance Scheme.

Temporary Debt Repair levy

The Temporary Debt Repair levy, which imposed a 2 per cent tax levy on higher income earners (earning over $180,000) will end on 30 June 2017. No extension to this levy was announced in the Budget. As a result of this increase, higher income earners may want to defer realising income until 1 July 2017, when the highest marginal tax rate reduces back to 47 per cent.

Major bank levy

A major bank levy will be introduced for Authorised Deposit-taking Institutions from 1 July 2017. The levy will be an annualised rate of 0.06 per cent on loan facilities, and is expected to raise $6.2 billion over the forward estimates period.

However, De Gori remained concerned about this levy.

“There is a question about what the funds raised will be used for and if the tax will be passed onto customers,” he said. “This will only increase the cost of borrowing and will likely have a knock-on effect for the economy.”

Residential rental properties

From 1 July 2017, tax deductions for travel expenses related to inspecting, maintaining and/or collecting rent for a residential rental property will be discontinued. In addition, plant and equipment depreciation on residential property will be limited to the actual outlay incurred for properties purchased from Budget night.

Deductibility threshold for small businesses

The deadline enabling small businesses to immediately deduct purchases of eligible assets costing less than $20,000 has been extended to 30 June 2018.

Assets valued at $20,000 or more and which cannot be immediately deducted, can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

The current laws that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out, will continue to be suspended until 30 June 2018.

Higher Education Loan Program

From 1 July 2018, the income threshold at which HELP debts must begin to be repaid will lower from $55,874 to $42,000. The rate at which repayments must be made will increase with a person’s income – from 4 per cent up to 10 per cent for those individuals earning more than $119,881.

Foreign property investors

The Government has made a number of proposals in relation to foreign investors owning Australian residential property. These include:

• A charge of at least $5,000 where a residential investment property is left unoccupied for six months or more per year.
• The removal of the CGT main residence exemption for foreign and temporary tax residents.
• Increasing the CGT withholding rate to 12.5 per cent and reducing the threshold to $750,000 from 1 July 2017.
• Foreign investment in new developments will be capped at 50 per cent.

Affordable housing through Managed Investment Trusts

The Government will enable Managed Investment Trusts (MITs) to invest in affordable housing. For investors to receive concessional taxation treatment through a MIT, the affordable housing must be available for rent for at least 10 years.

Affordable housing tax incentives

From 1 January 2018, the CGT discount for resident individuals who elect to invest in qualifying affordable housing will be 60 per cent (not 50 per cent).

To qualify for the higher discount, housing must be provided to low/moderate income tenants, managed through a registered community housing provider, and the investment held for a minimum of three years. Rent must also be charged at a discount below the private rental market rate.

Social security

Family Tax Benefit

From 1 July 2018, the Government will apply a 30 cents in the dollar taper rate to FTB Part A recipients with a household income in excess of the Higher Income Free Area (currently $94,316).

The Government said it will also not proceed with an increase to the maximum rate of FTB Part A announced in the 2015-16 Mid-Year Economic and Fiscal Outlook. It also proposes to maintain the rates of FTB at their current levels for two years from 1 July 2017.

Energy Assistance Payment

Recipients of the Age Pension, Disability Support Pension, Single Parenting Payment and several DVA payments will receive a one-off payment to assist with the rising cost of electricity. The Energy Assistance Payment will provide $75 for single recipients and $125 for couples. To be eligible for payment, recipients must be residents in Australia.

Residency requirements for pensioners

From 1 July 2018, claimants of the Age Pension and Disability Support Pension (DSP) will be required to meet one of the following requirements:

• Have 15 years of continuous residence in Australia.
• Have 10 years of continuous residence in Australia, with five years of this period being during their working life (which extends from age 16 to Age Pension age).
• Have 10 years of continuous residence in Australia, without having received an activity tested income support payment for a total of five years.
• Have become disabled in Australia (DSP).

Liquid Assets Waiting Period

The maximum Liquid Assets Waiting Period will increase from 13 weeks to 26 weeks from 20 September 2018, when a claimant’s liquid assets are equal to or exceed $18,000 for singles without dependants or $36,000 for couples and singles with dependants.

Pensioner Concession Card

A welcomed announcement in the Budget was the reinstatement of the Pensioner Concession Card (PCC) for those who lost this entitlement following changes to the pension assets test from 1 January 2017. According to the Government, the PCC will be reinstated on 9 October 2017.

JobSeeker Payment

From 20 March 2020, the Newstart Allowance and Sickness Allowance will be combined into one benefit – the JobSeeker Payment. This payment will be set at the same level as the current Newstart Allowance.

However, as a result of this new benefit, a number of existing payments will be phased out. These include:

• Widow Allowance – closed to new recipients from 1 January 2018, and all recipients will have transitioned to the Age Pension by 1 January 2022.
• Partner Allowance – will cease on 1 January 2022, when all recipients will have transitioned to the Age Pension.
• Widow B Pension – will cease on 1 January 2020. All recipients will be transitioned to the Age Pension with no reduction in their payment rate.
• Wife Pension – will cease on 1 January 2020. All recipients will be transitioned to the Age Pension or Carer Payment with no reduction in their payment rate.
• Bereavement Allowance – will be closed to new recipients from 20 March 2020 and replaced by the new JobSeeker Payment.

“As a result of the announcements made in the 2017-18 Federal Budget, I encourage planners to engage with their clients and plan their reviews carefully, giving priority to those clients who are affected immediately or will be very soon,” De Gori said.

For more in-depth analysis of the Budget, go to fpa.asn.au

Money & Life kindly acknowledges the FPA, wealthdigital and Aged Care Steps for their assistance with this Budget analysis.