The key announcements from the 2017 Federal Budget that may have an impact for year-end tax planning include:

  • Removal of the main residence exemption for non-residents and temporary residents for properties purchased after Budget night
  • An annual levy of at least $5,000 will be imposed on foreign owners of under-utilised residential property
  • Removal of deductibility for travel expenses incurred to inspect a residential rental property from 1 July 2017
  • Restriction on availability of depreciation deductions for items in rental properties when property purchased from 1 July 2017
  • Extension of the $20,000 asset write off for small businesses ($10 million turnover) until 30 June 2018
  • Technical amendments to qualifying criteria for small business CGT concessions (full details not yet available)
  • The Medicare levy will be increased from 2.0% to 2.5% of taxable income from 1 July 2019.

Superannuation

The key superannuation announcements in the 2016 Budget have now been legislated and will take effect from 1 July 2017.

The amendments have introduced a significant number of restrictions on the quantum of contributions to funds and on member balances. In addition, there are planning opportunities for contributors to super funds prior to 30 June 2017.

From 1 July 2017 reduced contributions caps – $25,000 for concessional and $100,000 for non-concessional.

INDIVIDUALS TAX RATES

The temporary debt levy was introduced in 2014/15. Taxpayers with a taxable income in excess of $180,000 were liable to an additional tax of 2% of income in excess of $180,000. The levy is due to expire on 30 June 2017.

When the levy expires, there are advantages for affected taxpayers to defer recognising income and capital gains until after 30 June 2017 and to accelerate deductions prior to 30 June 2017.

In addition, from 1 January 2017, special rates have taken effect for backpackers and other working travellers.

SMALL BUSINESS

Small business company tax rate

From 1 July 2016, the income tax rate applicable to companies carrying on a business will reduce to 27.5%. The reduction will progressively apply to companies based on their aggregated turnover in the years in question. The 27.5% tax rate will apply to companies as follows:

Year Ended 30th June Turnover
2017 $10 million
2018 $25 million
2019 $50 million

The amendments to the company tax rate will also have implications for companies paying dividends.

Over-franked dividends

The franking credit rate for the year ended 30 June 2017 will be 27.5% where the company’s aggregate turnover for the previous year (2016) was less than $10 million. If the company has made a 30% franked distribution and dividend statement after 30 June 2016, the dividend will be over-franked and result in loss of franking credits.

Trapped franking credits

If the company pays a franked dividend based on profits of a previous year where the company’s tax rate was higher than current year, there may be trapped franking credits e.g. previous year rate 30% and current year rate 27.5% then 2.5% franking credits trapped in company.

Increase of the unincorporated small business tax discount

From 1 July 2015, individuals and individual partners in a partnership with business income of less than $2 million have enjoyed a tax discount of 5% of tax paid on business income. This discount amount is capped to $1,000 per individual.

From 1 July 2016, the tax discount has increase to 8% and the annual aggregated turnover threshold has increase to $5 million. The discount rate will progressively increase in the following years, but the maximum rebate will remain at $1,000 pa.

SUPER GUARANTEE

The rate for superannuation contributions by employers on behalf of their employees under the SGC for the year ended 30 June 2017 is 9.5%.

Employers must make superannuation guarantee contributions for their employees on a quarterly basis within 28 days after the end of each quarter (September, December, March and June).