For Australians living both home and abroad, this month’s federal budget will impact not only existing assets but also financial planning strategies going forward.
As widely expected, Treasurer Scott Morrison announced an array of new measures that will affect tax, property, superannuation, and mortgages. While last year’s budget was largely focused on the significant changes to superannuation, the 2017 budget encompasses a number of new items that are relevant for all investors.
Whether your assets include Australian property, shares or superannuation, here are 6 things that all investors should know about this year’s budget:
1. Property—Deductible Expenses
Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential property will be disallowed from 1 July 2017. This measure will affect all taxpayers (both residents and non-residents) who receive assessable property income and deduct the money spent on travelling to the property as an expense.
The Government addressed concerns that this arrangement—which allowed expenses such as flights and rental cars etc. to be used as a tax deductible expense—was being abused, with deductions claimed on expenses that were actually for private travel.
From 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by investors.
The Government felt that some plant and equipment items, which included washing machines, hot water services and ceiling fans, were being depreciated by successive investors below their actual value. The amendment to this rule means that a new owner cannot apply depreciation to any of these items that were purchased by a previous owner—only to items they purchase themselves.
3. Property—Capital Gains Tax Exemption for Main Residence
As of 9 May 2017, the CGT main residence exemption was removed for foreigners and non-resident Australians for tax purposes.
For Australians living offshore, this change will impact anyone who is still treating their previous place of residence as their main residence for tax purposes (for up to six years).
Properties already held prior to 9 May 2017 will be ‘grandfathered’ until 30 June 2019, but how the existing properties will be impacted after will depend on the draft legislation. There may be an incentive to sell properties before 30 June 2019 to minimise tax payable on unrealised property gains.
4. Superannuation—Home Downsizing
Persons aged 65 or over who sell their home after 1 July 2018 are eligible to contribute up to A$300,000 of the sale proceeds into superannuation as a non-concessional contribution. (This applies to principal residences owned for at least 10 years.)
Both members of a couple are able to take advantage of this measure for the same home, enabling up to A$600,000 to be contributed on top of existing caps.
Most importantly, these contributions are in addition to the existing caps—hence this move is viewed as a great incentive to ‘downsize’ and invest the proceeds in a tax-efficient (and potentially a tax-free) environment.
5. Superannuation and Property—First Home Super Saver Scheme
People saving for their first home can now utilise voluntary superannuation contributions to save in a tax-effective manner for their deposit (or part thereof). These voluntary contributions are capped at A$15,000 a year and A$30,000 in total, so the total amount that can be saved and withdrawn via the scheme is somewhat limited. However, the measure does allow super to be accessed early—which has never been an option prior to this budget.
6. Bank Tax—Borrowers Likely to be Impacted
As part of a strategy aimed at returning the country to surplus and preserving its triple-A credit rating, the government has imposed a 0.06% tax on balance sheet liabilities for Australia’s five largest banks. While this measure will raise an estimated A$6.2bn over the next four years, it is very likely that lenders will pass the tax to their customers by increasing mortgage rates.
As an Australian investor living overseas, there are many ways you can benefit from the changes to this year’s budget. The key with any investment, of course, is ensuring you get the right advice at the right time.
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