Some of the tax changes you may need to know
Personal income tax measures
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties acquired from Budget night. Plant and equipment items are usually mechanical fixtures, or those that can be 'easily' removed from a property such as dishwashers and ceiling fans. These changes will apply on a prospective basis, with existing investments grandfathered.
Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.
This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
• From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services.
• From 1 July 2019 the Government will increase the Medicare levy from 2% to 2.5% of taxable income.
Measures affecting small businesses
• Extending the $20,000 immediate write-off for small business.
Under current law, the $20,000 immediate write-off ends on 30 June 2017. However, the Government has proposed to extend the concession by 12 months to 30 June 2018 for businesses with an aggregated annual turnover less than $10 million.
This means small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if the balance is less than $20,000 over this period.
• Measures affecting the GST regime
In order to improve the integrity of GST on property transactions, from 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. As most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes.