We have highlighted below the key changes for the 2018 tax year-end.
- Cost of managing tax affairs
- Rental Property – Travel deductions
- Rental Property – Limited depreciation deductions on plant and equipment
- Reportable fringe benefits amounts
- Foreign resident capital gains withholding payments
- Foreign resident capital gains tax
- Corporate tax rate – base rate entities
- Maximum franking credits
- Temporary budget repair levy
- Expanded accelerated depreciation for small businesses
- Exploration incentives
- Tax deductions for personal superannuation contributions
- Income threshold for spouse super contributions tax offset
- Taxation of defined benefit income streams
- Superannuation income stream tax offset
- Transitional capital gains tax relief
The changes listed are not exhaustive, but are the changes we have identified are relevant to our clients.
For specific advice regards any tax changes and the impact these changes will have on you or your business, please speak with your HTG Partners Tax Advisor.
COST OF MANAGING TAX AFFAIRS
How a taxpayer claims the costs of managing their tax affairs has changed. These costs are still claimed; however, they now need to be separated into the following categories:
- interest charged by ATO
- litigation costs
- other expenses incurred in managing your tax affairs.
RENTAL PROPERTY – TRAVEL DEDUCTIONS
From 1 July 2017, taxpayers are no longer able to claim any deductions for the cost of travel they incur relating to a residential rental property. They may only claim travel deductions if they are carrying on a business of property investing or are an excluded entity.
An excluded entity is a:
- corporate tax entity
- superannuation plan that is not a self-managed superannuation fund
- public unit trust
- managed investment trust
- unit trust or a partnership, all of the members of which are entities of a type listed above.
RENTAL PROPERTY – LIMITED DEPRECIATION DEDUCTIONS ON PLANT AND EQUIPMENT
From 1 July 2017, taxpayers cannot claim depreciation of second-hand plant and equipment in rental properties used for residential accommodation.
These changes apply to second-hand plant and equipment acquired at or after 7.30pm on 9 May 2017 unless acquired under a contract entered into before this time.
Additionally, taxpayers cannot claim plant and equipment installed on or after 1 July 2017 if they have used it for a private purpose.
REPORTABLE FRINGE BENEFITS AMOUNTS
The treatment of reportable fringe benefits amounts have changed. This affects the way adjusted taxable income is calculated for tax offsets such as:
- net medical expenses
- dependants (invalid and invalid carer)
- seniors and pensioners
- zone and overseas forces
- low income super.
FOREIGN RESIDENT CAPITAL GAINS WITHHOLDING PAYMENTS
The foreign resident capital gains withholding rate and threshold has changed. It applies to contracts entered into on or after 1 July 2017.
A 12.5% withholding obligation will apply to the disposal of:
- taxable Australian real property with a market value of $750,000 or more
- an indirect Australian real property interest
- an option or right to acquire such property or interest.
Where the vendor of these Australian assets is a foreign resident, the purchaser must pay 12.5% of the purchase price to the ATO as a foreign resident capital gains withholding payment.
A vendor can claim a credit for the foreign resident capital gains withholding payment the purchaser has made to the ATO by lodging a tax return for the relevant year.
FOREIGN RESIDENT CAPITAL GAINS TAX
On 9 May 2017, it was announced that Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign tax residents access to the CGT main residence exemption. This change applies from the date of announcement. For properties held prior to 9 May 2017, foreign tax residents have access to the main residence exemption until 30 June 2019. This change is not yet law.
Following consultation, the Government amended the proposed change to the main residence exemption to ensure that only Australian residents for tax purposes can access the exemption. As a result, temporary tax residents who are Australian tax residents will be unaffected by the change.
CORPORATE TAX RATE – BASE RATE ENTITIES
From 1 July 2017, companies that are base rate entities will apply the 27.5% corporate tax rate. A company is a base rate entity for 2017–18 if it has an aggregated turnover of less than $25 million and is carrying on a business.
The company tax rate will remain at 30% for other companies that are not base rate entities.
A company may be a base rate entity to access the lower company tax rate and also be a small business entity to access the small business concessions.
MAXIMUM FRANKING CREDITS
The maximum franking credit that can be allocated to a frankable distribution is based on a company’s applicable corporate tax rate for imputation purposes.
For the 2017–18 tax year, a company’s corporate tax rate for imputation purposes may be either 27.5% or 30%, depending on the company’s circumstances.
TEMPORARY BUDGET REPAIR LEVY
The temporary budget repair levy of 2% has finished and no longer applies for 2017–18.
ACCELERATED DEPRECIATION FOR SMALL BUSINESSES
Small businesses can claim an immediate deduction for assets they first acquire and start to use, or have installed ready for use, up until 30 June 2018, if each depreciable asset costs less than $20,000. This temporarily replaces the previous instant asset write-off threshold of $1,000.
The balance of the general small business pool is also immediately deductible if the balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2018 (including an existing general small business pool).
The ‘lock out’ laws have also been suspended for the simplified depreciation rules until the end of 30 June 2018. The lock-out laws prevent small businesses from re-entering the simplified depreciation regime for five years if they have opted out.
The exploration development incentive (EDI) and junior minerals exploration incentive (JMEI) encourages shareholder investment in small exploration companies undertaking greenfields mineral exploration in Australia.
The schemes enable eligible exploration companies to give up a portion of their tax losses from greenfields exploration to create and issue exploration credits to some of their shareholders. Certain Australian resident investors will be entitled to a refundable tax offset for the exploration credits that they receive.
TAX DEDUCTIONS FOR PERSONAL SUPERANNUATION CONTRIBUTIONS
Eligibility rules for claiming a deduction for personal superannuation contributions have changed. Previously, only those taxpayers who were primarily self-employed could claim this deduction.From 1 July 2017, most taxpayers under 75 years old (including those aged 65 to 74 who meet the work test) are able to claim a deduction for personal super contributions regardless of their employment arrangement.
INCOME THRESHOLD FOR SPOUSE SUPER CONTRIBUTIONS TAX OFFSET
From 1 July 2017, the income threshold for claiming the tax offset for spouse super contributions increased from $10,800 to $37,000. The maximum tax offset of $540 gradually reduces for income above this level and completely phases out for income above $40,000.
There are also new eligibility rules where taxpayers cannot claim this offset if their spouse who received the contribution either:
- exceeded their non-concessional contributions cap
- had a total super balance of $1.6 million or more at 30 June 2017.
TAXATION OF DEFINED BENEFIT INCOME STREAMS
From 1 July 2017, the ‘defined benefit income cap’ limits the amount of tax-free income taxpayers can receive from a capped defined benefit income stream (pension or annuity). For 2017–18, the defined benefit income cap is $100,000.
Taxpayers who are 60 years old or over (or are a death benefit dependant and the deceased died at 60 years old or over) and their capped defined benefit income exceeds the defined benefit income cap may have additional tax liabilities.
SUPERANNUATION INCOME STREAM TAX OFFSET
If a taxpayer receives an unfunded (untaxed) component of their income stream, the 10% tax offset will not apply to untaxed-sourced benefits above the $100,000 cap.
TRANSITIONAL CAPITAL GAINS TAX RELIEF
Transitional capital gains tax (CGT) relief was available for super funds including self-managed super funds (SMSFs). This provided temporary relief from certain capital gains that might arise as a result of taxpayers complying with the new transfer balance cap and transition-to-retirement income stream (TRIS) reforms that started on 1 July 2017.
A fund, where its net capital gain is less than $10,000, must now use the CGT schedule if it has brought a deferred notional gain into account. Super funds are required to complete this item only if they chose to apply the relief and notified the ATO by the due date for 2016–17.
If the SMSF chose the relief in 2016–17 and the SMSF has had a realisation event during 2017–18, this triggered a CGT event.