Delivered by Treasurer Scott Morrison on May 9th, Australia's Federal Budget is broadly focused on addressing the national deficit of $29.4 billion, and achieving a surplus - of $7.4 billion - by 2021.
That scenario is predicated on economic growth: in his speech, the treasurer projected a growth rate of 2.75% in this financial year - and 3.0% in 2018-19. Those numbers come from an uptick in exports, household consumption, and the progressive transition of business investment from mining to non-mining interests.
Underpinning the budget are a range of tax measures, including a surprise bank levy, an increased Medicare levy, a levy on foreign employees, and a more robust GST for property transactions. Taken as a whole, the measures are estimated to contribute around $11.9 billion to the deficit reduction effort, and the treasurer is framing the budget as one which promotes fairness and opportunity - while cracking down on groups not paying their fair share.
The budget affects a variety of groups and business interests all across Australia's tax landscape - so what do the new rules look like in detail?
Australia's biggest banks - Westpac, Commonwealth, National Australia, ANZ and Macquarie Group (essentially those organisations with licensed entity liabilities of over $100 billion) - are all affected by the new levy:
- Coming into effect from July 1st, 2017, the levy will work with other corporate taxes to raise an estimated $6.2 billion.
- The announcement itself has hit hard, shaving around $14 billion off share value.
- The government has insisted the levy is both fair, and a necessary deficit reduction measure.
- Additional fines, for banks in violation of financial misconduct rules, have also been introduced.
While the Medicare tax measures target all income earners - middle income earners are hit a little harder than others:
- The Medicare levy on taxable income has been increased from 2% to 2.5%. Higher earners (over $21,655), will pay an additional 0.5% tax rate.
- The existing 2% budget deficit levy on taxpayers earning over $180,000 will come to an end on June 30th, 2017. Excluding the Medicare levy, the change essentially reduces the highest tax rate to 45%.
The budget continues the effort to hit long-term, corporate tax reduction targets:
- To implement the government's 10-year company tax cut plan, businesses with a turnover of less than $10 million in the 2016-17 tax year may pay a reduced corporate tax rate of 27.5%. The turnover threshold rises to $25 million in 2017-18 and $50 million in 2018-19.
- From 1st July, 2024, further, phased reductions in corporate tax will begin, with the aim of achieving a 25% rate by 2026-27 for businesses with a $50 million turnover or less.
Small businesses can expect a degree of continuing tax relief:
- Businesses with a turnover of less than $10 million will continue to receive a $20,000 instant asset write-off - after the scheme was extended by 12 months to June 30th, 2018.
- The capital gains tax concession for small businesses continues to be held at $2 million.
- Unincorporated small businesses (earning less than $5 million) continue to receive a tax discount - which will increase from 5% to 16% over 10 years.
Foreign Worker Levies
Businesses with foreign workers on certain types of visa will face new levies:
- Businesses will face a foreign worker levy of up to $1,200 - paid upfront - for each employee working on a 'Temporary Skill Shortage' visa.
- Similarly, upfront payments of up to $5,000 must be made for each foreign worker on 'Employer Nomination Scheme', or 'Regional Sponsored Migration Scheme' visas.
- Essentially a brand new tax, the levies will be directed into the new Skilling Australians Fund - a scheme designed to boost the vocational education sector.
Foreign Property Owners
The budget targets foreign resident property-owners as part of the effort to stimulate the housing market:
- An annual levy of (at least) $5,000 is due on residential property (owned by a foreigner) which left vacant, or genuinely unavailable for rental for at least six months. The levy itself is determined by the property's investment application fee at the point of acquisition.
- Foreign or temporary-status residents will no longer be exempt from capital gains tax. Those residents with existing properties may continue their exemption until June 30th, 2019.
The budget also introduces measures to reduce expenses abuse in income derived from rental property:
- From July 1st, 2017, tax deductions for the depreciation of plant and equipment used in real estate are limited to only outlays made by investors. The measure acts to prevent depreciation deductions for assets carried over from a property's previous ownership.
- To address a culture of over-reporting, from the July 1st, all tax deductions for travel expenses incurred in the maintenance, inspection or rent collection of a rental property, are forbidden.
The budget aims to help prospective home-buyers by opening up access to superannuation savings:
- Individuals over 65 years of age, who have owned their residence for over 10 years, may, from July 1st, 2018,make a non-concessional superannuation contribution of up to $300,000 from the proceeds of selling the home.
- From July 1st, 2017, voluntary superannuation contributions may be withdrawn and used for a home deposit by first-time buyers. The scheme is designed to promote home ownership - couples may use the scheme together to buy a property together.
To take a closer look at Australia's tax system, or find out how your business might be affected by the budget, browse our guide to payroll and tax in Australia.