So, what’s going to be in this year’s Federal Budget?
With the 2017 Federal Budget on 9 May only a short time away, it’s a good time to consider what may or may not be in it.
The government has flagged that it will do something about housing affordability in this year’s Budget. However, the government has also made it clear that it will not touch negative gearing for investment rental properties. The government’s official line is that most rental properties are held by mums and dads (read “ordinary people”). It seems though from the latest ATO statistics that, generally, most rental properties are owned by the well-off.
Discounting the possibility of a new Federal land tax, the other most obvious thing the government might do is to reduce the very generous capital gains tax discount of 50% for individuals, complying superannuation funds (and approved deposit funds and pooled superannuation trusts), trusts and life insurance companies. It has been suggested that the discount could be tapered so that, for example, no discount applies for assets held for less than two years, and only a 20% discount for assets held longer.
Small business incentives
The government is already reducing the corporate tax rate for small businesses with an aggregated turnover of less than $10m to 27.5% for the 2016/17 income year, with more reductions/turnover increases to come, and increasing the small business income tax offset for individuals.
It is hard to imagine that the government will provide more incentives for small businesses in this year’s Budget except perhaps for an extension of the instant write-off for depreciating assets costing less than $20,000, which runs out on 30 June 2017.
General company tax cuts
Despite the promise of a progressive reduction in the general company tax rate to 25% over 10 years in last year’s Budget, what we’ve ended up with is a reduction for those companies with an aggregated turnover of less than $50m, ie essentially, small to medium enterprises.
The government has said that it has not given up on general company tax cuts. In light of the recent rumblings about significant tax cuts in the US, there may well be a case for Australia to follow suit to maintain global competitiveness. However, it is hard to see how these could possibly get through the current Senate, without some serious concessions being made.
Tougher tax avoidance measures
The new diverted profits tax (DPT) applies from 1 July 2017. Given the Commissioner’s comments that he envisages that the DPT will be a little-used sledgehammer, and in light of his recent win in the Chevron case, it is hard to imagine that there are any more tax avoidance measures left.
Crackdown on black economy
The black (or cash) economy is a perennial problem for the government and revenue authorities, and technological change presents both new challenges and opportunities. In December 2016, the government announced the formation of the Black Economy Taskforce and an interim report was due in March this year. Given this, it would seem premature for the government to be making any announcement about providing additional funding to increase ATO resources to combat this problem.
As expected, Treasury recently released for consultation some draft legislative tweaks to the superannuation changes taking effect from 1 July 2017.
It is understood, however, that the government is considering providing exemptions to both the $1.6m cap on total superannuation balances and non-concessional contributions cap where the additional contributions are made from the proceeds of sale of a family home.
As with previous years, it is best to keep an open mind about the Budget and not get too involved in speculation about what may or may not be included. From experience, the government has an unparalleled ability to surprise (and, in some cases, delight) when it comes to Budget measures. However, given that this is the government’s first Budget of its three year term there may not be too much delight.