The Rocky Horror Budget:
“It’s just a jump to the left, and a step to the right.”
Credit Dr Frank N Furter
Director, Tax Services
9 MAY 2017
A dearth of pre-Budget leaks left the Australian public shivering with antici… pation for the Honourable Scott Morrison’s delivery of Budget 2017-18, his second as Treasurer.
Taking his cue from former Foreign Minister Alexander Downer, the Treasurer channelled his inner Dr Frank N Furter by taking a “jump to the left” this evening and delivering a centre-left “tax and spend” budget.
With an emphasis on themes of fairness, security, and opportunity, key 2017-18 Budget initiatives focussed on housing affordability, securing funding for the National Disability Insurance Scheme (NDIS) and spending on infrastructure. Whilst the Rocky Horror Picture Show movie had Dr Frank N Furter making unwelcome advances on average couple Brad and Janet, it is likely that the average Australian will generally welcome the essential services being delivered by the Government in Budget 2017 – 2018. The average Australian will “put their hands on their hips” with respect to the increase in the Medicare levy to 2.5% and the accelerated Higher Education Contribution Scheme repayments, however they are likely to at least appreciate that the funding will go towards better education, training, support for the disabled and more affordable housing. In this regard, the Government’s mantra could be “Don’t dream it, be it.”
Foreign investors, foreign workers and multinational organisations are the “Frankenstein” that the Treasurer is seeking to prevent from leaving the castle, or at least not leaving without paying their fair share of tax. For foreign owners of residential property, the Treasurer has introduced:
- a charge for properties that have been vacant for at least six months per year;
- changes denying access to the main residence CGT exemption from 9 May 2017;
- an increased CGT withholding rate to 12.5% (up from 10%); and
- a reduced CGT withholding threshold of $750,000 (down from $2 million).
Changes to the skilled visa rules to target genuine labour market shortfalls, and a levy on Australian businesses that do employ foreign workers are sure to hit Australian businesses.
Large multinational organisations will also need to consider the implications of the extension of the Multinational Anti-Avoidance Law (MAAL) to interposed partnerships and foreign trusts, as well as the implications of the OECD BEPS action item relating to hybrid mismatches.
Australian resident property investors were also on the Federal Treasurer's dance card. Whilst there is once again no changes to negative gearing or the 50% CGT discount for residential rental properties, from 1 July 2017 travel costs relating to inspecting, maintaining or collecting rent for a residential property will no longer be tax deductible. In addition, rental property owners will only be able to claim depreciation on plant and equipment they purchase themselves, reducing the ability for investors to use a quantity surveyor’s report to claim deductions for prior owners’ expenditure on assets within the property.
Small businesses with turnover of less than $10 million received a 12 month extension to the instant write off for assets costing less than $20,000, with this measure being retained until 30 June 2018. Other than this measure, small business owners asked for nothing in Budget 2017-18, and seemingly received it in abundance from the Treasurer.
The Treasurer also reaffirmed the Government’s 10 year plan to reduce the corporate tax rate to 25%. With US President Donald Trump aspiring towards a 15% corporate tax rate for the US, the Government needs to remind the Opposition that we are no longer in the Junior Chamber of Commerce, and that Australia’s high corporate tax rate could quickly see us become uncompetitive in the global economy.
Changes to allow first homeowners to salary sacrifice amounts into superannuation to save for a home deposit will be welcomed by those seeking to establish a foothold into the buoyant East Coast property market.
Successive Federal Budgets have failed to deliver the significant tax reform that the Australian business community yearns for and, in that regard, this Budget has not let us down. So let’s do the time warp again!
RSM coverage and analysis of the Budget 2017-18: