The 2017 Australian Federal Budget has been released, so we’ve scanned the documents and summarised some of the key implications for Australian expats. In short, there are a number of negatives for Australians living abroad.
You can still negatively gear your investment properties (just), but there are a few changes to be aware of.
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property (say good-bye to those tax deductible trips back home or to the gold coast to visit your investment properties!).
The government claims 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. The government says this measure will not prevent investors from engaging third parties such as real estate agents for property management services, and these expenses will remain deductible.
You’ve still got a few weeks to sneak a trip in before this comes into effect!
There will be some limiting of depreciation deductions for the plant and equipment (which are usually fittings that can be easily removed from a property such as dishwashers, ceiling fans etc) forming part of residential investment properties.
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. 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. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.
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.
Capital Gains Tax
The Government will extend Australia’s foreign resident capital gains tax (CGT) regime by making changes to the CGT exemption rules and CGT withholding rates:
The Government will now deny foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019.
Draft legislation has been released and we discuss the changes to CGT exemption for main residences here.
CGT Withholding Rate
Prior to the 2017 Australian federal budget, a CGT withholding tax was introduced to apply to foreign residents. Generally, where a foreign resident disposes of certain assets or property in Australia, the purchaser is required to withhold an amount from the purchase price and pay that amount to the Australian Taxation Office (ATO).
In the 2017 Australian federal budget, the withholding rate has been increased and the value threshold at which this tax applies has been lowered.
• the CGT withholding rate for foreign tax residents will increase from 10.0 per cent to 12.5 per cent, from 1 July 2017; and
• the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, from 1 July 2017.
The Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. We assume foreign owners does not include Australians living overseas, but we will await the legislation to be sure.
Higher Education Loans (HECS, HELP)
As flagged prior to the 2017 Australian Federal Budget, the Federal government has revised the income thresholds for repayment of HELP debt, repayment rates and the indexation of repayment thresholds from 1 July 2018.
A new minimum threshold of $42,000 will be established with a 1 per cent repayment rate and a maximum threshold of $119,882 with a 10 per cent repayment rate.
As advised in our recent Update on HECS Debt repayment obligations for Australian expats, Australian expats with a HECS debt need to make debt repayments to the Australian government from 1 July 2017 (and irrespective of whether or not they are Australian resident for tax purposes).
For Australian expats that remain Australian resident for taxation purposes, the Government will increase the Medicare levy by half a percentage point from 2.0 to 2.5 per cent of taxable income from 1 July 2019 to ensure the National Disability Insurance Scheme (NDIS) is fully funded. This will not impact Australian expats who are non-resident for Australian tax purposes.
The tax implications for Australians living and working abroad is more than just the 2017 Australian Federal Budget? Download our free tax report to understand all the tax implications for Australian expats.
Source : Budget Papers : http://budget.gov.au/2017-18/content/
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.