Breaks for first homes buyers
To make the task of saving for their first home easier, eligible buyers will be able to divert their pre-tax income towards a special savings account. This will mean that saving a deposit will become a little bit easier.
How can I benefit from this scheme?
From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.
For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions.
Negative gearing remains however some rules have been tightened around what can be claimed, specifically travel expenses and depreciation deductions.
What does this mean to my investment deductions?
Under new rules coming into effect from 1 July 2017, depreciation deductions for plant and equipment items such as washing machines and ceiling fans will only be allowed if the investor actually bought them.
The “integrity measure”, which is intended to address concerns that such items are being claimed as tax write-offs by successive investors in excess of their actual value, is tipped to claw back $260 million over the next four years. The changes will apply to any items purchased after budget night, but existing investments will be grandfathered.
Meanwhile, investors will no longer be able to claim tax deductions for travel expenses “related to inspecting, maintaining or collecting rent for a residential rental property” from 1 July 2017.
Retirees downsizing inceptives
In addition to the first home buyers savings benefit, retirees will be encouraged to downsize, increasing the available supply of housing via preferred treatment under superannuation limits.
Older Australians will be encouraged to downsize and free up housing stock. These homeowners will be given greater flexibility to contribute the proceeds of the sale of their home into superannuation. Downsizing frees up larger homes for younger families.
From 1 July 2018, people aged 65 and older will be able to make a non-concessional contributions of up to $300,000 to their superannuation after selling their home. This will be in addition to any other contributions they are eligible to make.
Incentives for the building and development of social housing
The Government is taking action to encourage investment in new and existing affordable rental housing by increasing the Capital Gains Tax discount from 50 per cent to 60 per cent for qualifying affordable housing. To qualify for the higher discount, housing must be provided to tenants on low to moderate incomes, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.
Changes in Education funding also features
- Extra $18.6 billion in school funding over the next decade
- Up to 24 elite private and Catholic schools lose some funding
- University students face 7.5 per cent tuition fee hike
- Higher repayments on HECS government loans; and
- Universities have to meet a 2.5 per cent efficiency dividend
Increased funding for Child Care
The Child Care Subsidy will ensure families on low to middle incomes of $185,710 or less (in 2017-18 terms) that need to use more child care will not face an annual cap. An annual cap of $10,000 will apply to families earning more than $185,710 (in 2017-18 terms).
Impact for Interest Rates, Exchange Rates and Growth
- The government forecasts suggest that the economy will expand by around 3% in the year to June 2018
- On the back of the infrastructure spending boom, unemployment to remain below 6%
- Inflation will progressively increase to 2.25% in 2018
- Wages growth will progressively increase
- The government expects commodity prices to remain at around current level
- The Australian dollar could be expected drift slightly lower
What does this mean to interest rates?
The Reserve bank cash rate is likely to remain relatively stable
Current movement are in relation to pressure form ASIC and APRA to restore better balance to between the owner occupied and Investors markets. This is the main driver of changes at present.
Speak to a Finance or Wealth Consultant at Scarlett Financial to discuss further