Last week’s federal budget hit a remarkable spectrum of issues, and few stones were left unturned by Treasurer Scott Morrison. He issued a range of amendments that would “affect tax, super, property and shares,” according to James Kirby, wealth editor for The Australian Business Review.    

“Some of these [changes] are ­positive – in super and in home ownership –and many are negative, such as sharp cutbacks on property tax breaks and targeted ­measures against key investment sectors such as the banks,” Kirby said.

There are also a number of political dimensions to the ultimate delivery of the 2017-18 federal budget. It has yet to be passed, and some compromises on budget details are inevitable in the ensuing weeks.

Listed here are some highlights from the 2017-18 federal budget that investors need to pay attention to:

1. Negative gearing left unchanged

Negative gearing has been left untouched, and investors can claim expenses (including interest) over and above the costs of running an asset (such as investment properties) against their tax bill.

“One useful aspect of the trend towards higher interest rates in the last year among the commercial banks is that the amount that can be written off in negative gearing is actually increasing ... of course, this is of limited value unless the price of underlying asset is increasing too,” Kirby said.

2. Budget announcement on home downsizing

The budget announcement on home downsizing is offered to a rather narrow range of investors. It is a variation on the rules on superannuation contributions, not on pension access or the $1.6m super cap.

“People at any age over 65 who sell their family home can contribute up to $300,000 of the money as a non-concessional (post-tax) contribution. The measure is expected to be popular,” Kirby said. “Under the first iteration of the new superannuation regime over 65s could only contribute $100,000 each year and they had to work at least 40 hours a month and they had to be under 75!”

3. Using super contributions to build a home deposit fund

Those who’re trying to purchase their first home can use voluntary superannuation contributions to build a home deposit fund. The maximum contribution is $15,000 a year or $30,000 in total.

“This is a limited scheme — ­voluntary superannuation done through salary sacrifice is effectively limited to a tight cap of $25,000 a year from July 1 and any superannuation guarantee ­payments must be subtracted to get under the cap,” Kirby said. “However, the measure [does controversially] allow super to be accessed early. Previously you could only access super before you retired in cases of extreme financial hardship.”

4. Travel to an investment property as a claimable expense

Anyone who has ever attended a property investment seminar would know that real estate agents and developers like to describe in detail the advantages of owning a residential property located far from one’s home, ideally in another state.

Such an arrangement not only ensured diversification in a property portfolio, as it also offered an additional “travel perk”. Any expenses incurred while visiting the investment property, such as flights and rental cars, were a tax-deductible expense.

“It is now clear the allowance — which absurdly had no limits — was being abused as the government expects to collect a whopping $540 million from the severe decision to scrap the tax allowance completely from July 1,” Kirby said.

Related stories:
Federal Budget Changes Will Impact Property Buyers, Investors
Investors Lose: Changes To Negative Gearing, Depreciation

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