Restricting Finance Cost for Individuals

The changes will restrict relief for finance costs on residential properties to the basic rate of Income Tax. These changes will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Individuals will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Individuals will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

Please contact us at GM Tax should you wish to discuss how this changes may impact on you.

Capital gains tax changes for foreign residents

21 July 2017 | Exposure Draft

As part of the 2017-18 Budget, the Government announced that it would be making capital gains tax (CGT) changes for foreign residents.

Main residence exemption

From 9 May 2017 the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017 the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

We urge you to seek professional advice when deciding to sell your property as a non resident.

Witholding tax on disposals made by non residents

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%) unless a clearance certificate is obtained from the ATO. The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay as a general interest charge may apply to late payments. The purchaser is required to complete an online Purchaser Payment Notification form at which time the purchaser will receive a payment reference number, and a payment slip allowing payment to be made.

The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.

Superannuation Contributions – Changes

For contributions made prior to 1 July 2017 you could not claim a deduction if, during the income year, you obtained 10% or more of the total of the following as an employee:

  • your assessable income
  • your reportable fringe benefits
  • your total reportable employer superannuation contributions.

This is the case regardless of whether your employer has paid super on your behalf.

With effect from 1 July 2017 the requirement that you derive less than 10% of your income from employment sources has been abolished and regardless of your employment arrangement you may be able to claim a tax deduction.

Individuals aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction.

UK Limited Company and Moving to Australia? Read on!

The use of a limited company for the delivery of consulting services in the UK has been commonplace over recent years.

Such companies typically have a single share holder, or share holders that are a husband and wife/de facto couple.

Tax planning for such situations is almost always best done prior to arrival in Australia, particularly if the share holders are the holders of Australian permanent residency visas, or are Australian citizens.

The provisions in Australia that deem distributions made by a liquidator upon a winding up of a limited company to be income in the hands of an Australian resident can defeat the usual capital gains tax/Entrepreneurs Relief planning that is frequently undertaken in the UK.

We have seen circumstances when an individual is already in Australia and wants to access funds in a UK limited company tax efficiently.   While tax savings can be made in this scenario they are usually not as substantial as can be achieved if planning is undertaken before departure from the UK.

If you have a UK limited company with a healthy bank balance and are moving to Australia don’t leave it too late!

Contact GM Tax now to discuss how we can help you ensure that as much as possible finds its way into your personal bank account.