On May 11th this year, the Australian Government announced the 2021 Federal Budget. Given the extraordinary circumstances we are facing the budget announcements were much anticipated.
Over the next four years, the deficit will nearly halve as a stronger economy improves the bottom line. The underlying cash deficit in 2021‑22 is forecast to be $106.6 billion (5.0 per cent of GDP). This is expected to improve over the forward estimates to a $57.0 billion deficit (2.4 per cent of GDP) in 2024‑25 and to a deficit of 1.3 per cent of GDP by the end of the medium term.
Treasurer Mr Frydenberg stated, “The 2021‑22 Budget sets out the next stage of our plan to secure Australia’s recovery and set Australia up for the future.”
Here, we take a look at a few key features that we feel are relevant for property investors.
Low-and-middle income earner tax offsets
The Government will be injecting a further $7.8 billion in personal income tax cuts to help support low-and-middle income earners. Tax rebates worth up to $1,080 for individuals or up to $2,160 for couples.
This tax offset will help reduce the tax liability for low-and-middle income earners reducing their tax payable (but if it decreases to zero any unused offset amount will not be refunded).
How does the low-and-middle income offset affect me as a property investor?
As are all taxpayers, property investors are automatically entitled to access this offset when they meet the taxable income thresholds above. In order to calculate the correct taxable income, investors are able to claim significant deductions against their investment property and one such deduction is tax depreciation (this often totals thousands). The tax depreciation deduction combined with all the other available deductions could help to reduce your taxable income enough that you now meet these lower thresholds and potentially drop into a lower tax bracket.
How is the low-and-middle income tax offset applied?
The income tax offset will automatically be applied by the ATO when a person lodges their tax return. Where applicable, a tax refund will be made to the persons nominated bank account.
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme helps reduce the time for first home buyers to save for a deposit to buy a home. It is a Federal Government Initiative which is run by the National Housing Finance and Investment Corporation (NHFIC). Each year there are limited places but, the Federal Government announced an additional 10,000 places for the 2021-2022 financial year.
Applicants who meet the criteria can purchase their first home with a 5% deposit, without having to pay Lenders Mortgage Insurance (LMI).
As intended, this pathway dramatically helps open up the market for first time property buyers. But, it is also thought that it could be the initial step for budding property investors - potentially turning these principal places of residence into an investment property in the future or even using equity and investment strategies to build a portfolio.
Family Home Guarantee
From the 1st of July 2021, the Australian Government ‘Family Home Guarantee’ Initiative will help 10,000 single parents with dependants purchase a family home. Eligible applicants can purchase a new home or existing home with as little as a 2% deposit regardless of if the single parent is a first home buyer or a previous owner-occupier.
Downsizer Super Contribution Scheme
The Downsizer Super Contribution Scheme has been in place for a some-time, but the 2021-2022 Federal Budget has brought some changes.
From the 1st July, Australians over 60 years old (previously 65 years old) who are downsizing from their principal place of residence, can make a one-off, after-tax contribution to their super, up to the amount of $300,000 per individual or $600,000 per couple from the sale of that principal home. The superannuation can then be accessed once turning 65 years old.
The Downsizer Super Contribution Scheme is designed to help release larger sized houses back into the market, for first home buyers, families or property investors to purchase.
Speak to your accountant for specific and detailed advice.
Helping Small Businesses With Immediate Write-Off Asset
During the pandemic the Australian Government increased the Instant Asset Write Off for businesses who had a turnover of up to $500 million to now $5 billion. This is helping small, medium and even larger businesses to immediately claim the tax deduction for assets acquired in the year they are purchased rather than depreciating them over a number of years. The latest budget extended this incentive scheme until 30th of June 2023.
If you own or lease your business premise, make sure you talk with a tax depreciation expert or order a depreciation schedule to make sure you are claiming depreciation deductions for your Division 40 - Plant and Equipment Assets and Division 43 – Structural.
For more information about changes to help small business visit Liberal.org.au.
Above are just some of the changes announced by the Government. If you are a property investor, business owner or lessee needing help with cashflow and reducing your income tax payable, we highly recommend organising a depreciation schedule. Call us on 1300 922 220 or visit our quote page.
Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins