Given the circumstances in which the Australian Government had to hand down the budget speech last year, there was a feeling of relief in the air when the 2021-22 Federal Budget was given on 11 May.
This year’s budget has shifted the budget from focusing on achieving a surplus to ensuring that the low to middle-income earners and single are offered a helping hand while navigating the economic effects of COVID-19.
The budget is $106 billion in deficit this year, with deficits forecast for the next decade.
So, what does this all mean for property investors?
Here are the changes that could affect property investors.
The Low And Middle-Income Offset
The Low and Middle-Income Tax Offset, which helps low and middle-income earners to reduce the amount of tax they pay, has been introduced for another 12 months as part of the budget plan to maintain confidence in the economy.
Yes, if you pay tax, you can claim the:
- Low-Income Tax Offset if your taxable income is less than $66,667; and
- Low and Middle Income Tax Offset if your taxable income is less than $126,000.
Initially, you may have been eligible for both tax offsets From 1 July 2018 to 30 June 2021; however, it has now been extended to June 2022.
How Does It Work?
The tax offset gives low and middle-income earners a tax rebate of up to $1,080 for single individuals and $2,160 for couples.
The rebate ranges from $255 to $1080, depending on your total assessable income:
| Taxable Income Amount | Low And Middle-Income Tax Offset |
| $37,000 or less | $225 |
| more than $37,000 but less than $48,000 | $255 plus 7.5% of the amount above $37,000 |
| more than $48,000 but less than $90,000 | $1,080 |
| more than $90,000 but less than $126,000 | $1,080 plus 7.5% of the amount above $90,000 |
You don’t need to apply for the offset as the Australian Taxation Office (ATO) will apply the offset automatically for you once you lodge your tax return.
Impact on Property Investors
For property investors, the Low and Middle Income Tax Offset means you can reduce your tax liability even further after you’ve claimed your investment property tax deductions.
So for the upcoming financial year, you’ll not only be able to reduce your tax liability through claiming depreciation deductions and rental property expense deductions, but you could claim the Low and Middle Income Tax Offset.
Home Loan Deposit Schemes
Home Guarantee Scheme For Single Parents
Known as the Family Home Guarantee, the new scheme introduced in the 2021-22 Federal Budget is set to help single parents buy a home.
According to the scheme, single parents can purchase a property with a deposit of just 2%, while the government guarantees the remaining 18%.
Making up the remainder of the deposit will save single mothers and fathers from taking out lenders mortgage insurance (LMI) – which often comes with a hefty price tag.
However, the Family Home Guarantee is limited to 10,000 places. The 10,000 places will be spread out over four financial years, so for each financial year, there is only a total of 2,500 spots available.
Who Is Eligible?
To qualify for the Family Home Guarantee Scheme, you need to be:
- 18 years or older;
- an Australian citizen;
- have dependents; and
- earn up to $125,000 per year.
The scheme is open to first-home buyers and those who have previously owned a home.
Additional Spots For the First Home Loan Deposit Scheme
In addition to the Family Home Guarantee Scheme, the government announced that they would be adding an extra 10,000 spots to the First Home Loan Deposit Scheme for the upcoming financial year.
The First Home Loan Deposit Scheme allows individuals to buy or build a new property to reduce their deposit to 5% of the property’s value while the government guarantees the other 15%.
Instead of the usual 10,000 spots available, the government has pledged to help 20,000 eligible low- and middle-income earning Australians enter the property market for the first time.
Who Is Eligible?
To qualify for the First Home Buyers Scheme, you need to be:
- 18 years or older;
- an Australian citizen; and
- earn up to $125,000 per year if you’re single or $200,000 if you’re a couple buying a house together.
What Do The Deposit Schemes Mean For Property Investors?
Applicants must intend to move into and live in the property as their principal place of residence. So, unfortunately, the schemes are not available for people looking to start their investment journey.
However, you need only live in the house while their loan has a guarantee under the scheme. This means that eventually, you can begin treating this as your investment property and earn a rental income.
Living in your own home in the first instance also has some healthy tax benefits referred to as the 6-Year Capital Gains Tax Rule.
So, essentially, taking advantage of the schemes now help you get a foot in the door of property portfolio building.
Extended Instant Asset Write-Off for Small Businesses
Under this Instant Asset Write-Off rule, small businesses can immediately claim a small business deduction for the cost of the business-use portion of an asset in the same year that you first used it or installed it.
The instant asset write-off can be used for various new and second-hand assets, provided that the cost of each asset is less than the relevant threshold.
The threshold has changed numerous times over the past few years.
In response to the effects of the global coronavirus pandemic, the ATO initially set the threshold amount for each depreciating asset to $150,000. The eligibility criteria have been expanded to cover businesses with an annual turnover of less than $500 million.
However, until the end of the upcoming financial year, businesses with an annual turnover of up to $5 billion can now immediately claim a depreciation deduction for eligible assets as well as the total cost of improvements to existing assets, and the total cost of the asset can be claimed, so there is no threshold amount.
This means that until 30 June 2023, this limitless instant asset write-off will override all other previous instant asset write-off schemes.
How Does the Instant Asset Write Off Benefit Commercial Property Investors and Tenants?
If you own commercial property (or even rent the commercial premises) and have been thinking about undertaking new fit-outs or refurbishments, now would be the perfect time to do it!
Tenants or property owners who undertake renovations to commercial buildings can claim an instant deduction for the construction costs.
This is because the ATO allows commercial property investors and their tenants to claim depreciation as a tax deduction if they are used to produce income.
Superannuation Downsizer Scheme
If you own a home and are thinking about downsizing, the government allows you to contribute up to $300,000 per person or $600,000 per couple to your super.
The benefit of a downsizer contribution is that it’s an after-tax contribution, so no tax is paid when depositing the funds. And once you’re 65 years old, you can withdraw the funds tax-free.
Before the 2021-22 Federal Budget speech, this scheme was only available to people aged over 65. Now the age limit has been lowered to people aged 60 and above.
So, if you’re thinking of early retirement, now would be a good time to sell your property and add the proceeds to your superannuation fund – especially if you’re want to save some tax dollars.
Key Takeaways
The focus of this year’s federal budget is trying to help Australian citizens – especially women, low to middle-income earners and the elderly – navigate through the economic effects of the COVID-19 pandemic by offering various incentives.
Based on some of these incentives, there are various ways you can take advantage of the tax cuts proposed in the Federal Budget for property investors.
Whether it’s the Family Home Guarantee scheme for first-home buyers, commercial property investors or first-time home buyers, tax depreciation is one of the fastest and best ways to claim more significant tax benefits with the new Federal Budget incentives.
You may find it helpful to purchase a tax depreciation schedule, which details the tax depreciation deductions you can claim on your investment property or small business assets.
At Duo Tax, our team of quantity surveyors are small business and investment tax experts who can provide you with a depreciation schedule that can save you thousands of dollars in tax each year.
To receive a free estimate on your small business depreciation or to request a sample report, get in touch with us today!
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Tuan is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation.
