2018 tax changes for individuals

As 30 June 2018 is fast approaching, we have briefly summarised the important tax changes to remember when collating your tax information.

Car claims to be closely examined by ATO

As part of a broader focus on work-related expenses, the ATO will be examining large car deductions claimed under D1 for the 2017/18 income year. They are particularly concerned with taxpayers making fraudulent claims which are reimbursed by an employer.

The ATO has stated that enhanced technology and data analytics will identify claims which are unusual, with an intention to increase audit activity.

Travel deductions for rental properties not allowed

2017/18 is the first year in which deductions for travelling to a residential rental property will no longer be allowable for certain taxpayers. A deduction is not allowable for travelling to collect rent, maintain the property or complete an inspection, and extends to individuals, partnerships and trustees of a trust.

This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Plant and equipment depreciation changes for rental property in effect

Deductions for depreciation of residential property fixtures will only be allowable for expenses actually outlaid by an investor, effective 1 July 2017. Plant and equipment purchased by an investor as part of a real property asset can only form part of the cost base.

Special exclusions from this may apply for off-the-plan purchases, owner builders with substantial renovations, and entities who carry on a business of letting residential rental properties.

Change for low income tax offset and LAMITO

A low and middle income tax offset (LAMITO) will be introduced from 1 July 2018. The offset will run in conjunction with the low income tax offset as a targeted reduction of income tax for Australian residents.

The LAMITO will provide an additional offset of up to $200 for individuals on a taxable income of $37,000 or less. Taxpayers up to $48,000 will get an increased LAMITO up to the maximum amount of $530.

The maximum LAMITO will be available for incomes up to $90,000, and will phase out for individuals with a taxable income of $125,333.

The LAMITO will be available for four years, ending with the 2021/22 income year. At this point, further income tax reductions will absorb the LAMITO.

New child care subsidy commencing

Families will need to be aware of the changes associated with the implementation of the new Child Care Subsidy due to be law from 1 July 2018. The new subsidy will replace the Child Care Benefit and Child Care Rebate.

The Child Care Rebate is not income tested and allows a 50% out-of-pocket rebate up to $7,500 per child. The rebate may have been reduced by the Child Care Benefit, which reduced the fee based on a family's income.

CGT main residence denial for foreign residents still in transitional rules

Individuals who are foreign tax residents will no longer have access to the CGT main residence exemption from 9 May 2017. The exemption is removed if the owner is a foreign resident for tax purposes on the date of the event. However, grandfathering rules are still in existence up to 30 June 2019, where foreign residents who held property at the original date can still access the exemption.

"Catch-up" superannuation contributions to begin next year

Individuals with a total superannuation balance of less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2018. Unused amounts will be carried forward on a rolling basis for a period of five consecutive years from 1 July 2018.

Individuals making extra superannuation contributions would be better off this year making the maximum contribution available to them.

Downsizer contributions available from 1 July 2018

An individual who is aged 65 or over may make "downsizer contributions" from the proceeds of the sale of a dwelling that was the person's main residence, applicable to the proceeds from contracts entered into on or after 1 July 2018.

Proceeds arising from an exchange of contracts occurring before 1 July 2018 cannot be made as a downsizer contribution, even if the settlement of the contracts occurs on or after 1 July 2018.

 Information sourced using CCH iknow