Baby Boomers: Here's what the 2017 Budget means to you
Baby Boomers, the Government's 2017 Budget will change the negative gearing rules, property ownership by foreigners, and 'downsizing', and you should know what's going on.
Downsizing with Superannuation
For Baby Boomers, the most profound change in the Government's 2017 Budget comes in the form of superannuation and housing.
Those over the age of 65 can sell their home, which is not subject to capital gains tax and contribute up to $300,000 of the sale into superannuation. Both couples can do it.
Pleasingly, the $300,000 will be exempt from the age and work tests. Typically, a person must have reached 'preservation age' and if over the age of 65, must be working before they could contribute to super.
However, the new downsizing strategy avoids these requirements and does not add to the $1.6 million cap on superannuation. For example, if you are a retired 66-year old with $1.5 million in super (lucky you!), you may be able to sell your house and plug an extra $300,000 into retirement savings.
The move comes into effect after 1 July 2018 and could significantly boost the retirement savings of Baby Boomers with most of their wealth tied up in their primary residence.
Important: You must have owned your house for at least 10 years.
Basically, the government wants you to get out of your big house and sell it to a family.
Negatively gear this!
Property investors relying on negative gearing will also feel the pinch of the Government's 2017 Budget. No longer will property investors be able to claim deductions for travel expenses between properties. Ouch.
Not only that, investors will no longer be able to claim the depreciation on the property more than once. From today, only the investors who actually incurred the outlay associated with plant and equipment (e.g. ceiling fans, dishwashers) will be able to claim the depreciation.
The 2017 Budget papers explain what they mean:
"Plant and equipment items are usually mechanical fixtures or those which can be 'easily' removed from a property such as dishwashers and ceiling fans."
Both of these measures are an attempt to tackle cheeky tax manoeuvres by investors.
For example, I could buy a fridge for my investment property, depreciate it, then sell the property to you and you would depreciate the fridge. Not anymore.
Property developers and foreign folk
Here are some of the other important points from the 2017 Budget:
- Developers must sell at least 50% of new developments to Australian buyers
- If you are a foreigner and leave the house vacant, you'll be slugged a fee equal to the foreign investment application fee when you bought the house (at least $5,000)
- If you are a foreigner, any house you purchase from today onwards will not be exempt from capital gains tax
Foolish Takeaway
The 2017 Budget is a politically savvy Budget. The 'tinkering' of some less important rules appears to be enough to keep both sides of Government, first home buyers, baby boomers and pensioners happy.
