Federal Budget News 2014/15

Tax-Matters-May-2014For a brief insight into some relevant areas please click on our newsletter image to your left entitled "Tax Matters", or for more details on the significant announcements from the Federal Government's 2014 Budget please scroll down.  There are some key changes that may require some immediate action so please call us to discuss how these changes impact upon you, your business and your superannuation.
 
The details of these budget announcements are outlined below, or click here for the Budget Highlights
 

 

Individuals & Families

Temporary budget repair levy to be introduced

The government will introduce a three year temporary levy (ie the Temporary Budget Repair Levy) on high income individuals from 1 July 2014 until 30 June 2017. The Temporary Budget Repair Levy will apply at a rate of 2% on individuals’ taxable income in excess of $180,000 pa.

A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased. With the exception of the fringe benefits tax (FBT) rate, these tax rates will be increased for the same period that the Temporary Budget Repair Levy is in place.

To prevent high income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017 to align with the FBT income year. The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps. In addition, the fringe benefits rebate rate will be aligned with the FBT rate from 1 April 2015.

This measure is expected to increase revenue by $3.1b over the forward estimates period.

Source: Budget Paper No 2, pp 15–16.

 


Dependent spouse tax offset to be abolished

The dependent spouse tax offset (DSTO) will be abolished for all taxpayers from 1 July 2014.

A 2011/12 Mid-Year Economic and Fiscal Outlook (MYEFO) phase-out measure limited access to the DSTO to those whose dependent spouse was born before 1 July 1952, effective from 1 July 2012. Taxpayers who are eligible to receive the Zone Tax Offset (ZTO), Overseas Civilians Tax Offset (OCTO) or Overseas Forces Tax Offset (OFTO) were exempt from the phase-out and can currently receive the DSTO regardless of the age of their dependent spouse.

Currently, taxpayers eligible for the ZTO, OCTO or OFTO can also claim eight other dependency offsets. For all other taxpayers, a 2012/13 Budget measure replaced these eight other dependency offsets with the Dependent (Invalid and Carer) Tax Offset (DICTO), effective from 1 July 2012. This measure will also replace these dependency offsets with the DICTO for ZTO, OCTO and OFTO taxpayers from 1 July 2014.

Taxpayers with a dependant who is genuinely unable to work due to a carer obligation or a disability may be eligible for the DICTO.

This measure is estimated to have a gain to revenue of $320m over the forward estimates period.

Source: Budget Paper No 2, p 13.

 


Mature age worker tax offset abolished

The mature age worker tax offset (MAWTO) will be abolished from 1 July 2014. This measure is estimated to have a gain to revenue of $760m over the forward estimates period.

A 2012/13 Budget measure began the phase out of the MAWTO from the 2012/13 income year, limiting it to taxpayers born before 1 July 1957.

The government considers that encouraging mature age workers to participate in the workforce can be achieved more effectively through direct payments or incentives. Savings from this measure will be redirected to the government’s expanded seniors employment incentive payment called Restart to support mature age job seekers in re-entering the workforce. Under that measure, from 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 years or over who has been receiving income support for at least six months.

Source: Budget Paper No 2, p 14.

 


Medicare levy low-income threshold for families increased

The Medicare levy low-income threshold for families will be increased from the 2013/14 income year. The threshold for couples with no children will be increased to $34,367, and the additional amount of threshold for each dependent child or student will be increased to $3,156 for the 2013/14 income year.

The increase in these thresholds takes into account movements in the consumer price index (CPI) and ensures that low-income families who were not liable to pay the Medicare levy in 2012/13 will continue to be exempt, unless their incomes have increased by more than the CPI.

The Medicare levy low-income thresholds for individuals and pensioners have already been increased by more than the growth in the CPI and therefore do not need to be further increased at this time.

This measure is estimated to have a cost to revenue of $48m over the forward estimates period.

Source: Budget Paper No 2, p 15.

 


First Home Saver Accounts scheme to be abolished

The First Home Saver Accounts (FHSA) scheme will be abolished from 1 July 2015 due to lower than forecast take-up rates.

New accounts opened from Budget night 2014 will not be eligible for concessions.

The government co-contribution will cease from 1 July 2014. The government co-contribution was provided to individuals who made personal contributions to their FHSA to assist them in saving for their first home. Tax concessions, and the income and asset test exemptions for government benefits associated with these accounts, will cease from 1 July 2015.

Account holders will be able to withdraw their account balances without restriction from 1 July 2015.

Regulations will be made to ensure that anyone seeking to open a new account from Budget night 2014 is informed of these changes by the account provider. Existing account holders will continue to receive the government co-contribution, and all tax and social security concessions associated with these accounts, for the 2013/14 year.

Once the FHSA scheme is abolished from 1 July 2015, FHSA accounts will be treated like any other account held with a relevant provider.

The abolition of FHSA accounts will achieve savings of $134.3m over five years.

Source: Budget Paper No 2, p 216; Treasurer's press release “Abolishing the First Home Saver Accounts Scheme”, 13 May 2014.

 


Tax receipts for individuals

The ATO will issue taxpayers a tax receipt that shows in dollar terms how their taxes were spent on each budget area. In most circumstances, the tax receipt will be issued together with a taxpayer's notice of assessment. The government has indicated that this initiative will help to ensure that pressure is maintained on governments to spend taxation revenues wisely.

Date of effect:   The ATO will begin issuing tax receipts from 1 July 2014.

Source: Treasurer's press release “A tax receipt for individuals”, 13 May 2014.

 


 

Changes to HELP repayment thresholds, indexation, and loan fees

New minimum repayment threshold

The income threshold at which students commence repayment of their Higher Education Loan Programme (HELP) debts will be reduced with effect from 1 July 2016.

The new minimum repayment threshold will be set at 90% of the minimum threshold that would otherwise have applied in 2016/17. The new minimum threshold is currently estimated to be $50,638 in 2016/17.

Anew repayment rate of 2% of repayment income will be applied to debtors with incomes above the new minimum threshold. There will be no other change to current repayment rates.

By way of comparison, the minimum repayment threshold for the 2013/14 income year is set at $51,309 and the minimum repayment rate is 4%.

 

Annual indexation changes

The annual indexation applied to HELP debts will be adjusted from the Consumer Price Index (CPI) to a rate equivalent to the yield on 10-year bonds issued by the Australian Government (capped at 6% per annum) from 1 June 2016.

Loan fees

The 25% loan fee applied to FEE-HELP loans for fee-paying undergraduate courses, and the 20% loan fee applied to VET FEE-HELP loans for eligible full fee-paying students in higher level vocational education and training courses, will be removed from 2015/16.

Source: Budget Paper No 2, p 77–78, 85; Minister for Education's press release “Building a world class higher education system”, 13 May 2014.

 


 

Pension age increase and other pension reforms

Qualifying pension age increases

The Age Pension qualifying age will continue to increase by six months every two years, such that it will reach a qualifying age of 70 by 1 July 2035. This measure will not affect those born before 1 July 1958.

The following table sets out the Age Pension eligibility age by date of birth:

 

Date of birth between

Age at which eligible for Age Pension

1 July 1952 and 31 December 1953

65½

1 January 1954 and 30 June 1955

66

1 July 1955 and 31 December 1956

66½

1 January 1957 and 30 June 1958

67

1 July 1958 and 31 December 1959

67½

1 January 1960 and 30 June 1961

68

1 July 1961 and 31 December 1962

68½

1 January 1963 and 30 June 1964

69

1 July 1964 and 31 December 1965

69½

1 January 1966 and later

70

 

Income test

The government will change how it deems the return from a person's financial assets for the purposes of the pension income test. The deeming thresholds will be reset from $46,600 to $30,000 for single pensioners and from $77,400 to $50,000 for pensioner couples from 1 September 2017.

Indexation changes

The indexation of income and assets test free areas for the pension will be paused for three years from 1 July 2017.

From 1 September 2017, pension increases will be linked only to the Consumer Price Index (CPI).

Commonwealth Seniors Health Card changes

The income thresholds for the Commonwealth Seniors Health Card will be indexed annually to the CPI from 20 September 2014. Payments of the Senior Supplement will also cease after the June 2014 payment.

Source: Budget Paper No 2, pp 202–203; Minister for Social Services press release “Delivering our commitments to Australian seniors”; Budget 2014-15 Social Services booklet, pp 9–10, 13 May 2014.

 


Increased Newstart eligibility age

The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years from 1 January 2015. Current recipients of these allowances aged 22 to 24 on 31 December 2014 will remain on those allowances.

The eligibility thresholds for the Newstart Allowance will also be maintained for three years from 1 July 2014.

Source: Budget Paper No 2, p 203, 13 May 2014.

 


Family Tax Benefit reforms and new single parent benefit

In a bid to ensure that family payments support those most in need of assistance and that the welfare system remains sustainable, the government has introduced a range of reforms to the family tax benefit payments:

  • the Family Tax Benefit (FTB) Part B primary earner income limit will be reduced from the current $150,000 pa to $100,000 pa. This measure will also reduce the income threshold for the Dependent (Invalid and Carer) Tax Offset (DICTO) to $100,000. The reduced limits will apply from 1 July 2015.
  • From 1 July 2015, the FTB Part B payments will be limited to families whose youngest child is younger than six years of age. A transitional arrangement will ensure families with a youngest child aged six and over on 30 June 2015 remain eligible for the payments for two years.
  • A new allowance of $750 per child aged between six and 12 years will be introduced for single parents on the maximum rate of FTB Part A whose youngest child is between six and 12 years of age from the point when they become ineligible for the FTB Part B. This allowance will commence from 1 July 2015.
  • The FTB Part A Large Family Supplement (currently $313.90 per child pa) will be limited to families with four or more children and will be paid in respect of the fourth and each subsequent child in the family. This change will apply from 1 July 2015.
  • FTB payment rates will be maintained for two years by pausing the indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B from 1 July 2014 until 1 July 2016.
  • Income thresholds for the FTB Part A lower income free area and maintenance income free area and the FTB Part B secondary earner income free area will remain unchanged for three years from 1 July 2014 as a result of an indexation pause.
  • From 1 July 2015, the FTB Part A and FTB Part B end-of-year supplements will return to their original amounts of $600 pa for each FTB Part A child and $300 pa for each FTB Part B family and cease indexation.
  • The FTB Part A per child add-on to the higher income free threshold for each additional child will be removed from 1 July 2015.

Source: Budget Paper No 2, pp 197–200; Minister for Social Services press release “Supporting parents through a sustainable, better targeted family payments system”, 13 May 2014.

 


Changes to the Medicare system

Changes will be made to the Medicare system relating to patient contributions, indexation of fees and thresholds, and Medicare safety net arrangements.

Patient contributions

The Medicare Benefits Schedule (MBS) rebates will be reduced from 1 July 2015 by $5 for standard general practitioner consultations and out-of-hospital pathology and diagnostic imaging services, while providers of these services will be allowed to collect a patient contribution of $7 per service. For patients with concession cards and children under 16 years of age, the MBS rebate will only be reduced for the first 10 services in each year, after which it will return to current benefit levels. A new Low Gap Incentive will replace bulk billing incentives for providers of these services. The Low Gap Incentive will be paid to providers where they provide services to patients with concession cards or children under 16 years of age and only charge the $7 patient contribution — for the first 10 services in a year, or where they charge no patient contribution — for additional services in that year.

The measure will also remove the restriction on State and Territory governments from charging patients presenting to hospital emergency departments for general practitioner-like attendances.

Date of effect:  The MBS rebates will be reduced from 1 July 2015. Providers will be allowed to collect the patient contribution from 1 July 2015.

 

Pausing of indexation

The indexation of some MBS fees will be paused for two years from 1 July 2014. The indexation for income thresholds for the Medicare Levy Surcharge and Private Health Insurance Rebate will be paused for three years from 1 July 2015.

General practice MBS fees will be excluded. MBS fees which are not currently indexed, such as pathology and diagnostic imaging services, will not be affected.

Date of effect:  The indexation of some MBS fees will be paused for two years from 1 July 2014, while the indexation of income thresholds will be paused for three years from 1 July 2015.

 

Medicare safety net arrangements

From 1 January 2016, the existing Original Medicare Safety Net, Extended Medicare Safety Net and Greatest Permissible Gap will be replaced by the new Medicare Safety Net. There will be new safety net thresholds of $400 for concessional singles and concessional families, $700 for non-concessional Family Tax Benefit Part A (FTB-A) families and non-concessional singles, and $1,000 for non-concessional families who do not receive FTB-A.

The Medicare Safety Net assists families and singles by contributing towards out-of-pocket costs for Medicare eligible out-of-hospital services. Once the annual thresholds have been reached in a calendar year, Medicare will pay 80% of any subsequent out-of-pocket costs, capped at 150% of the MBS fee. The out-of-pocket costs that accumulate in reaching the safety net thresholds will also be capped at 150% of the MBS fee.

Date of effect: The new Medicare Safety Net will be introduced on 1 January 2016.

Source: Budget Paper No 2, pp 133–134, p 139, p 145; Minister for Health's press release “Strengthening Medicare”, 13 May 2014.

 


National Rental Affordability Scheme — discontinuing incentives

Round 5 of the National Rental Affordability Scheme (NRAS) will not proceed. The government will achieve savings of $235.2m over three years by not proceeding with this.

Funding for incentives from earlier rounds that are uncontracted or not used within agreed time frames will be returned to the Budget. Funding for tenanted NRAS properties is not affected.

The savings from this measure will be redirected by the government to repair the Budget and fund policy priorities.

Source: Budget Paper No 2, p 205; Minister for Social Services media release “Round 5 of flawed National Rental Affordability Scheme not proceeding”, 13 May 2014.
 


 

Companies & Finance

R&D tax incentive: rates reduced for refundable and non-refundable tax offsets

The rates of the refundable and non-refundable offsets for the Research and Development (R&D) Tax Incentive will be reduced by 1.5 percentage points.

Currently, there is a:

  • 45% refundable tax offset for eligible entities with an aggregated group turnover of less than $20m, provided they are not controlled by income tax exempt entities, and
  • 40% non-refundable tax offset for all other eligible entities.

This measure is estimated to provide a gain to the Budget of $620m in fiscal balance terms over the forward estimates period.

Date of effect:  This measure will take effect from 1 July 2014.

Source: Budget Paper No 2, p 18, 13 May 2014.
 


 

Superannuation

Superannuation excess contributions tax

For any excess superannuation contributions made after 1 July 2013 breaching the non-concessional cap, the government will allow individuals to withdraw those excess contributions and associated earnings.

If an individual chooses this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual's marginal tax rate.

Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.

Final details of the policy will be settled following consultation with key stakeholders in the superannuation industry.

Source: Budget Paper No 2, p 19; Minister for Finance's press release “Superannuation excess contributions tax”, 13 May 2014.

 


Rescheduling increase in superannuation guarantee rate

The government will change the schedule for increasing the superannuation guarantee rate to 12%. Instead of pausing the rate at 9.25% as previously announced, the superannuation guarantee rate will now increase to 9.5% on 1 July 2014 (as currently legislated). The rate will remain at this level until 30 June 2018. The rate will then increase by 0.5 percentage points each year until it reaches 12% in 2022/23, one year later than previously proposed.

The government says that this change is necessary because the Senate has failed to pass the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 containing a measure to defer the increase scheduled for 1 July 2014.

Source: Budget Paper No 2, p 17; Treasurer's press release “Rephasing superannuation guarantee”; 13 May 2014.
 


 

Response to the National Commission of Audit Report

Government response to the National Commission of Audit Report

The government has outlined its response to the National Commission of Audit Report. The following table outlines the government's response to the Commission's recommendations that affect tax and superannuation to some extent.

 

2014 Commission of Audit Recommendations – Phase 1

Status

Reforming the Federation

Reforms to the Federation will be considered in the Federation White Paper.

Age Pension – establishing a new benchmark

Structural reforms to the Age Pension commencing in 2017/18 are in the 2014/15 Budget.

Age Pension – tighter targeting of eligibility

Structural reforms to the Age Pension commencing in 2017/18 are in the 2014/15 Budget.

Superannuation preservation age

The superannuation system is being considered by the Financial Systems Inquiry and will also be considered by the Tax White Paper process.

National Disability Insurance Scheme

The government remains committed to the National Disability Insurance Scheme. The independent board of the National Disability Insurance Agency has commissioned work on the optimal roll-out which will be available following the 2014/15 Budget.

Family Tax Benefit

Structural changes to the Family Tax Benefit system are in the 2014/15 Budget.

Higher education

Reforms to Higher Education are in the 2014/15 Budget.

Research and development

Initial reforms to the Research and Development Tax Incentive are in the 2014/15 Budget, with other reforms to be considered following the Budget including through the Tax White Paper process.

Source: Treasurer and Minister for Finance's press release “Our response to the National Commission of Audit Report”, 13 May 2014.

 

Please call our team at Leenane Templeton to see how these budget changes impact upon you, your business and your superannuation.

T: 02 4926 2300

E: success@leenanetempleton.com.au

 

Federal Budget News 2014