We have pleasure in enclosing a summary of the significant announcements from the Federal Government's 2013 Budget. 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.
2013/14 Federal Budget highlights
The Federal Treasurer, Mr Wayne Swan, handed down his sixth budget at 7:30 pm (AEST) on 14 May 2013. The 2013/14 Federal Budget could be described as a moderate one in the context of the current budget deficit of $18b. It sets a pathway to return the budget to balance in 2015/16 and to surplus by 2016/17 but with continuing investment in the economy.
In terms of revenue measures, the budget largely aims to protect the corporate tax base from international profit-shifting and erosion, close loopholes and better target concessions.
Here are the tax and superannuation highlights.
Individuals and families
Increase in the Medicare Levy
The Medicare Levy will increase from 1.5% to 2% from 1 July 2014 to provide funding for Disability Care Australia.
Date of effect
These measures apply from 1 July 2014.
Source: Budget Paper No 2, p 28.
2012/13 Medicare levy low income thresholds
The Medicare levy low income threshold for the 2012/13 income year will increase to $20,542 for individuals, and $32,279 for pensioners eligible for the Seniors and Pensioners Tax Offset.
The Medicare levy low income threshold for families for the 2012/13 income year will increase to $33,693, and the additional family threshold amount for each dependent child or student will increase to $3,094.
Date of effect
These measures apply from 1 July 2012.
Source: Budget Paper No 2, p 29.
Replacing the Baby Bonus with new family payment arrangements
Family Tax Benefit Part A (FTB Part A) payments will be increased by $2,000, to be paid in the year following the birth or adoption of a first child or each child in multiple births, and $1,000 for second and subsequent children. The additional FTB Part A will be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments.
Parents who take up Paid Parental Leave (PPL) will not be eligible for the additional FTB Part A component. However, the work test under the PPL scheme will be extended so that parents will be able to count periods of government PPL as "work", just like employer-funded PPL.
As a result of these reforms, the Baby Bonus will be abolished.
This measure acts on a recommendation of the Australia's Future Tax System review (the Henry Review).
Date of effect
This measure will apply from 1 March 2014.
Source: Budget Paper No 1, pp 1-18 and No 2, p 144; Minister for Families, Community Services and Indigenous Affairs' press release "A more sustainable family payments system", 14 May 2013.
Clean Energy Future: carbon price reduced and income tax cuts deferred
As part of the Clean Energy Future Package, the carbon price is projected to fall from $25.40 in 2014/15 to $12.10 in 2015/16. Accordingly, as previously announced, income tax cuts that had been already legislated (by way of increasing the tax-free threshold) and due to commence on 1 July 2015 will be deferred.
Source: Budget Paper No 2, p 24; Treasurer's press release "Clean Energy Future Package Working in Australia's Interest", 8 May 2012.
Net medical expenses tax offset to be phased out
The net medical expenses tax offset (NME tax offset) will be phased out with transitional arrangements applying to those who currently claim the offset.
From 1 July 2013, those taxpayers who claimed the NME tax offset in the 2012/13 income year will continue to be eligible for the offset in the 2013/14 income year if they have eligible out-of-pocket medical expenses above the relevant thresholds. Similarly, those who claim the NME tax offset in the 2013/14 income year will continue to be eligible for the offset in the 2014/15 income year.
The NME tax offset will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019 when DisabilityCare Australia becomes fully operational and aged care reforms have been in place for several years.
Source: Budget Paper No 2, p 30.
Changes to Self-Education Expenses
Self-education expenses will be capped at $2,000 per annum.
However employers who pay self-education expenses on behalf of employees, which is not part of a salary sacrifice arrangement, are not effected.
Date of effect
This measure will apply from 1 July 2014.
Source: Budget Paper No 2, p 30.
HECS-HELP discount and voluntary HELP repayment bonus: discounts to end
The following discounts relating to the Higher Education Loan Program will be removed:
• the 10% discount available to students electing to pay their student contribution up-front, and
• the 5% bonus on voluntary payments made to the Tax Office of $500 or more.
Changes to Superannuation
The government confirmed the changes to superannuation that were announced on 5 April 2013. These changes are:
• Changes to the tax exemption for earnings on superannuation assets supporting income streams
• Reform of the Excess Contribution Tax treatment of excess concessional contributions.
• Council of Superannuation Custodians
• Extending normal deeming rules to superannuation account based income streams
• Extending concessional tax treatment to deferred lifetime annuities
• Changes to the arrangements for lost superannuation
Low income superannuation contribution
The eligibility criteria for the low income superannuation contribution (LISC) will be amended to now pay individuals with an entitlement below $20. Previously, the LISC was not paid if it would be less than $20. Entitlements under $10 will be rounded up to $10.
The LISC effectively refunds, up to $500 a year, the tax paid on superannuation concessional contributions for people with incomes up to $37,000.
Source: Budget Paper No 2, p 266.
Additional funding for Superannuation Complaints Tribunal
Additional funding of $2.6m over four years will be provided to support the operations of the Superannuation Complaints Tribunal. The cost of this measure will be offset by an increase in the levy on Australian Prudential Regulation Authority regulated superannuation funds.
Source: Budget Paper No 2, p 271.
Investing in Shares
Removing "dividend washing" opportunities
Measures will be introduced to ensure that sophisticated investors will not be able to engage in "dividend washing" allowing them to claim two sets of franking credits on effectively the same parcel of shares.
An investor selling shares ex-dividend and then immediately buying equivalent shares which carry a right to a dividend (cum-dividend) will only be entitled to claim one set of franking credits. To achieve this, changes are proposed to the required holding period of 45 days to gain access to franking credits attached to dividends paid on a share. Changes to the "last-in first-out" rules will also be considered.
The government will consult with business to ensure the best legislative response is implemented.
The measures will only apply to investors with franking credit tax offset entitlements of more than $5,000.
Date of effect
The measure will apply to income years commencing on or after 1 July 2013.
Source: Budget Paper No 2, p 36; Treasurer and Assistant Treasurer's joint press release "Protecting the corporate tax base from erosion and loopholes"; Assistant Treasurer's press release "Protecting the corporate tax base from erosion and loopholes – Measures and consultation arrangements", 14 May 2013.
Small & Large Business
Extension of monthly PAYG instalments to other large entities
All large entities will be required to make monthly Pay As You Go (PAYG) income tax instalments, including trusts, superannuation funds, sole traders and large investors. The measure extends the previously announced proposal to apply the PAYG instalment system to large companies.
In summary, the move to monthly PAYG instalments will apply as follows:
• companies with turnover of more than $1b will still move to monthly PAYG instalments from 1 January 2014
• companies with turnover of $100m or more will still move to monthly PAYG instalments from 1 January 2015
• companies with turnover of $20m or more, and all other entities in the PAYG instalment system with turnover of $1b or more, will move to monthly PAYG instalments from 1 January 2016, and
• all other entities in the PAYG instalment system with turnover of $20m or more will move to monthly PAYG instalments from 1 January 2017.
Entities, other than head companies or provisional head companies, that have a turnover of less than $100m and report GST on a quarterly or annual basis, will not be required to pay PAYG instalments monthly.
In addition, entities in the taxation of financial arrangements (TOFA) regime will assess their entry to monthly instalments using a modified turnover test based on their gross TOFA income, rather than their net TOFA income.
Source: Budget Paper No 2, pp 26-27.
Tax Office trusts taskforce
The government will provide $67.9m over four years to the Tax Office to undertake compliance activity in relation to taxpayers who have been involved in egregious tax avoidance and evasion using trust structures.
This measure is estimated to increase revenue by $379m over the forward estimates period.
The Tax Office will target the exploitation of trusts to:
• conceal income
• mischaracterise transactions
• artificially reduce trust income amounts, and
• underpay tax.
It will undertake compliance activity to target known tax scheme designers, promoters, individuals and businesses who participate in such arrangements.
The Assistant Treasurer has asked Treasury to consult with the National Tax Liaison Group's Trust Consultation Sub-group on the most appropriate way to progress the measure and, in particular, to address integrity concerns arising from the mismatch between trust and tax concepts of income.
Source: Budget Paper No 2, p 43; Assistant Treasurer's press release "ATO Taskforce to target trust misuse", 14 May 2013.
Expanding data matching with third party information
The government will provide $77.8m over four years to the Tax Office to improve compliance by expanding data matching with third party information. This measure is estimated to have a gain to revenue of $610.2m over the forward estimates period.
The information provided to the Tax Office will also improve the pre-filling of tax returns.
The measure will establish new and strengthen existing reporting systems for:
• taxable government grants and specified other government payments
• sales of real property, shares (including options and warrants), and units in managed funds
• sales through merchant debit and credit services
• managed investment trust and partnership distributions, company dividend and interest payments, and
• transactions reported to the Tax Office by the Australian Transaction Reports and Analysis Centre.
Source: Budget Paper No 2, p 44.
Speak with our Newcastle Accountants with regards to how this budget may impact you, your family and your business.