Latest News

The Budget

ABN Latest News

The federal budget was handed down last Tuesday night and from most media outlets has been dubbed quite a painful budget. Overall, my view is that the budget could have been worse and I think while its tight and there is not much by the way of increased spending, the cuts that have been made seem somewhat reasonable to bring the budget back to surplus within five years.

Here are some of the need-to-know points relating to taxation from last nights budget:

• There will be a three year deficit levy of 2% per annum imposed on individuals who earn more than $180,000 per annum from 1 July 2014.

Therefore, an individual who earns $200,000 will be taxed an extra $4,000 per annum.

• The dependent spouse offset will be abolished for all taxpayers from 1 July 2014.

This offset was already available to very few taxpayers as it was.

• The mature age worker offset will be abolished from 1 July 2014.

• The medicare levy for low income families will be increased. The threshold for couples with no children will rise to $34,367. This means families earning under this amount will not pay medicare levy.

• First Home Saver Accounts (brought in by the Rudd government as a tax-free place for first home buyers to save a deposit on a home) will be abolished from 1 July 2015.

• The threshold for repayment of HECS debt will be reduced from 1 July 2016 and interest will be charged on these loans up to a maximum of 6%. The threshold will be $50,638 in that financial year with a minimum repayment rate of 2%. However the loan fee of 25% will be removed.

Real thought will need to go into the management of HECS in the future. Conceivably, tax strategies should consider the repayment of HECS debts as an option, otherwise taxpayers may see their loan balances skyrocket.

• The pension age will rise to 70 years of age by 2035. The rise will actually be six months every two years for those born after 1 July 1958.

If you would like to know how this affects you, please contact the office.

• The means testing will change for pension. For couples earning over $50,000 from their assets, the pension will be reduced.

• Family Tax Benefit Part A and Part B reforms will commence from 1 July 2015. The major change will be the primary earner limit will reduce to $100,000 and other eligibility requirements will change. FTB Part B will be limited to children whose youngest child is younger than six years of age. There will be a transitional arrangement for two years for families receiving the payments whose youngest child is over 6 years.

This is possibly the most significant reform to family payments and should be considered for the 2015 financial year by all clients with children.

• Round five of the National Rental Affordability Scheme will not progress.

Clients who were considering purchasing an NRAS property should seek advice before proceeding.

• The refundable and non-refundable offsets for Research and Development will be reduced by 1.5%.

• Taxpayers who contribute super over the limits will be given the option of withdrawing the amount over the excess (including any earnings) and the earnings will be taxed at the individuals marginal tax rates.

This is a great reform. The penalties for excess contributions were heavy and no benefit could be attributed to the individual. This will reduce the excess contributions tax significantly. It will provide an inherently fairer system to dealing with accidentally contributing excess super in any one financial year.

• Data matching and third party reporting to improve taxation compliance will be deferred to 1 July 2016.

This is an interesting one. The ATO have been warning us of the extra powers and likelihood of extra audits for clients based on their data matching powers that were due to come into effect.

• The ATO will cull 1600 employees in the 2104/15 financial year.

• From 1 July 2014, all taxpayers will receive a tax receipt showing exactly in dollar terms how their taxes were spent.

This was a piece of reform Joe Hockey introduced to us prior to the election.

• The superannuation guarantee will increase from 9.25% to 9.5% from 1 July 2014. However, it will then pause at that rate until 30 June 2018. Then it will increase .5% each year until it reaches 12% in 2022/23.