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(Image by John Graham / johngraham.alphalink.com.au)

Bill Mavropoulos from Taxpayers Australia provides the most comprehensive summary of the Australian Federal Budget 2014 you'll find anywhere this year.

Budget 2014-15

The major revenue measures announced in the Federal Budget included:

  • A temporary (3 year) 2% Budget deficit levy (tax), known as the Temporary Budget Repair Levy, for incomes above $180,000.
  • The government confirmed that it was committed to cutting the company tax rate by 1.5 percentage points (to 28.5%) from 1 July 2015. For large companies, the reduction will offset the cost of the Government's 1.5% Paid Parental Leave levy.
  • Medicare levy surcharge and private health insurance offset thresholds to be frozen.
  • Most dependant offsets to be abolished.
  • A tax receipt for individuals will be introduced from 1 July 2014.
  • Super guarantee rate to go to 9.5% on 1 July 2014.
  • Option to be given to withdraw excess non-concessional superannuation contributions.
  • ATO staff reductions to be brought forward.
  • Family Tax Benefit changes: 2-year freeze on rates; other changes.
  • Fuel excise indexation to recommence.

Individuals

Temporary Budget Repair levy

Corresponding with pre-budget announcements that a debt levy would be introduced, the government has confirmed that it will introduce a three-year temporary levy – otherwise dubbed the Temporary Budget Repair Levy – on high-income individuals from July 1, 2014 until June 30, 2017. The temporary levy will apply at a rate of 2% on individuals’ whose adjusted taxable incomes are more than $180,000 a year.
 
A number of other tax rates that are currently based on calculations that take into account the top personal tax rate will also be increased. With the exception of the FBT rate, these tax rates will be increased for the same three years that the temporary 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 April 1, 2015 until March 31, 2017 to align with the FBT income year. The fringe benefits rebate rate will be aligned with the FBT rate from April 1, 2015.
 
This debt tax is considerably less harsh than early reports indicated which suggests that a strongly negative popular reaction may have caused a rethink on the scale of the tax.  Given that there was very little else targeted at high-income earners in the Budget and plenty of measures to tackle welfare “entitlements” (see below), it isn’t at all clear the Budget statement overall passes the fairness test.

Personal tax rates

The new personal income tax rates and thresholds are summarised for taxpayers in the table below (these rates do not include the Medicare levy — currently 1.5% but set to rise to 2% from July 1, 2014). With the Medicare levy included, the top marginal rate would be 49% from July 1, 2014 to June 30, 2017.
 

Personal income tax rates and thresholds

 

2013-14

2014-15

2015-16 and 2016-17

 

Threshold

Rate

Threshold

Rate

Threshold

Rate

1st tier

$18,201

19.0%

$18,201

19.0%

$19,401

19.0%

2nd tier

$37,001

32.5%

$37,001

32.5%

$37,001

33.0%

3rd tier

$80,001

37.0%

$80,001

37.0%

$80,001

37.0%

4th tier

$180,001

45.0%

$180,001

47.0%

$180,001

47.0%

 
The 2% debt levy on those who earn over $180,000 is expected to affect a relatively small number of taxpayers — approximately 400,000 people. For those affected, the tax increase proposed to apply from July 1, 2014 (on top of the already legislated increase in the Medicare levy to 2%) may result in people bringing forward revenue where possible so that they can be charged at a lower rate and deferring deductions which may be worth more after July 1, 2014. The chances of the debt levy passing Parliament will hinge on post July 1 support in the Senate – complicating tax planning for affected individuals.

Family Tax Benefit (FTB) changes – 2 year freeze on rates and other changes

The government will maintain – in other words, freeze – the current FTB payment rates for 2 years from July 1, 2014. Under this measure, indexation of the maximum and base rates of the FTB Part A, and the rate of the FTB Part B will be paused until July 1, 2016.

FTB B threshold: The government will reduce the FTB Part B primary earner income limit from $150,000 per annum to $100,000 per annum from July 1, 2015. The income threshold for the Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000 as it is linked o the FTB primary income earner limit.

Limiting FTB Part B: The government will limit FTB Part B to families whose youngest child is younger than 6 years of age from July 1, 2015. As a transitional arrangement, families with a youngest child aged 6 and over on June 30, 2015 will remain eligible for FTB Part B for two years.

Limiting Large Family Supplement: The government will limit the FTB Part A large family supplement (currently $313.90 per child per annum) to families with four or more children from July 1, 2015. The supplement will be paid in respect of the fourth and each subsequent child in a family.

New FTB allowance for single parents: From the point they become ineligible for FTB Part B, the government will provide $750 for each child aged between 6 and 12 years old in an eligible family from July 1, 2015.

Remove FTB Part A per child add-on: The government will remove the FTB Part A per child add-on to the higher income free threshold for each additional child from July 1, 2015.

Revise FTB end-of-year supplements: The government will revise the FTB end-of-year supplements to their original values and cease indexation from July 1, 2015. The revised supplements will provide $600 per annum per FTB Part A child and $300 per family per annum for each FTB Part B family.

Taxpayers in limbo over carbon tax and mining tax repeal

Without any clarification in this budget, the previous defeat of both the government’s bills to repeal the carbon tax and mining tax have left taxpayers unsure if the following tax-related measures will proceed:

  • repeal of the loss carry-back for small companies
  • repeal of the low-income super contribution
  • repeal of the income support bonus, and
  • repeal of the schoolkids bonus
  • the tax-free threshold remaining at $18,200 instead of increasing to $19,200 from July 1, 2015
  • the second marginal tax rate remaining at 32.5%, instead of increasing to 33% from July 1, 2015
  • the maximum value of the low-income tax offset remaining at $445 (instead of falling to $300 from July 1, 2015)
  • the withdrawal rate of the LITO remaining at 1.5%, instead of falling to 1%, and
  • the threshold below which a person may receive LITO remaining at a taxable income of $66,667 instead of increasing to $67,000 from July 1, 2015.

Medicare levy low-income thresholds for families increased

The government will increase the Medicare levy low-income threshold for families 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 the 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.

Medicare levy surcharge and private health insurance offset thresholds frozen

The income thresholds for the private health insurance offset and the Medicare levy surcharge will be frozen for three years from July 1, 2015. The 2013-14 thresholds are set out in the tables below. The private health insurance offset table includes the rebate percentages that apply from April 1, 2014.

 

 

Income for surcharge purposes 2013-14

Private health insurance rebate percentages from April 1,

Tier

Singles

Families

Under 65

Age 65-69

Age 70+

$

$

%

%

%

Base

0 - 88,000

0 - 176,000

29.040 (30)

33.880 (35)

38.720 (40)

Tier 1

88,001 - 102,000

176,001 - 204,000

19.360 (20)

24.200 (25)

29.040 (30)

Tier 2

102,001 - 136,000

204,001 - 272,000

9.680 (10)

14.520 (15)

19.360 (20)

Tier 3

136,001+

272,001+

0

0

0

Notes: The rebate percentages applying for the period 1 July 2013 to 31 March 2014 are shown in brackets after the rebate percentage (in bold) applying from 1 April 2014. The income thresholds will be indexed from 1 July 2014. For families, the income thresholds are increased by $1,500 for each child after the first.

 

 

Income for surcharge purposes 2013-14

Private health insurance rebate percentages from April 1,

Tier

Singles

Families

Under 65

Age 65-69

Age 70+

$

$

%

%

%

Base

0 - 88,000

0 - 176,000

29.040 (30)

33.880 (35)

38.720 (40)

Tier 1

88,001 - 102,000

176,001 - 204,000

19.360 (20)

24.200 (25)

29.040 (30)

Tier 2

102,001 - 136,000

204,001 - 272,000

9.680 (10)

14.520 (15)

19.360 (20)

Tier 3

136,001+

272,001+

0

0

0

Notes: The rebate percentages applying for the period 1 July 2013 to 31 March 2014 are shown in brackets after the rebate percentage (in bold) applying from 1 April 2014. The income thresholds will be indexed from 1 July 2014. For families, the income thresholds are increased by $1,500 for each child after the first.


Dependent Spouse Tax Offset (DSTO) abolished

The government will abolish the DSTO for all taxpayers from July 1, 2014. This is on the back of the 2011-12 Mid-Year Economic and Fiscal Outlook measure which limited access to the DSTO to those whose dependent spouse was born before July 1, 1952 effective from July 1, 2012. That measure had an estimated $370.0 million gain to revenue over the forward estimates.

Mature Age Worker Tax Offset (MAWTO) abolished

The government will abolish MAWTO from July 1, 2014. The 2012-13 Budget began the phase out of the MAWTO from the 2012-13 income year, limiting it to taxpayers born before July 1, 1957. This measure had an estimated $255.0 million gain to revenue over the then forward estimates period. Savings will be redirected to the government’s expanded seniors employment incentive payment called Restart to support mature age job seekers to re-enter the workforce. Employers will also get $10,000 for employer mature age job seekers.

Stricter rules for jobseekers under 30 and Work for Dole reintroduced

From January 1, 2015, all new claimants of Newstart Allowance and Youth Allowance who are under 30 must demonstrate appropriate job search and participation in employment services support for six months before receiving payments. Prior workforce participation may reduce the waiting period. After six months, claimants will be required to participate in 25 hours per week Work for the Dole to receive income support, and following this may continue to access employment services for a further six-month period — including access to a wage subsidy in lieu of income support.

Social commentators already decried the Work for Dole measure when it was first flagged earlier this year, saying people who subsist on sub-poverty-level subsistence being mandated into forced labour or else be deprived of subsistence completely as a cruel measure. Studies have shown that such schemes do not lead to employment opportunities for their participants, or employment gains for their communities.
 
From July 1, 2015, existing recipients of Newstart Allowance and Youth Allowance who are under 30 years old will also be subject to these new arrangements. These people will have already served six months on Work for the Dole. Payment recipients who have a partial capacity to work, are the principal carer of a child, are part-time apprentices, are in education, or are job seekers in Disability Employment Services or Job Services Australia Streams 3 and 4 will be exempt.

Newstart Allowance and Sickness Allowance changes

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

First Home Saver Accounts scheme to be abolished

The Government announced that it intends to abolish the First Home Saver Accounts scheme using a phased approach. Any new accounts opened from Budget night (May 13, 2014) will not be entitled to the current Government co-contribution or any tax or social security concessions. Existing account holders will continue to receive the Government co-contribution and all existing tax and social security concessions for 2013-14. The co-contribution will cease from 1 July 2014 and the tax and social security concessions will cease from 1 July 2015. As of 1 July 2015, account holders will be able to withdraw their account balances without restriction. Once the scheme is abolished from 1 July 2015, these accounts will be treated like any other account held with a relevant provider.

The government’s rationale for abolishing the scheme is that "it has had limited effectiveness in improving housing affordability due to the low take-up of accounts since their introduction by the former government in 2008". However, this reasoning will not provide any comfort to those who are aspiring to own their own home and either currently hold an account which they intend to hold beyond July 1, 2015, or are planning to start saving a deposit in one of these accounts but has not yet opened an account. The loss of the Government co-contribution and the abolishment of the tax and social security concessional treatment will adversely affect their deposit saving plans.

Cease indexation on Clean Energy Supplement

The government will remove further indexation from payment of the Clean Energy Supplement, which is paid to recipients of all social welfare payments. This means the rate of payment will be the rate payable prior to July 1, 2014.

National Rental Affordability Scheme to end

The government announced that it would not proceed with the final round of the National Rental Affordability because it had fallen “well short of expectations”. The government said incentives already allocated through the scheme would continue to be paid for up to ten years, as long as eligibility requirements are met and homes in the construction pipeline are built in the agreed locations according to agreed timeframes. The scheme was originally designed to encourage investment in affordable housing.

Age care

Age Pension age to increase to 70 by 2035

Confirming a previous announcement, the government will raise the eligibility age for the Age Pension to 70 by 2035. From July 1, 2025, the Age Pension qualifying age will continue to rise by 6 months every 2 years — from the qualifying age of 67 years that will apply by that time to gradually reach 70 by July 1, 2035. People born before July 1, 1958 will not be affected by this measure. The staggered implementation will allow older Australians who consider their retirement income arrangements and make adequate preparations.

Untaxed super income included in eligibility for Seniors Health Card

The government will include untaxed superannuation income in the assessment of income to determine eligibility for the Commonwealth Seniors Health Card from January 1, 2015. All super account-based income streams held by CSHC holders before the implementation date will be grandfathered under the existing rules.
 
Seniors Supplement and Pensioner Education Supplement to end

The government will cease the Seniors Supplement for holders of the Commonwealth Seniors Health Card from September 20, 2014. Eligible seniors who do not receive a pension will continue to be eligible for a concession card. Senior Health Card holders will still receive the Clean Energy Supplement and a range of concessional benefits including lower co-payments for medicines on the Pharmaceutical Benefits Scheme and access to the lower threshold for the extended Medicare Safety Net. The government also said it would cease the Pensioner Education Supplement from January 1, 2015.

Freeze on eligibility thresholds for certain government social welfare payments

The government will maintain – in other words, freeze – eligibility thresholds for the Australian government payments for three years. Eligibility thresholds for non-pension payments – including FTB, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance – will be maintained for three years from July 1, 2014. Eligibility thresholds for pension and pension-related payments – including the Aged Pension, Carer Payment, Disability Support Pension and the Veterans’ Service Pension – will be maintained for three years from July 1, 2017.

Index pension and equivalent payments only by inflation

The government will index pension and equivalent payments and Parenting Payment Single only by the consumer price index as opposed to the higher of the increases in inflation, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index. This measure will commence on July 1, 2014 for Parenting Payment Single recipients and from September 1, 2017 for Bereavement Allowance and pension payments such as Age Pension, Disability Support Pension, Carer Payment and Veterans’ Affairs pensions.

Reset the Assets Test Deeming Rate thresholds

The government will reset the deeming thresholds used in the pension assets test to $30,000 for singles and $50,000 for couples from September 20, 2017.

Changes to Disability Support Pension (DSP)

The amount of time that DSP recipients can leave Australia and still receive DSP will change from a maximum of 6 weeks to 4 weeks in a 12 month period should they travel overseas. All DSP recipients who leave Australia on or after January 1, 2015 will be subject to the new rules.

Business

Company tax rate to go down by 1.5%

The company tax rate will go down from 30% to 28.5% from July 1, 2015. However, benefits from the company tax rate reduction won’t materialise for companies whose taxable income exceeds $5 million as they will need to pay the 1.5% paid parental leave levy at the same time and will of course, not affect unincorporated small businesses.

Instant asset write-off situation unresolved

No arrangements have been made within the Federal Budget for the continuing uncertainty over the state of the instant asset write-off, mainly because its fortunes are tied to the  repeal of the mining tax. Abolishing the latter would have also seen the instant asset write-off reduce to $1,000 from $6,500 with effect from January 1, 2014. However the mining tax repeal has not passed the Senate, and no mention was made of the tax treatment for such assets (nor regarding the rules for motor vehicles).

The question remains whether the instant asset write-off and motor vehicle rule changes will still apply from January 1, 2014 or what the treatment would be should these measures be passed by the new Senate after July 1. This continuing uncertainty for small businesses is not helpful. The Budget would have been an ideal opportunity to provide clarity and the failure to do so is to be condemned.

Businesses hiring over 50s to get cash incentive

Businesses could get up to $10,000 if they hire a job seeker aged 50 or older in a wage subsidy program announced in the Budget, but the Mature Age Worker Tax Offset will be scrapped. The wage subsidy program, called “Restart”, will cost $524.8 million over four years.

Starting from July 1 this year eligible employers will receive $3,000 if they hire a full-time mature age job seeker who was previously unemployed for a minimum of six months if they employ that person for at least six months. Once the job seeker has been working for the same employer for 12 months, the business will receive another payment of $3,000, then another $2,000 at 18 months and a final $2,000 at two years.

To be eligible, businesses will need to demonstrate the job they are offering is sustainable and ongoing, and that they are not displacing existing workers with subsidised job seekers.

But the government said it will scrap the Mature Age Workers Tax Offset saving $760 million over the next four years and the Seniors Employment Incentive Payment, with savings directed to the Restart program.

Reintroduction of fuel excise indexation

Funding for road infrastructure will be sourced from reintroducing a biannual indexation by the consumer price index of excise duty for all fuels (except aviation fuels). The government said this will generate $2.2 billion over forward estimates. The excise has been locked at 38.1 cents a litre since the Coalition dumped indexation in 2001. The re-indexation of fuel will start from August 1, 2014.

Tax treatment of biodiesel

The excise on biodiesel will reduce to zero for the 2015-16 year, however from July 1, 2016, the excise rate will be increased for five years until it reaches 50% of the energy content equivalent tax rate. Grants made under the Cleaner Fuels Grant Scheme will reduce to zero from July 1, 2015, and the excise equivalent customs duty for imported biodiesel will continue to be taxed at the full energy content equivalent tax rate.

R&D tax incentive rates reduced

The rates of the refundable and non-refundable offsets for the Research and Development (R&D) Tax Incentive will be reduced by 1.5%.
So from July 1, 2014:

  • 43.5% refundable tax offset (used to be 45%) for eligible entities with an aggregated group turnover of less than $20 million, provided they are not controlled by income tax exempt entities, and
  • 38.5% non-refundable tax offset (used to be 40%) for all other eligible entities.

This measure is estimated to provide a gain to the budget of $620 million.

FBT rate increase

The Fringe Benefits Tax (FBT) rate will be increased from 47% to 49% from April 1, 2015 until March 31, 2017 (to align with the FBT income year). This measure is associated with the 2% “Budget Repair Levy”, with the government saying it is to prevent high income earners from utilising fringe benefits to avoid the levy.

Superannuation

Withdrawal of excess contributions allowed

The government will allow individuals the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from July 1, 2013 and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate. The measure comes on the back of the government promising to develop an appropriate process that addresses all inadvertent breaches of the contribution caps where the error would result in a disproportionate penalty.

MP super freeze

The government has submitted to freeze the salaries and allowances of MPs, departmental secretaries and all other public office holders at current levels for 12 months over the period July 1, 2014 until June 30, 2015. The freeze will also apply to the pensions of former parliamentarians received under the closed Parliamentary Contributory Superannuation Scheme.

Taxpayers Australia head of tax, Mark Chapman, says there will be particular outrage that the supposed “quid pro quo” from our leaders is no more than a one year freeze to their own already generous salaries (which will no doubt be corrected by a double pay rise next year) and some minor tinkering with their “ludicrously generous” Gold Pass travel scheme.

Other measures

Medical Research Future Fund

A new Medical Research Future Fund will be established from January 1, 2015. It is envisaged the fund (to be invested and managed by the board of the existing Future Fund) will receive its first instalment of about $1.16 billion in January 2015, paid for out of existing savings in the health portfolio. The value of the new fund is expected to reach $20 billion. Payments will commence in 2015-16.

Bill Mavropoulos is a tax specialist with Taxpayers Australia Inc — an independent non-for-profit advocacy group not affiliated with any political party. You can follow Bill on Twitter@VMavropoulos. You can follow Taxpayers Australia @TaxpayersAU.

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