Our Government has released its first Budget on 13 May 2014. The Budget will deliver a deficit of $29.8bn for 2014/15 with a myriad of spending cuts and increased taxes/levies designed to reduce it over the coming years.
The key elements that have changed in taxation are:
1. Temporary Budget Repair Levy – the big news, which we already knew about, is that the Government will introduce a three-year levy, called the Temporary Budget Repair Levy from 1 July 2014.
The Temporary Budget Repair Levy will apply at a rate of 2% on individuals’ taxable income in excess of $180,000. This effectively means the highest marginal tax rate will go from 47% to 49% (remember that the Medicare Levy goes from 1.5% to 2% on 1 July 2014 so the highest marginal tax rate goes to 47%).
Therefore, for these high wealth individuals, if they can bring income into this year, or push deductions to the following year they can save 2% of the amount. Year-end tax planning this year will be interesting.
2. A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased. For example, the FBT rate will be increased from 47%to 49%from 1 April 2015 until 31 March 2017. There will also be changes to the FBT rebate and other concessions, like the PBI exemptions as a result of the change to the FBT rate.
3. Other changes – most of the other changes to the tax system are minor and include the following: •Both the Dependent Spouse Tax Offset and the Mature Age Worker Tax Offset, which have been limited over the last years, will not be available for anyone from 1 July 2014.
•The income thresholds for the private health insurance offset and the Medicare Levy surcharge will be frozen for three years from 1 July 2015.
•The Research and Development Tax Incentive will see its rates reduced by 1.5%, effective from 1 July 2014. This will mean the rate for the refundable offset will be 43.5%.
•The Seafarer Tax Offset will be abolished from 1 July 2015.
4. Family Tax Benefit – while not exactly a tax announcement, there will be lots of changes to the Family Tax Benefit (FTB). The FTB Part B income limit will reduce from $150,000 to $100,000 from 1 July 2015. The income threshold for the Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000. Family Tax Benefit Part B will also be limited to families with children under six years of age from 1 July 2015. And finally, the rates of family tax benefits will be frozen for two years.