Federal Budget 2014-15

The Federal Treasurer, Mr Joe Hockey handed down the 2014-15 Federal Budget, his keenly awaited first budget, on 13 May 2013 at 7.30pm (AEST). Anticipation was high that significant changes would be announced following the recent release of the National Commission of Audit report and the Government did indeed release its formal response to the Commission's report.

However, in the event, the Budget was relatively "light on" from a taxation point of view. Although, it did include the expected 2% budget deficit levy and the re-indexation of fuel excise, tax measures were relatively few. Progress on announced but un-enacted measures was however noted.

The much debated 2% budget deficit levy (tax) was a key announcement and the levy will apply from 1 July 2014. However it will apply only on taxable income above $180,000 per annum and it will last for only 3 years i.e. for the 2014-15, 2015-16 and 2016-17 years.

The budget did contain a significant range of welfare benefit changes including the freezing of certain eligibility thresholds. It is projected savings from the welfare measures will run into billions of dollars and form a substantial part of the Government's debt/deficit reduction drive.

We encourage you to contact your Walker Wayland advisor if you wish to discuss any aspects of the Budget further.

 

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Individuals and Families

Temporary debt levy to be introduced

The government will introduce a three year temporary levy on 'high income' individuals from 1 July 2014 until 30 June 2017. The Temporary Budget Repair Levy will be applied at a rate of 2% on individuals’ taxable income in excess of $180,000. This gives an effective top marginal rate of 49%.

In line with this increase in the top marginal rate, a number of other tax rates that are based on calculations that include the top personal tax rate will also be increased in line with this levy for the same period that the Temporary Budget Repair Levy is in place. The FBT rate will be increased to 49% from 1 April 2015 until 31 March 2017 to match 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.

Dependent spouse tax offset and Mature age worker tax offsets to be abolished

The dependent spouse tax offset (DSTO) will be abolished for all taxpayers from 1 July 2014. Previously this measure was limited to those with a dependant spouse born prior to 1 July 1952. Further, the mature age worker tax offset (MAWTO) will also be abolished from 1 July 2014. Previously, this measure was limited to those born before 1 July 1957.

A direct payment of up to $10,000 to employers who hire long term unemployed job seekers over the age of 50 will replace these offsets.

Medicare levy low-income threshold for families increased

The Medicare levy low-income threshold for families will be increased from the 2014 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 2014 income year.

Medicare levy surcharge and private health insurance offset thresholds to be frozen

The income thresholds for the private health insurance offset and the Medicare levy surcharge will be frozen for 3 years from 1 July 2015.

First Home Saver Accounts scheme to be abolished

The First Home Saver Accounts (FHSA) scheme will be abolished from 1 July 2015 due to low rate of take up. New accounts opened from Budget night 2014 will not be eligible for concessions. Once the FHSA scheme is abolished, FHSA accounts will be treated like any other account held with a relevant provider.

Tax receipts for individuals

The ATO will issue taxpayers a tax receipt that sets out in dollar terms how their taxes were spent on each budget area. This receipt will be issued together with the notice of assessment .

Changes to HELP repayment thresholds, indexation, and loan fees

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 the 2017 financial year. The new minimum threshold is currently estimated to be $50,638 in 2016/17. A new repayment rate of 2% of repayment income will be applied to taxpayers with incomes above the new minimum threshold. There will be no other change to current repayment rates.

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.

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.

Pension age increase and other pension reforms

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

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

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.

The indexation of income and assets test free areas for the pension will be paused for three years from 1 July 2017 and from 1 September 2017, pension increases will be linked only to the Consumer Price Index (CPI).

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.

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.

Family Tax Benefit Changes

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 per annum to $100,000 per annum. This measure will also reduce the income threshold for the Dependent (Invalid and Carer) Tax Offset 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 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 per annum for each FTB Part A child and $300 per annum for each FTB Part B family. Indexation will cease.
  • 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.

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.

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. 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. This means that anyone who is treated at the emergency room for routine ailments will be charged the additional fee.The MBS rebates will be reduced from 1 July 2015. Providers will be allowed to collect the patient contribution from 1 July 2015.

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. New safety net thresholds will apply: $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.

New deductible gift recipients approved

Two organisations have been added to the list of specifically listed deductible gift recipients (DGRs). Since the 2013/14 Mid-Year Economic and Fiscal Outlook, the following organisations have been approved as DGRs:

•   Minderoo Foundation Trust, from 1 January 2014, and
•   East African Fund (School of St Jude), from 1 July 2014

National Rental Affordability Scheme — discontinuing incentives

Round 5 of the National Rental Affordability Scheme (NRAS) will not proceed. 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 NRSS properties is not affected.

Companies

FBT rate to increase

In association with the 2% Temporary Budget Repair Levy the Government announced that 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, and prevent high income earners from utilising fringe benefits to avoid the levy.

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 (currently $17,000 and $30,000).

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

The Research & Development (R&D) Tax refundable and non-refundable tax offset rates will be reduced by 1.5 percentage points, with effect from 1 July 2014. Currently the rate of refundable tax offset for eligible entities with an aggregated group turnover of less than $20m is 45%. This will reduce to 43.5%. Although the Government has said that reducing the offsets by 1.5 percentage points is consistent with the Government's commitment to cut the company tax rate by 1.5 percentage points from 1 July 2015, it is noted the reduction in the rate of the R&D offset is proposed to take effect from 1 July 2014, a year earlier.

A new subsidy for employers hiring Australians 50 years or over

It was announced that employers will receive up to $10,000 in Government assistance if they hire a job-seeker aged 50 or older under its new "Restart" program. The program will replace the Seniors Employment Incentive Payment and will commence on 1 July 2014.

To receive the assistance, employers will need to demonstrate that the job they are offering is "sustainable and ongoing", and that they are not displacing existing workers with subsidised job seekers. Under the program, eligible employers will receive $3,000 if they hire a full-time mature-age job seeker who was previously unemployed for a period of 6 months and employ that person for at least 6 months. Further, once that job- seeker has been working for the same employer for 12 months, the employer will receive another payment of $3,000. Finally, the employer will then receive a further $2,000 once the same job seeker has been with them for 18 months, and $2,000 again at 24 months.

Consolidation: integrity measures modified

There will be modifications to the consolidation integrity package announced in the 2013/14 Budget.

A measure will be added to clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves and/or joins a consolidated group. The measure will apply to arrangements that commence on or after 7.30 pm (AEST) 13 May 2014 with transitional rules applying to arrangements that commenced before this time. The double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after the date of announcement of the original measure (ie 14 May 2013), rather than to the exit or entry of a subsidiary that takes place on or after 14 May 2013. In addition, the deductible liabilities measure will be amended so that retirement villages' residential loan liabilities are excluded from the measure.

Previous announcements deferred or left in limbo

MITs: deferral of start date of new system

In November 2013 the Government announced that it intended to implement a new tax regime for managed investment trusts to start on 1 July 2014. The Government will now defer the start date by 12 months. to provide more consultation time and allow both industry and the Tax Office additional time to make necessary system changes. Exposure draft legislation is expected to be available in June 2014.

Deduction relating to foreign source income (s 25-90)

The previous Government proposed to repeal s 25-90, with effect from 1 July 2014. However the present Government has said it would not proceed with this measure, but advises that it is still seeking advice on this matter.

Anticipated reforms to the employee share scheme tax rules put on hold

It had been expected that the Budget might announce long-awaited changes to essentially simplify the employee share scheme (ESS) rules, however, the Budget was silent on this.

Tax-related changes flowing from carbon tax and mining tax repeal leave taxpayers in limbo

The defeat in the Senate of the Government's Bills to repeal the carbon tax and the mining tax mean the related repeal of the associated income tax changes is also on hold, creating uncertainty for taxpayers. Among the tax related changes was the removal of the company loss-carry back, where companies would be able to carry their tax losses forward to use as a deduction for a future year.

Instant asset write-off for SMEs: no word on the $6,500 threshold

The current $6,500 instant asset write-off and $5,000 motor vehicle still stands despite the Government's intention that it be scaled back to $1,000 and then NIL, starting from 1 January 2014. The mining tax legislation as originally passed contained associated income tax measures, one of which was increasing the instant asset write-off for small business entities to $6,500. However, the Government's Bill proposed to abolish the small business measures was defeated in the Senate on 25 March 2014.

Capital Gains Tax

Foreign resident CGT Regime: Integrity Measures Modified

The measure announced in the 2013/14 Budget to amend the principal asset test in the foreign resident CGT regime will be modified. To prevent the double counting of assets, the measure will now apply to interests held by foreign residents in unconsolidated groups as well as consolidated groups. This measure is estimated to have no revenue impact over the forward estimates period. For interests held by foreign residents in unconsolidated groups, the amendment will apply to CGT events occurring on or after the date the exposure draft legislation is released. For interests held in a consolidated group, the measure will continue to have effect from 7.30 pm (AEST) on 13 May 2013.

Superannuation

Excess contributions tax

From 1 July 2013, individuals with excess non-concessional superannuation contributions can withdraw the contribution and related earnings, and avoid excess contributions tax. If this option is chosen, any related earnings from the contribution will be taxed at the individual's marginal tax rate. If this option is not chosen, the excess contributions in the fund will continue to be taxed at the top marginal rate.

Increase in Superannuation guarantee rate to be rescheduled 

The scheduling for the increase in the superannuation guarantee rate to 12% will be changed. The superannuation rate will now increase to 9.5% on 1 July 2014, instead of pausing the rate at 9.25%. The rate will remain at 9.5% until 30 June 2018, and will then increase by 0.5 percentage points each year until it reaches 12% in 2022/23, a year later than previously announced.

Tax Administration

Minor Amendment to Tax Laws

A series of minor amendments to the tax and superannuation laws will be made to correct technical defects, remove anomalies and address unintended outcomes which have recently been identified. These include technical corrections to the uniform penalty rules that currently prevent certain penalties that are levied under the law from being collected, and amendments to address issues raised by industry in relation to the tax consolidation regime.

Tax Compliance through third party reporting and data matching: start date deferred

The start date of the legislative elements of the measure to improve tax compliance through third party reporting and data matching will be deferred to 1 July 2016. The elements that do not require legislation will proceed as announced. The deferred measures include the creation of new third party reporting regimes relating to:

  • taxable government grants and other specified government payments
  • sales of real property, shares (including options and warrants) and units in managed funds, and
  • sales through merchant debit and credit services.

Inspector-General of Taxation to manage certain tax complaints

The Commonwealth Ombudsman's case management of tax complaints will be transferred to the Inspector-General of Taxation (IGT) from the 2014/15 year. This is intended to enhance the IGT's systematic review role, and provide taxpayers with more specialised and focused complaint handling of their tax matters.

Abolition of government bodies

A number of government bodies will be abolished or merged. In particular, the government will amalgamate all of the Commonwealth merits review tribunals with the exception of the Veterans Review Board, from 1 July 2015. The amalgamated body will take on the functions of the:

  • Administrative Appeals Tribunal
  • Classification Review Board
  • Migration Review Tribunal
  • Refugee Review Tribunal, and
  • Social Security Appeals Tribunal.

Details of the new arrangements will be developed in consultation with key stakeholders.

ATO to bring forward staff reductions

The planned reduction in 1,600 ATO staff that was due to occur in 2015/16 will be brought forward to achieve further savings.

Other Measures

Fuel excise indexation reintroduced

Biannual indexation to the consumer price index (CPI) of excise and excise-equivalent customs duty for all fuels except aviation fuels will be reintroduced from 1 August 2014. This is intended to secure funding for additional road infrastructure projects for building new and upgrading existing road infrastructure.

Realignment of minerals and petroleum joint venture interests

The income tax treatment of realignments of interests between joint venture partners in the minerals and petroleum industry will be clarified with effect from 7.30 pm (AEST) on 14 May 2013. This measure will only apply to changes of ownership within a common project (which includes combining neighbouring fields into one project and sharing expenditure in planning, research and construction of infrastructure).

Changes to the tax treatment of biodiesel

The exercise on biodiesel will reduce to zero for the 2015/16 year. Grants made under the Cleaner Fuels Grant Scheme will reduce to zero from 1 July 2015.

From 1 July 2016, the excise rate for biodiesel will be increased for five years until it reaches 50% of the energy content equivalent tax rate. The excise equivalent customs duty for imported biodiesel will continue to be taxed at the full energy content equivalent tax rate.

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 R&D Tax Incentive are in the 2014/15 Budget, with other reforms to be considered following the Budget including through the Tax White Paper process.