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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, target concessions and close loopholes. For individual taxpayers, the measures will restrict access to the medical tax offset and abolish the Baby Bonus. Here are the tax and superannuation highlights.
We encourage you to contact your Walker Wayland advisor if you wish to discuss any aspects of the Budget further.
Individuals and families
The Budget confirmed that the already legislated increase in the tax-free threshold to $19,400 from 1 July 2015 will not proceed – it will be deferred.
The net medical expenses tax offset will be phased out, with transitional arrangements applying to those who currently claim the offset.
The Budget Paper confirmed the Medicare levy would be increased by 0.5% to 2% with effect from 1 July 2015. Consequently, the effective top marginal tax rate would become 47%.
The Medicare levy low income thresholds for the 2012/13 income year will increase to: (i) $20,542 for individuals, and $32,279 for pensioners eligible for the Seniors and Pensioners Tax Offset; and (ii) $33,693 for families, with the additional family threshold amount for each dependent child or student increasing to $3,094.
The Budget Paper also confirmed the announcement to introduce a $2,000 cap on tax deduction claims for work-related self education expenses from 1 July 2104.
New family payment arrangements for newborns will replace the Baby Bonus from 1 March 2014, and the “work test” under the Paid Parental Leave scheme will be extended.
The discounts applying to up-front and voluntary payments made under the Higher Education Loan Program (HELP) will be removed from 1 January 2014.
Disaster Income Recovery Subsidy (DIRS) payments provided between 3 January 2013 and 30 September 2013 to individuals affected by natural disasters occurring in the 2012/13 year will be made exempt from Income Tax.
Senior Australian Homeowners who have owned their family home for at least 25 years and make the decision to downsize will be able invest surplus funds from the sale of their family home (capped at $200,000) into an interest earning account which is exempt from the age pension means test for 10 years.
DisabilityCare payments will be exempt from income tax.
Various measures will be introduced to prevent multinational enterprises from shifting profits through the disproportionate allocation of debt to Australia by tightening and improving the integrity of several aspects of Australia’s international tax arrangements, with effect for income years commencing on or after 1 July 2014.
The Thin Capitalisation rules will be changed by tightening all safe harbour limits. However, the de minimis threshold will be increased from $250,000 to $2,000,000 which is designed to reduce the compliance costs for small business.
Measures will be introduced to tighten the dividend exemption available to Australian companies with non-portfolio interests in foreign companies (great than 10% holding of the company’s voting interests). Also the tax deduction for interest expenses incurred in deriving certain foreign exempt income will be removed.
Investors with franking credit tax offset entitlements of more than $5,000 will be prevented from engaging in “dividend washing” thus claiming two sets of franking credits on effectively the same parcel of shares.
Various measures will be introduced to close loopholes in the consolidation regime following recommendations from the Board of Taxation.
The immediate deduction for the cost of assets first used for exploration will be amended to exclude mining rights and information.
In relation to the foreign residents’ CGT regime, a 10% non-final withholding tax will be introduced and the principal asset test will be amended.
There will be no CGT implications resulting from the transfer of native title rights (or the right to a native title benefit) to an Indigenous holding entity or Indigenous person, or from the creation of a trust that is an Indigenous holding entity over such rights.
The Government did not announce any new major superannuation measures in last nights Budget. Most of the key announcements regarding superannuation were made pre-budget and confirmed in the budget last night. These measures include:
Tax free pension earnings being capped at $100,000 from 1 July 2014
An Increase in the super contribution cap to $35,000 for older Australians from 1 July 2013 (for over 60s) and 1 July 2014 (for 50-59 year olds)
The ability to withdraw excess super contributions from 1 July 2013
In addition, a range of minor superannuation measures were introduced in last nights Budget, including:
Amendments to the 2012/13 Budget measure to reduce the higher tax concession for superannuation contributions of very high income earners, effective from 1 July 2012.
The eligibility criteria for the low income superannuation contribution rules will be amended to now pay individuals with an entitlement below $20.
Additional funding of $2.6m will be provided to support the operations of the Superannuation Complaints Tribunal.
Non-corporate entities with turnover of $1b or more will be required to make monthly PAYG instalments from 1 January 2016, and those with turnover of $20m or more will be required to make monthly PAYG instalment payments from 1 January 2017. Some entities with a turnover of less than $100m that report GST quarterly or annually are excluded, and a modified turnover test applies to entities in the taxation of financial arrangements regime.
$67.9m will be provided 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.
The Tax Office will increase compliance activity targeted at restructuring activity that facilitates profit-shifting opportunities.
$77.8m will be provided over four years to the Tax Office to improve compliance by expanding data matching with third party information.
The government will provide $80.2m over the forward estimates period to the Tax Office and the Department of Finance and Deregulation to strengthen up-front checks for issuing Australian Business Numbers and encourage the use of AUSkey.
The government will provide funding of $1.4m for a single, online registration for certain financial advisors registered with the Australian Securities and Investments Commission.