Personal Tax – Resident Taxpayers
There were a number of proposed changes to personal taxation proclaimed in the Budget last night. The main points to note are as follows:
Marginal Tax Rates:
The tax free threshold that was due to increase from $18,200 to $19,400 with effect from 1 July 2015 has now been “deferred” indefinitely.
The marginal tax rate for the $37,000 to $80,000 tax bracket has been raised from 32.5% to 33%. This change is to take effect from 1 July 2015. This will affect all taxpayers with a taxable income of greater than $37,000 per annum.
Medicare Levy is to increase from 1.5% to 2.0 of your taxable income. This change will have effect from 1 July 2014.
The Low Income Tax Offset (LITO) is to be reduced from $445 to $300 (remember that the LITO was $1,500 prior to 1 July 2012). The LITO will begin to reduce when your taxable income exceeds $37,000 and eligibility ceases once your taxable income exceeds $67,000.
Net Medical Expenses Tax Offset is being phased out as follows.
- If you are eligible to claim the offset in the current tax year then you will also be able to make a claim in the 2014 tax year
- If you claimed the offset in the 2014 tax year then you are able to make a claim in the 2015 tax year
- Post 2015 tax year for those who were eligible to claim the offset, a claim will only be available where you are claiming medical expenses relating to disability aids, attendant care or aged care.
- If not eligible to make a claim in 2013 then not eligible to make a claim unless the medical expenses relate to disability aids, attendant care or aged care.
- Post 2019 tax year, there will be no Net Medical Expenses Tax Offset.
Self education expense deductions are to be capped at a maximum deduction of $2,000 per annum per taxpayer with effect from 1 July 2014.
HELP discount available for early repayment of the loan or tertiary fee will be abolished with effect from 1 January 2014.
Personal Tax – Non Residents
Marginal Tax Rates:
In addition to the loss of the general 50% Capital Gains Tax discount, non residents will also have an increase in their marginal tax rate for the income bracket of $0 to $80,000. The rate will be increased from 32.5% to 33%. This increase will take effect from 1 July 2015.
Foreign Resident CGT Withholding Tax:
Proposed introduction of a 10% non final withholding tax on the disposal by foreign residents of certain taxable Australian property. The purchaser will be required to withhold and remit 10% of the proceeds from the sale. The 10% withholding tax will apply whether the taxable Australian property is held by the foreign resident on revenue account or capital account.
The measure will not apply to residential property transactions under $2.5m.
Proposed date of effect is 1 July 2016
No new superannuation measures were announced in last night’s Budget. However, it is worth recapping on what the recent superannuation reforms as proposed are:
Tax free pension earnings capped at $100,000 per member per annum as from 1 July 2014. Tax of 15% is proposed to be applied to any income in excess of this $100,000 cap. In determining whether the member exceeds the $100,000 threshold the proposed transitional arrangements will apply for determining how much of a capital gain on CGT assets will be included as income of the Fund moving forward. These proposed rules are:
- For assets acquired pre 5 April 2013, capital gains that have accrued post 1 July 2024 will be taxable
- For assets acquired between 5 April 2013 and 30 June 2014, only that part of the gain accruing post 30 June 2014 will be taxable
- Assets acquired post 30 June 2014 will be taxable
Proposed Increases to Concessional Caps:
For taxpayers aged 60 or over, the concessional caps are to increase from 1 July 2013 to $35,000 (up from $25,000)
For taxpayers aged 50 or over, the concessional caps are to increase from 1 July 2014 to $35,000 (up from $25,000)
# Importantly, eligibility for the higher cap is by reference to your age as at 30 June in the financial year preceding the relevant financial year in which the higher cap applies.
Excess Concessional Contributions:
It is proposed that individuals will be able to withdraw any excess concessional contributions made from 1 July 2013. The withdrawn excess contributions will then be taxed at the individual’s marginal tax rate (plus an interest charge). This will be of benefit for those who have taxable incomes of less than $180,000 per annum and those who have made the maximum non concessional contributions.
Extra 15% Contributions Tax where Adjusted Taxable Income exceeds $300,000:
This measure was announced in last year’s budget and is currently in draft legislation form. The measure basically increases the 15% contributions tax to 30% for taxpayers with an Adjustable Taxable Income greater than $300,000.
In simple terms the adjusted taxable income is calculated by taking your taxable income and adding back reportable employer superannuation contributions, net investment losses and reportable fringe benefits.
Corporate Tax Integrity Measures
Government is looking to tighten the Thin Capitalisation rules which govern the deductibility of debt deductions for inbound and outbound investors. The key measures involve reviewing and changing the “safe harbour” limits and include:
- Increasing the “de minimis” threshold from $250,000 per annum to $2.0m
- Re-assessing the exemption for non portfolio dividends received by Australian companies
- Removing the tax deductibility for interest expenses incurred in deriving certain exempt foreign income
- Reducing the debt to equity ratio from 3:1 to 1.5:1
- For outbound investors, reducing the worldwide gearing ratio from 120% to 100%
Measures will be introduced to prevent the use of the dividend washing strategy that allows investors to obtain a double dividend by selling shares in ASX Listed companies paying fully franked dividends immediately after going ex dividend and then buying back immediately on a cum dividend basis in order to obtain the financial benefit of double franking credits. The proposed date of effect is 1 July 2013.
Fringe Benefits Tax (FBT)
The FBT tax rate will increase from 46.5% to 47% in line with the proposed increase in the Medicare Levy. This increased FBT tax rate will come into effect for the 2015 FBT year.
Should you wish to discuss any aspect of the Budget or any other matter, please contact our office on 03 9626 1433.