The Federal Budget was announced last night without any major surprises. The government failed to reach the surplus that was predicted last year and instead has a $18 billion deficit. Apart from previously announced reforms, the major changes will be for big business and multinational entities.
Big Ticket Reforms
How You Might Be Affected
Many of the major changes in the budget relating to individuals has been previously announced but there are a couple of additional changes that affect those with lower incomes.
- Medical expenses tax offset abolished with a transitional period for those already claiming the offset.
- For those on income support benefits, the amount you can earn from an employer before support payments are reduced will be increased from $62 per fortnight to $100 per fortnight. This increase will occur on 20th March 2013.
- Medicare levy increase from 1.5% to 2% from 1st July 2014.
- Work related self education expenses capped at $2000 from 1st July 2014.
- Income tax cuts set for 1st July 2014 have been deferred
- No discount for paying HELP debts upfront from 1st July 2014.
A series of changes introduced as part of the Protecting the Corporate Tax Base from Erosion and Loopholes Package specifically target the concessions and taxation large entities. Most small to medium businesses will not be directly affected by these changes.
The changes target:
- Profit shifting and capitalisation rules
- The tax consolidation regime
- Foreign resident capital gains tax
- The offshore banking unit (OBU) system that provides preferential tax rates to banking activities within a OBU
- ‘Dividend washing’ – selling shares with a dividend and then immediately buying equivalent shares that still carry a right to a dividend
- Deductions for exploration activity
- ATO funding boost to enforce the new legislation
- Monthly PAYG payments for large entities
- ATO is targeting trusts (audit insurance can be a good option if you have a trust)
Investors & Property Owners
- A measure to prevent ‘Dividend Washing’ will be introduced. ‘Dividend washing’ is where shares are sold with a dividend and then equivalent shares are immediately bought that still carry a right to a dividend. This can result in some shareholders receiving two sets of franking credits for effectively the same parcel of shares. The changes will only apply to investors with franking credits of more than $5000.
- The ATO have received extra funding to find those evading tax. They will be targeting trusts but will also be focusing at those with investments. This is a good opportunity to purchase audit insurance.
- Baby Bonus will be absorbed into family tax benefits
- From July 1st 2014 accessing certain family and parental payments will change from three years to one year. (These payments include Family Tax Benefit Part A, Schoolkids Bonus and Paid Parental Leave.)
- The Medicare levy low-income threshold for families will increase to $33,693 for 2012/2013 income year. The additional amount of threshold for each dependent child or student will also increase to $3,094.
- From 1st Jan 2014 eligibility for Family Tax Benefit Part A will change for children 16 years and over.
- Increases to family tax benefit scrapped.
Retirement & Superannuation
- From 1 July 2013, individuals will be allowed to withdraw any excess concessional contributions made from their super fund.
- Means test exemptions will be introduced for Age Pension recipients when downsizing from their family home. There are certain requirements for this to apply to you.
- From 1st July 2014, all pension asset earnings above $100,000 will be taxed at 15%.
- The superannuation concessional contribution cap will increase from $25,000 pa to $35,000 pa from 1st July 2013 for people 60 and over, and 1st July 2014 for people 50 and over.
- In the 2012 Federal Budget, the Government announced that individuals with incomes above $300,000 pa will pay an additional 15% tax on their concessional super contributions. This will still go ahead.
- All earnings on assets that support superannuation income streams will only be tax-free up to the first $100,000 per member, and earnings above $100,000 will be treated as income and taxed at 15%. This will be in effect as of 1st July 2014.
If you need help or advice on changes that may affect you please don’t hesitate to contact us
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.