May 2013 Newsletter - Special Budget Edition

In this edition:

Welcome

Federal Budget 2013-2014: Impacts on Superannuation

Budget Announcements affecting Centrelink entitlements and families

Budget announcements affecting taxation for individuals and business

Below is a summary of the major announcements made in last night's budget affecting taxation for individuals and business.

INDIVIDUALS

Increase in the Medicare Levy from 1 July 2014
The Government will increase the Medicare Levy from 1.5% to 2% from 1 July 2014 to provide funding for the National Disability Insurance Scheme. Low income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners.

The increase will result in the top marginal tax rate increasing from 46.5% to 47%. Please note that this will also indirectly increase following other rates:

• Fringe Benefits Tax - 47%
• Excess non-concessional contributions tax - 47%
• Tax on the taxable component of a superannuation lump sum benefit received by a taxpayer age 55-59, in excess of the low-rate cap (currently $175,000) – 17%
• Tax on the taxable component of a superannuation lump sum benefit received by a taxpayer under the age of 55 - 22%
• Tax on the taxable component of a superannuation lump sum death benefit paid directly to a non-death benefits dependent: Taxed element - 17%; Untaxed element - 32%

Deferral of changes to personal income tax regime

The Government has announced the deferral of income tax cuts scheduled to commence on 1 July 2015. From 1 July 2015, the tax free threshold was to increase from $18,200 to $19,400. The deferral is due to revisions in carbon price projections from 2015-16 onwards, which will be much lower than originally forecast. There will be no change to the tax cuts applied from the 2012-13 income year.

The affected tax cuts will be deferred until the estimated carbon price in the Budget reaches above $25.40, which is projected to be by 2018-19.

Current legislated personal tax rates for resident and non-resident individuals may be found on the ATO's website.

Reforms to deductions for work-related self-education expenses from 1 July 2014
A $2,000 cap on tax deduction claims for work-related self-education expenses per individual will be introduced. Education expenses including formal qualifications and associated tuition fees, textbooks, stationery and travel expenses, conferences, seminars and self-organised study tours will be affected by the changes.

There will be no change to employers receiving exemptions on fringe benefits tax for eligible education and training that they provide or fund for their employees, unless an employee decides to salary sacrifice in order to obtain these benefits.

Net medical expenses tax offset (NMETO) phase out from 1 July 2013
The Government will phase out the net medical expenses tax offset (NMETO), with transitional arrangements for those currently claiming the offset. However, the offset will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care until 1 July 2019.

From 1 July 2013 those taxpayers who claimed the NMETO for the 2012-13 income year will continue to be eligible for the NMETO for the 2013-14 income year if they have eligible out of pocket medical expenses above the relevant thresholds. Similarly, those who claim the NMETO in 2013-14 will continue to be eligible for the NMETO in 2014-15.

SMALL-TO-MEDIUM BUSINESS

GST Instalment System
Small businesses who are using the GST instalment system and move to a refund position can continue to use the GST instalment system in the following year. This will allow a zero instalment each quarter and an annual reconciliation of payments or refunds in an annual GST return.

Research & Development (R&D) Tax
The Research & Development (R&D) tax concession has been reviewed and the two proposed changes are:

• Capping the eligibility at $20 billion aggregate Australian turnover; and
• Introducing the opportunity for refundable offset recipients to obtain the refund on a quarterly basis, rather than on an annual basis.

The quarterly basis offset payment has potential benefits for eligible businesses however they should seek advice and be cautious not to generate a tax liability through incorrect or inaccurate claims.