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Federal Budget 2014 - Individuals


Wednesday 14th of May 2014

How the Budget affects you



Temporary Budget Repair levy


Corresponding with pre-budget announcements that a debt levy would be introduced, the government has confirmed that it will introduce a three-year temporary levy – otherwise dubbed the Temporary Budget Repair Levy – on high-income individuals from July 1, 2014 until June 30, 2017. The temporary levy will apply at a rate of 2% on individuals’ whose adjusted taxable incomes are more than $180,000 a year.
 
A number of other tax rates that are currently based on calculations that take into account the top personal tax rate will also be increased. With the exception of the FBT rate, these tax rates will be increased for the same three years that the temporary levy is in place.
 
To prevent high-income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47% to 49% from April 1, 2015 until March 31, 2017 to align with the FBT income year. The fringe benefits rebate rate will be aligned with the FBT rate from April 1, 2015.
 
This debt tax is considerably less harsh than early reports indicated which suggests that a strongly negative popular reaction may have caused a rethink on the scale of the tax.  Given that there was very little else targeted at high-income earners in the Budget and plenty of measures to tackle welfare “entitlements” (see below), it isn’t at all clear the Budget statement overall passes the fairness test.


Personal tax rates


The new personal income tax rates and thresholds are summarised for taxpayers in the table below (these rates do not include the Medicare levy – currently 1.5% but set to rise to 2% from July 1, 2014). With the Medicare levy included, the top marginal rate would be 49% from July 1, 2014 to June 30, 2017.
 

Personal income tax rates and thresholds

 

2013-14

2014-15

2015-16 and 2016-17

 

Threshold

Rate

Threshold

Rate

Threshold

Rate

1st tier

$18,201

19.0%

$18,201

19.0%

$19,401

19.0%

2nd tier

$37,001

32.5%

$37,001

32.5%

$37,001

33.0%

3rd tier

$80,001

37.0%

$80,001

37.0%

$80,001

37.0%

4th tier

$180,001

45.0%

$180,001

47.0%

$180,001

47.0%

 
The 2% debt levy on those who earn over $180,000 is expected to affect a relatively small number of taxpayers – approximately 400,000 people. For those affected, the tax increase proposed to apply from July 1, 2014 (on top of the already legislated increase in the Medicare levy to 2%) may result in people bringing forward revenue where possible so that they can be charged at a lower rate and deferring deductions which may be worth more after July 1, 2014. The chances of the debt levy passing Parliament will hinge on post July 1 support in the Senate – complicating tax planning for affected individuals.
 


Family Tax Benefit (FTB) changes – 2 year freeze on rates and other changes


The government will maintain – in other words, freeze – the current FTB payment rates for 2 years from July 1, 2014. Under this measure, indexation of the maximum and base rates of the FTB Part A, and the rate of the FTB Part B will be paused until July 1, 2016.

FTB B threshold: The government will reduce the FTB Part B primary earner income limit from $150,000 per annum to $100,000 per annum from July 1, 2015. The income threshold for the Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000 as it is linked o the FTB primary income earner limit.

Limiting FTB Part B: The government will limit FTB Part B to families whose youngest child is younger than 6 years of age from July 1, 2015. As a transitional arrangement, families with a youngest child aged 6 and over on June 30, 2015 will remain eligible for FTB Part B for two years.

Limiting Large Family Supplement: The government will limit the FTB Part A large family supplement (currently $313.90 per child per annum) to families with four or more children from July 1, 2015. The supplement will be paid in respect of the fourth and each subsequent child in a family.

New FTB allowance for single parents: From the point they become ineligible for FTB Part B, the government will provide $750 for each child aged between 6 and 12 years old in an eligible family from July 1, 2015.

Remove FTB Part A per child add-on: The government will remove the FTB Part A per child add-on to the higher income free threshold for each additional child from July 1, 2015.

Revise FTB end-of-year supplements: The government will revise the FTB end-of-year supplements to their original values and cease indexation from July 1, 2015. The revised supplements will provide $600 per annum per FTB Part A child and $300 per family per annum for each FTB Part B family.

 
Medicare levy surcharge and private health insurance offset thresholds frozen


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


Dependent Spouse Tax Offset (DSTO) abolished


The government will abolish the DSTO for all taxpayers from July 1, 2014. This is on the back of the 2011-12 Mid-Year Economic and Fiscal Outlook measure which limited access to the DSTO to those whose dependent spouse was born before July 1, 1952 effective from July 1, 2012. That measure had an estimated $370.0 million gain to revenue over the forward estimates.


Mature Age Worker Tax Offset (MAWTO) abolished


The government will abolish MAWTO from July 1, 2014. The 2012-13 Budget began the phase out of the MAWTO from the 2012-13 income year, limiting it to taxpayers born before July 1, 1957. This measure had an estimated $255.0 million gain to revenue over the then forward estimates period. Savings will be redirected to the government’s expanded seniors employment incentive payment called Restart to support mature age job seekers to re-enter the workforce. Employers will also get $10,000 for employer mature age job seekers.

 

The above general information is not intended as advice. It has not taken into account your personal situation or needs. You should seek professional advice out your circumstances to make sure you apply the above general information to your needs correctly.

CALL Michael Adams on 0439 909 508 for professional accounting advice and better business solutions.

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