2014 Federal Budget

A summary of the key items released in the 2014 Federal Budget. 2014 budget

The headline news in last night’s Federal Budget was a budget deficit of $29.8 billion for the 2014/2015 financial year compared to a deficit of $49.9 billion for this financial year.

Significant revenue measures include:

  • Deficit levy / tax for high income earners

  • CPI indexation of fuel excises reinstated

Major spending initiatives include:

  • Significant infrastructure projects

  • A $20 billion Medical Research Future Fund

Major expenditure reduction measures include:

  • $7.00 co-payment for visits to the doctor and certain related services

  • Phased increase in the age pension qualifying age to 70 for those born on or after 1 January 1965 and reduction of deeming thresholds from 2017

  • Tightened eligibility criteria for various social security benefits

  • Reduction in public service numbers

There were no significant changes to superannuation.

Many of the measures discussed in this newsletter will require legislative changes before they are implemented. This entails the approval of the Senate which has previously rejected the proposed repeal of the mining and carbon taxes and related measures. There is therefore some degree of “political uncertainty” about the future of the Budget proposals discussed in this newsletter.

 

PERSONAL TAX MEASURES

"Deficit Tax" for High Income Earners for Three Years.

Taxpayers with taxable incomes over $180,000 per annum will be required to pay a “temporary” budget repair levy for three years from 1 July 2014 to 30 June 2017.

The levy will apply at the rate of 2% of the individual’s taxable income over $180,000 per annum taking their marginal tax rate to 47% plus Medicare levy (see below).

For additional interest you may like to refer to our 2012 comparative personal tax rate study

 

Fringe Benefits Tax Rate to Rise to 49% for Two Years.

The Fringe Benefits Tax Rate will rise from 47% to 49% for the period 1 April 2015 to 31 March 2017 to align with the increase in the personal tax rates and Medicare levy.

For very high income earners there will be a small tax arbitrage opportunity in “salary packaging” big ticket FBT items such as large private expense reimbursements in the period 1 July 2014 to 31 March 2015.



Medicare Levy will Increase to 2% from 1 July 2014.

Although not a May 2014 Budget measure, the Medicare Levy will increase from 1.5% to 2.0% on 1 July 2014.



Impact of Changes in the Personal Tax Rate on Shareholders.

If the Budget Repair Levy is implemented the comparative marginal personal tax rates, including Medicare Levy, will be as follows:

Taxable Income $

FY 2013/2014

FY 2014/2015

Under 18,200

Nil

Nil

18,201 – 37,000

20.5%*

21.0%*

37,001 – 80,000

34.0%

34.5%

80,001 – 180,000

38.5%

39.0%

Over 180,000

46.5%

49.0%

* Subject to phase in of Medicare Levy

For a top marginal rate taxpayer receiving a fully franked dividend the margin above the 30% company tax rate increases from 16.5% to 19% - this means that shareholders will need to pay more “top up” tax if they receive a franked dividend from1 July 2014. The increase is 3.6% of the cash dividend and may be sufficient to justify bringing forward the payment of fully franked dividends in some cases.



Other Medicare and Related Changes.

The Budget contained the usual CPI increases to the Medicare Levy low income thresholds.

The Government will pause indexation of the income thresholds for the Medicare Levy Surcharge and Private Health Insurance Rebate for three years from 1 July 2015.

A $7.00 co-payment will be introduced for visits to the doctor, medical imaging services and out of hospital pathology services. The cost of prescriptions will rise by $5.00 for general patients and 80 cents for concessional patients. The savings from these measures will be invested in the Medical Research Future Fund.
 


Other Personal Tax Changes.

Indexation of Family Tax Benefit Part A and Part B payments will be frozen for two years until 1 July 2016.

Most dependent tax offsets will be abolished from 1 July 2014. The mature age worker offset will also be removed from that date.
 
 

SUPERANNUATION MEASURES.

Consistent with the Government’s commitment not to introduce adverse changes to superannuation in its first term there were no significant superannuation changes in the Budget.

Please refer to our superannuation publications on our website for information about recent changes to superannuation contribution levels.
 


Delayed Schedule for Increasing the SGC to 12%.

The Mining Tax repeal legislation which was blocked in the Senate proposed to pause the Superannuation Guarantee Charge contribution rate at 9.25% for two years.

The Government has now confirmed that the SGC contribution rate will rise to 9.5% from 1 July 2014. It will remain at this rate until 30 June 2018 and then rise in annual increments of 0.5% until it reaches 12%.

Employers will be faced with the issue of whether they absorb the increase in the SGC contribution rate or pass it on to employees who will be suffering a cut in take home pay as a result of the 0.5% increase in the Medicare Levy announced last year that takes effect from 1 July 2014.
 


Option to Withdraw Excess Non-Concessional Contributions.

For any excess contributions made after 1 July 2013, breaching the non-concessional caps (currently $150,000 or $450,000 under the three-year rule), affected individuals will be able to withdraw the excess contributions and associated earnings. If they chose this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual's marginal tax rate.

Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate plus Medicare Levy.
 


Superannuation and the Seniors Health Card Income Test.

From 1 January 2015 untaxed superannuation income will be included in the assessment of income for the Commonwealth Seniors Health Card. Existing card holders will not be affected.
 
 
 

other taxation measures

Restoring Integrity in the Australian Tax System – Further Decisions.

The Government has announced additional changes to the previous Government’s tax reform agenda. It will not proceed with:

  • Better targeting of the not for profit tax concessions measure

  • Changes to the multiple entry consolidated groups in relation to remove inconsistencies

There will be a deferred introduction of:

  • Changes to principal asset CGT test for foreign residents investing in land rich Australian companies – this change is to apply from the release of exposure draft legislation

  • Deferral of the start date for the new tax system for Publicly Managed Investment Trusts to 1 July 2015

  • A targeted integrity measure for Offshore Banking Units to apply from 1 July 2015

  • Deferring the start date for third party reporting to the ATO and data matching by two years to 1 July 2016 in respect of government grants and payments, sale of real property, shares etc.. and sales through merchant debit and credit card facilities. 

 


Indexation of Fuel Excise Reinstated.

Fuel excise is generally imposed at a rate of 38 cents per litre for most on road fuels. Until 2001 the excise was indexed to movements in the CPI. Biannual indexation is to be reinstated from 1 August 2014.

This measure appears to have the support of the Greens and, as a result, is more likely to become law.

It is quite a timely announcement as we recently published a study which found Australia enjoys some of the world’s lowest fuel costs. You can view the report here.

 

Paid Parental Leave and Changes in the Company Tax and R&D Rates.

The Government’s election commitment for six months of paid parental leave paid at a rate of up to $75,000 (being 50% of annual income) has recently been revised downwards to a cap of $50,000. It appears that this measure will apply from 1 July 2015 and funded by a 1.5% levy on companies with a taxable income exceeding $5 million. At that time the general company tax rate is set to fall to 28.5%.

This change will reduce the rate at which companies can frank dividend distributions. When linked to the “deficit tax” for higher income earners there may be some cases where it is tax effective to bring forward dividend payments subject to the cost of funding the “top up” tax payments.

This will further complicate the tax calculations when paying franked dividends.

In anticipation of the change in the company tax rate the Budget announced that the rates of the refundable and non-refundable R&D tax offsets would fall by 1.5% from 1 July 2014.

For additional interest please refer to our 2013 study which explores Australia’s high corporate tax rates.

 

SAVINGS MEASURES


Increase in Aged Pension Retirement Age.

Previous governments have progressively increased the qualification age for the age pension as follows:

Date of birth (on or after)

Qualifying Age

 

Qualifying Date (from)

Before 1 July 1952

65 years

 

Current

1 July 1952

65 years

and 6 months

1 January 2018

1 January 1954

66 years

 

1 January 2020

1 July 1955

66 years

and 6 months

1 January 2022

1 January 1957

67 years

 

1 January 2024


This year’s Budget now proposes to increase the aged pension qualification age by six months every two years rising to 70 years by 1 July 2035 for those born on or after 1 January 1965.

Please note that you need to satisfy income and asset tests in order to qualify for a full or part pension. There are no income or asset tests for superannuation benefits.

Pay Freeze for Politicians and Senior Public Servants.

The Government has applied to freeze the salaries and allowances of MPs and senior public servants for 12 months from 1 July 2014.


Cash Incentives for Employers of Older Australians.

There will be cash incentives of up to $10,000 for Australian businesses to hire employees in their 50s and 60s who have been receiving income support for at least six months. This will be paid in instalments:

  • $3,000 after six months of employment
  • $3,000 after 12 months of employment
  • $2,000 after 18 months of employment
  • $2,000 after 24 months of employment

 


More Information

If you require more information about any of the matters discussed please contact the team at UHY Haines Norton.

Download the 2014 Federal Budget Summary.