Federal Budget 2014 – What You Need To Know
written by Josh McMullen
Federal Treasurer, Joe Hockey MP, announced the 2014 Federal Budget on Tuesday 13 May in Canberra. The following summarises the headline announcements of most importance to our client base.
If you have any questions on how these measures may impact you or your business, please don’t hesitate to contact your PT Partners Advisor.
Deficit Levy – From 1 July 2014, a deficit levy will be imposed on individuals with taxable incomes exceeding $180,000. From this date, the top marginal tax rate will increase by 2% to 47% (not including Medicare levy). This rate will revert to 45% from 1 July 2017. Those on lower incomes will not be impacted.
Co-Payment for Doctor Visits – A new co-payment charge of $7 will be imposed for each consultation with a general medical practitioner (GP). However, the number of co-payments paid by concession card holders and those taking their children younger than 16 to the doctor will be capped at 10 each year ($70 will therefore be the maximum liability per year for doctor visits for these people). The co-payment will come into force from 1 July 2015.
Abolition of Various Dependent Tax Offsets – A number of dependency tax offsets will be abolished and replaced by a single Dependent (invalid and carer) Tax Offset, effective 1 July 2014. The new offset will be targeted towards taxpayers who have a dependent who is genuinely unable to work due to a carer obligation or disability. The Mature Age Worker Tax Offset will also be abolished from 1 July 2014.
Stricter Rules for HELP Repayments – The new minimum threshold at which students commence to repay their HELP loan will be reduced from 1 July 2016 to $50,638 at a new repayment rate of 2% of income. By way of comparison, the current minimum threshold is $51,309 with a repayment rate of 4%. Furthermore, from 1 June 2016, the indexation rate applied annually to outstanding loans will also effectively be increased.
Excess Contributions Tax Relief – Individuals who make excess non-concessional superannuation contributions will, backdated to 1 July 2013, be able to avoid excess contributions tax (of 46.5%) by having the excess amounts and the earnings on these amounts refunded and taxed at their marginal tax rate. Before this change, relief from excess contributions tax was only available on concessional contributions.
Family Tax Benefit Reined In – A number of Family Tax Benefit (FTB) restrictions have been imposed, including the following from 1 July 2015:
- FTB Part B will no longer be available where the primary earner has an income of more than $100,000 (down from the current $150,000).
- FTB Part B will be limited to families whose youngest child is less than 6 years of age. Transitional arrangements may apply.
- FTB Part A and Part B supplements will be reduced to $600 and $300 per child respectively.
Age Pension Changes – While the current rate of, and eligibility for, the Age Pension will not change, a number of reforms have been slated for the future including:
- The Age Pension qualifying age will eventually reach 70 by 1 July 2035. This will be achieved through a series of increases of 6 months every 2 years from 1 July 2025. This change will not impact those born before 1 July 1958. To be clear, this is not the retirement age, but the Age Pension age. You can still retire and access your superannuation as early as 55 years of age.
- From 1 July 2017, Age Pension increases will be linked to CPI rather than male total average weekly earnings. This will result in the dollar amount of the Age Pension increasing more slowly than it otherwise would.
Newstart Eligibility Age Increased – The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years of age from 1 July 2015.
New Paid Parental Leave Scheme Confirmed – The start date for the Government’s new paid parental leave scheme has been confirmed as 1 July 2015. From this date, women who give birth or adopt will be entitled to a parental leave payment equivalent to 26 weeks of their full-time salary up to $100,000. Payments will therefore be capped at $50,000. These payments will be provided entirely by the Government (not employers).
Reduction in Company Tax Rate – The Government has confirmed its long-standing commitment to a company tax cuts. From 1 July 2015, the company tax rate will be cut from 30% to 28.5%. No reduction in tax is available for other business structures (e.g. sole traders, trusts, etc.)
Super Guarantee Rate Increased – After much uncertainty, the Superannuation Guarantee rate will from 1 July 2014 increase to 9.5% (the Government had planned to pause the rate at the current 9.25%). The new 9.5% rate will continue to apply until 30 June 2018 after which it will increase to 10%, and incrementally to 12% by 1 July 2022.
Mature Age Worker Incentive – From 1 July 2014, employers will be offered significant cash incentives to employ older workers. Payments of up $10 000 will be available where you hire a worker aged 50 or over who has been unemployed for six months or more. To obtain the maximum $10 000 payment, they must remain employed with you for two years.
R&D Tax Offset Trimmed – The rate for the refundable Research and Development (R&D) Tax Offset will be reduced by 5% from 1 July 2014. Even after this reduction, a generous 40% refundable offset will still be available for qualifying R&D expenditure that you incur.
FBT Rate Increased – To align with the new Medicare levy-inclusive top marginal tax rate, the FBT rate will increase to 49% from 1 April 2015 until 31 March 2017 (up from the current 47%), making it less attractive to provide non-cash benefits to your employees.
Higher Petrol Prices – The indexation of fuel excise will be re-introduced from 1 August 2014. This is forecast to increase petrol prices by 1 cent per litre each year.
Public Sector Job Cuts – 16,500 Federal public sector jobs will be cut by July 2017, including more than 7,000 in the coming financial year. The Tax Office will be among the hardest hit with more than 2,300 full-time jobs expected to be shed in 2014/2015 alone.
Josh McMullen is a senior tax writer at PT Partners.