One would hardly think an election is to be held in September given last night’s Federal Budget and its focus on cost cutting, tightening of taxation collections and scaling back on incentives.
Even with this fiscally austere approach the government is still forecasting a deficit in 2013/14 of $18b. The Australian economy’s rapid contraction and consequent fall in tax revenue is little surprise as we have observed and commented on the challenging business climate in which most clients find themselves.
Here we review the main items of interest to our clients. For a comprehensive report on all the items in the Federal Budget, you may be interested in the Institute of Chartered Accountants Tax Bulletin.
Individuals and Families
The tax-free threshold, currently at $18,201 was expected to increase to $19,401 in 2015/16. This tax cut has been deferred and will only occur once the estimated carbon price in the Budget reaches $25.40, which is not expected until 2018/19.
There was no change to the non-resident tax rates.
The net medical expense tax offset will be phased out, with transitional arrangements for those who claim the offset in the 2012/13 income year. The offset will continue to be available for taxpayers for out of pocket medical expenses relating to disability aides, attendant care or aged care until 1 July 2019.
The Medicare Levy is set to increase by 0.5% to 2% to help fund the National Disability Insurance Scheme.
A cap of $2,000 has been introduced on tax deductions for work-related self-education expenses.
The Baby Bonus will be abolished from 1 March 2014 and replaced by an additional FTB Part A payment. Eligibility for FTB Part A will change from 1 January 2014 for children aged 16 and over.
The Government will remove the discounts applying to up-front (currently 10% discount) and voluntary (currently 5% discount) payments made under the Higher Education Loan Program (HELP).
Superannuation
No new policy announcements were made regarding superannuation, merely a recap of the announcements made in April. They are in summary;
- concessional contribution cap of $35,000 instead of $25,000 for those aged 60 or over effective from 1st July 2013,
- tax-free pension earnings capped at $100,000,
- withdrawal of excess concessional contributions allowed and taxed at the individual’s marginal tax rate plus an interest charge,
- extra15% contributions tax for incomes above $300,000.
Corporate and Business Measures
The budget sees a general tightening of measures around compliance and revenue collection for corporates, foreign entities and offshore affiliates.
The Government will extend the requirement for monthly PAYG income tax instalments to all large entities (with turnover of $20m or more).