The media had widely publicised the government’s spending cuts in the recent Federal Budget announcement. However, there are also several tax and superannuation issues that should be highlighted for your attention.
Personal Taxation
Here are two major aspects where changes had been announced. We offer some recommendations to help you determine the potential impacts to your personal taxation:
The Budget Repair Levy
- You would need to calculate the impact of the levy on your after-tax income for the next 3 years
- Salary packaging arrangements should be reviewed to ascertain the impact of the higher FBT rate, which in turn reflects the levy.
You should consider legitimate tax planning by analysing the different outcomes resulting from methods like bringing forward the timing of income, income splitting, maximising deductions, or salary sacrifice.
Changes to Family Tax Benefit
- Current Family Tax Benefit (FTB) payment rates will remain the same for another 2 years from 1 July 2014. Simultaneously, the FTB Part A’s maximum and base rates indexation, and the rate of FTB Part B, will also remain frozen until 1 July 2016.
- Starting 1 July 2015, there will be a reduction in FTB Part B when the primary earner’s income is more than $100,000 per year (the current amount is $150,000 per year)
Company Taxation
The following are the changes recently announced by the government:
Some company will benefit from a lower tax rate from 1 July 2015 when the new 28.5% tax rate becomes applicable
- Companies : Remember to review the impact of the tax cut on your after-tax profits and franking capability.
- Shareholders : You would need to consider the impact on future franked dividends and the associated tax offset for resident shareholders.
The Paid Parental Leave levy on large companies with taxable incomes exceeding $5 million
The 1.5% Paid Parental Leave levy will be imposed on large company’s taxable income that exceeds $5 million, offsetting the benefit of the 28.5% company tax rate
- Companies : This levy’s structure and way of execution should be reviewed by your tax team, and the impact of the levy should be communicated to your shareholders
- Shareholders : As above, impact on future franked dividends and the associated tax offset for resident shareholders need to be accounted for.
Loss Carry Backs
2012-13 income year saw the implementation of the loss carry back tax advantage by the previous Labour government. This gives an entity the option to save on tax if it deducted the loss in the income year to which the loss is carried back, which in turn provides a refundable tax offset for the current year. This offset is limited to $300,000, or to the amount of the entity’s franking account balance.
This advantage is not looked upon favourably by the Coalition government, who would like to repeal it from the start of the 2013-14 income year. However, the necessary legislation put forward in the MRRT Repeal Bill had been blocked in the Senate.
Measures affecting Small Business
The Coalition government wanted, from 1 January 2014 onwards, to lower the instant asset write-off amount from $6,500 to $1,000, as well as disallowing the special rules for vehicle depreciation that allowed the deduction of the first $5,000 of the cost; these measures are both applicable to small business.
However, the Senate had not passed the legislation of these measures. Hence, until the existing concessions are repealed, they are still available under the law.
Announced, but ‘unenacted’ tax and superannuation measures
It should be brought to your attention of the government’s intention to proceed with its decision about the “announced but unenacted tax measures”, announced on 14 December 2013. These measures, identified by the Institute of Chartered Accountants, are deemed important from a taxpayers’ point of view. The Federal Budget contains reconsideration of these measures – particularly those concerning tax consolidation and managed investment trusts.
Tax measures to proceed with are:
- Debt/Equity tax rules – Limiting the scope of an integrity provision to prevent unintended outcomes (in section 974-80 of the Income Tax Assessment Act 1997 (Cwlth))
- Loss recoupment rules – Applicable on multiple classes of shares to improve implementation of tax loss rules
- Look-through treatment – Treating earn out payments as part of the business asset’s value for CGT purposes
- Amendments to tax hedging rules – Affecting taxation of Financial Arrangements
- Cross-border GST ‘connected with Australia’ rules
- Changes to Superannuation – In relation to fund mergers and unlawful payments from funds
Protection for taxpayers who relied on announcements, but now find the tax measure will not proceed
Measures designed to protect taxpayers, who had been awaiting for specific tax changes, were let down when the government decided to not proceed with them. This protective measure legislation is still expected to be introduced to the Parliament soon.
Superannuation Guarantee
The government has confirmed that the Superannuation Guarantee rate of 9.5% will be applicable through 1 July 2014, and remain the same until 1 July 2018 after a period of uncertainty regarding potential rate increase. This sees a‘re-phasing’ of the hiking of the rate up to 12%.
Superannuation Excess Contributions Tax
Penalty rates are used to tax any excess of non-concessional contributions to superannuation funds, which could reach up to 93%. The government, striving to instil more common sense to this matter, has announced that individuals are now allowed to withdraw the excess contributions (and associated earnings), should they make any excess payments after 1 July 2013. Excess tax will no longer apply, and taxation at marginal rates will apply on the related earnings.