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Federal Budget 2015 – How will it affect you ?

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As the Treasurer foreshadowed, this to be a Budget of structural reform with distinct short and long term winners and losers. The bad news headlines were fairly accurately reported and were old news by Budget night.

For many – families, pensioners and those relying heavily on assistance and subsidies – the impact of the Budget will be evident through the co-payments that will demand a little more for each service each time and in some circumstances severe restrictions to eligibility.

For business, left untouched was the reduction in the company tax rate.

Business Tax

Company tax rate reduction remains – effective 1 July 2015

The Government will go ahead with scheduled reduction of the company tax rate by 1.5% from 1 July 2015. For large companies, the reduction will offset the cost of the Government’s Paid Parental Leave levy.

Fringe Benefits Tax (FBT) 2% rate increase – effective 1 April 2015

Tying in with the 2% debt tax (see Personal Tax), the Government announced that the FBT rate will increase from 47% to 49% from 1 April 2015 until 31 March 2017 in order to prevent high income earners trying to avoid the Medicare levy.

R&D incentives cut back – effective 1 July 2014

From 1 July 2014, the refundable and non-refundable offsets for the Research & Development Tax Incentive will be reduced by 1.5%. This means the refundable offset will be reduced to 43.5% while the non-refundable offset will be reduced to 38.5%.

Interestingly, the Government has said that reducing the R&D tax offset rates is consistent with the Government’s commitment in cutting company tax rate by 1.5%. However, the reduction for the company tax rate is not meant to occur until 1 July 2015.

Businesses that are undertaking R&D activities this year may wish to consider bringing forward expenditure to ensure they maximise their claims for the year ending 30 June 2014 to take advantage of the higher tax offset rates.

Government initiatives for business employing workers over 50 – effective 1 July 2014.

From 1 July 2014, a payment of up to $10,000 is available to employers who hire a mature age job seeker (including those on the Disability Support Pension) aged 50 years or over who has been receiving income support for at least six months. Payments for this would start after the worker has been employed for at least 6 months and paid in instalments:

  • $3,000 after 6 months of employment;
  • $3,000 after 12 months of employment; 
  • $2,000 after 18 months of employment;
  • And $2,000 after 24 months of employment. 

Tax Offsets abolished – effective 1 July 2014

Tax Offsets abolished and will come into effect 1 July 2014 include

  • Mature Age Worker Tax Offset
  • Dependent Spouse Tax Offset abolished for all taxpayers

Small Business

The Government has restated their commitment to remove the Minerals Resource Rent Tax and the associated measures, and the Carbon Tax.

Unfortunately no mention of the planned reduction in the immediate asset write-off rate for small business entities. The threshold was supposed to be reduced from $6,500 to $1,000 from 1 January 2014 but the legislation was blocked in the Senate. There is no certainty on when this change will take place.

Personal Tax

For high income earners, Budget announcements will mean that you are ‘contributing’, as the Treasurer says, more than ever.

Don’t forget that for most taxpayers, your effective tax rate will increase from 1 July 2014 regardless of the Budget with the increase in the Medicare levy to 2%.  The increase was introduced in order to help pay for the National Disability Support Scheme. One side effect of increasing the Medicare Levy is an increase in the rate of Fringe Benefits Tax from 46.5% to 47% from 1 April 2014.

 2% debt tax for high income earners – effective 1 July 2014

The debt tax, or the Temporary Budget Repair Levy as the Government has named it, increases the top marginal tax rate for individual incomes above $180,000 by 2% from 1 July 2014 for 3 years.   A number of other tax rates currently based on calculations that include the top personal tax rate will also be increased (like family trust distribution tax and excess contributions tax).

Date of effect

  • 1 July 2014 – Debt tax
  • 1 April 2015 – FBT rate

 Medicare Levy threshold increased – effective 1 July 2015

The low-income threshold for the Medicare Levy will increase to $34,367 for couples with no children and the additional amount of threshold for each dependent child or student will be increased to $3,156. 

The Government has paused indexation on a number of thresholds increasing your effective tax rate over time.  These include:

  • The income threshold for the Medicare Levy Surcharge for 3 years from 1 July 2015
  • The income threshold for the Private Health Insurance Rebate for 3 years from 1 July 2015
  • Some Medicare Benefits Schedule fees for 2 years from 1 July 2014

Families

Family Tax Benefit B (FTBB) frozen – effective 1 July 2014

In general, Family Tax Benefit payments will reduce in value with payment rates frozen at 1 July 2014 levels for the next two years. 

Plus, end of year supplements are to be returned to their original values and indexation ceased.  The revised supplements provide $600 per annum per Family Tax Benefit A child and $300 per family per annum for each Family Tax Benefit B family.

Access to Family Tax Benefit B tightened – effective 1 July 2015

The Family Tax Benefit B (FTBB) primary earner income limit will be reduced from $150,000 per annum to $100,000 from 1 July 2015.  

The income threshold for Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000.

Health

$7 fee for going to the doctor – effective 1 July 2015

A patient contribution of $7 will apply for visits to a doctor.

Concession card holders and children under 16 will not pay the fee until they reach 10 visits in a year.

$5 of the $7 fee for will go to the Medical Research Future Fund (see below).  The fund will provide ongoing funding for medical research. 

Pharmaceutical Benefits Scheme (PBS) – effective 1 July 2015

The level of co-payments for medicines on the PBS will increase from 1 January 2015

  • General payments – Co-payments will increase by $5 to $42.70 (from $37.70) 
  • Concession patients – Co-payments will increase by 8o cents to $6.90 (from $6.10)

Superannuation

Super Guarantee rate increase rephasing – effective 1 July 2014

This will work by the SG rate will increase from 9.25% to 9.5% from 1 July 2014. The SG rate will remain at 9.5% until 30 June 2018 and then will increase by 0.5% each year until 1 July 2022 reaching 12%. 

Managing excess contributions – effective 1 July 2013

As previously announced by the Government, excess contributions made after 1 July 2013 which breach the non-concessional contributions cap, the Government will allow individuals to withdraw those excess contributions and associated earnings.

If individuals choose this option, no excess contributions tax will be payable and if there are related earnings they will be taxed at the individual’s marginal tax rate.

Individuals leaving excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.

Final details will be released following consultation.

Welfare & social services

Anyone accessing Government support and assistance is most likely to feel the impact of the Budget’s tightening of access and eligibility. 

In addition, eligibility thresholds themselves will be frozen saving the Government $1.5bn over 4 years.  Eligibility thresholds for non-pension payments will be maintained for 3 years from 1 July 2014.  Major non-pension payments include Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance.

Eligibility thresholds for pension and pension related payments to be maintained for 3 years from 1 July 2017. Major pension related payments include the Aged Pension, Carer Payment, Disability Support Pension and the Veterans’ Service Pension.

Pensioners & Seniors

Age pension qualifying age increased to 70 – effective 1 July 2025

From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, gradually reaching a qualifying age of 70 years by 1 July 2035. People born before 1 July 1958 will not be affected.

The Economy in Brief

  • GDP expected to be below trend at 2.5% in 2014/2015 before accelerating to 3% in 2015/2016.
  • Nominal GDP weak at 3% in 2014/2015 growing to 4.5% in 2015/2016.
  • Unemployment rate set to rise from 6% in 2013/2014 to 6.25% in 2014/2015
  • Surplus of over 1% of GDP projected by 2024/2025
  • Underlying cash deficit expected to be $29.8bn in 2014/2015 falling to $2.8bn in 2017/2018
  • Size of Government reduced with the ratio of payments to GDP falling from 25.9% in 2013/2014 to 24.8% in 2017/2018