The Federal Budget 2013-14 What it means for SMEs and high net worth individuals

Many business owners have awoken confused and concerned about what the major changes in the Budget Announcement last night means to them. In this post I explore what I see as the 'key changes' that will impact on Azure Group's clients on an individual and business level. If you need advice on your personal situation please do not hestitate to contact one of our advisors today on (02) 9238 1188 or ourteam@azuregroup.com.au. 

Personal tax rates 

The Budget papers confirmed the Government legislated increase in the tax-free threshold to $19,400 from 1 July 2015 will not proceed, however,  it will be 'deferred'. The deferral of the Clean Energy Future personal tax cuts are due to the lower than anticipated carbon price after 1 July 2015. Originally, the Government had budgeted on $29 a tonne in 2015-16.

Note that from 1 July 2012, the tax-free threshold increased to $18,200, and the first 2 marginal tax rates increased from 15% to 19% and from 30% to 32.5%, respectively, while the low income tax offset was reduced from $1,500 to $445

Personal income tax rates and thresholds

For the 2012-13, 2013-14 and 2014-15 years, the taxable income ranges and tax payable for resident individuals (excluding the 1.5% Medicare levy; to be 2% from 1 July 2014) are as follows:

Tax rates 2012-13 and beyond:

The above rates do not include the Medicare levy of 1.5% in 2013/2014 and 2.0% medicare levt from 2015 and beyond.

Tax rates 2011-12

The above rates do not include the Medicare levy of 1.5%.

Restructuring activity 

The Government will provide $109.1m over 4 years to the ATO to increase compliance activity targeted at restructuring activity that facilitates profit shifting opportunities. This measure is estimated to increase revenue by $576.5m over the forward estimates period.

Increased funding for trusts

The Government will provide $67.9m over 4 years to the Tax Office to undertake compliance activity in relation to trust structures. The taskforce will target the exploitation of trusts to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax. It will focus on taxpayers who have been "involved in egregious tax avoidance and evasion" involving trusts. Compliance activity will target "known tax scheme designers, promoters, individuals and businesses who participate

Child Care Rebate 

While child care costs increase substantially, the Government will pause the indexation of the annual cap on the Child Care Rebate (CCR) for a further 3 years. The maximum amount of CCR that can be paid will remain at $7,500 a year until 30 June 2017. Pausing indexation of the cap will not alter the percentage of out-of-pocket expenses reimbursed by the Government, which will remain at 50% until the cap is reached.

Phase-out of medical expense tax offset

The Government is to phase out the net medical expenses tax offset, with transitional arrangements for those currently claiming the offset. However, the offset will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care until 1 July 2019. From 1 July 2013, those taxpayers who claimed the offset in 2012-13 will continue to be eligible for 2013-14 if they have eligible out-of-pocket medical expenses above the relevant thresholds. In addition, those who claim the offset in 2013-14 will be eligible to claim it in 2014-15.

Medicare levy increase to 2% confirmed to fund Disability Care

The Budget Papers confirmed that the Medicare levy would be increased by 0.50% to 2% with effect from 1 July 2014, to help fund the Government's proposed National Disability Insurance Scheme (NDIS), now renamed DisabilityCare Australia. This would also mean the effective top marginal tax rate would become 47% from that date.

Confirmation that self education expenses to be capped

The Budget Papers confirmed the Treasurer's 13 April 2013 announcement that the Government would introduce a $2,000 cap on tax deduction claims for work-related self-education expenses per person from 1 July 2014. Taxpayers will be able to claim a tax deduction of up to $2,000 of education expenses in an income year. 

Compliance improvements through third party reporting and data matching

The Government will provide $77.8m over 4 years to the ATO to improve compliance for Australian taxpayers by expanding data matching with third party information. The information provided to the ATO will also improve the prefilling of tax returns. The measure will also establish new and strengthen existing reporting systems for:

• taxable government grants and specified other government payments;
• sales of real property, shares (including options and warrants), and units in managed funds;
• sales through merchant debit and credit services;
• managed investment trust and partnership distributions, company dividend and interest payments; and
• transactions reported to the ATO by the Australian Transaction Reports and Analysis Centre.

Baby Bonus 

The baby bonus is now abolished. This was one of the Howard government’s signature reforms, and it has now been replaced it with a less generous scheme.

Fewer stay-at-home mothers will now qualify for a lump-sum payment on the birth or adoption of a child and those that do qualify will receive thousands of dollars less. The baby bonus will be replaced by a one-off increase in Family Tax Benefit Part A. With the new scheme, $2000 will be paid for the birth or adoption of a first child or each child in multiple births, and $1000 for second or subsequent children. Families will receive an initial payment of $500, the remainder to be paid in seven fortnightly instalments.