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Budget Highlights - May 2014

Budget Highlights - May 2014

High Income Earners

The Treasurer announced the introduction of a Budget deficit levy (i.e. tax), which will apply for three years from 1 July 2014. This temporary levy will apply at 2% for incomes over $180,000 (i.e. 2% on taxable income in excess of $180,000).

EXAMPLE: An individual with a taxable income of $200,000 will pay 2% of $20,000, i.e. a levy of $400.

The new levy is expected to affect a relatively small number of people (around 400,000 taxpayers). When taking into account this new levy and the Medicare levy (which is already legislated to increase from 1.5% to 2% from 1 July 2014), the top marginal tax rate will be 49% from 1 July 2014 to 30 June 2017.

As a result of the new deficit levy, the government will also increase the FBT rate.

Medicare levy thresholds for families increased for 2013 - 2014

From 2013 - 2014, the Medicare levy low-income threshold for families will be increased to $34,367 (up from $33,693 for 2012 - 2013). The additional amount of threshold for each dependent child or student will also be increased to $3,156 for 2013 - 2014 (up from $3,094).

The low-income threshold for individuals will remain at $20,542 for 2013 - 2014 (unchanged from 2012- 2013).

Likewise, the low-income threshold for senior Australians will remain at $32,279 for 2013 - 2014 (unchanged from 2012 - 2013). This threshold applies to those entitled to the seniors and pensioners tax offset (SAPTO).

HELP System Changes

Changes to the HELP repayment system will mean from 2016 students will have to start paying their debts back earlier, at a rate of 2%, when they earn $50,638 or more.  

Several tax offsets to be abolished

The Treasurer announced that the following tax offsets will be abolished from 1 July 2014:

-         nearly all of the dependant tax offsets, including the dependent spouse tax offset, for all taxpayers; and

-         the mature age worker tax offset, which will effectively be replaced by new incentives to employ older works (see Other Changes).

Age Pension age to increase to 70 by 2035

The Treasurer confirmed his earlier announcement that the government will raise the eligibility age for the Age Pension to 70 years by 2035.

From 1 July 2025, the qualifying age will continue to rise by six months every two years from the qualifying age of 67 years (which will apply by that time) to gradually reach a qualifying age of 70 years by 1 July 2035. Individuals born before 1 July 1958 will not be affected by this measure.

Family Tax Benefit changes

The government will freeze the current Family Tax Benefit (FTB) payment rates for two years from 1 July 2014. Under this measure, indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B will be paused until 1 July 2016.

The Treasurer also announced other changes to FTB, including a reduction in the FTB Part B primary earner income limit from $150,000 per annum to $100,000 per annum, with effect from 1 July 2015.

Freeze on eligibility thresholds for Australian Government payments

The government will freeze the eligibility thresholds for Australian Government payments for three years. This will apply to:

-         non-pension payments (Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance) for three years from 1 July 2014;

-         pension and related payments (Age Pension, Carer Payment, Disability Support Pension and the Veterans' Service Pension) from 1 July 2017

Company Tax Rate Cuts

The federal government will cut the company tax rate 1.5 percentage points to 28.5 per cent from 1 July 2015 to help boost profitability.

Big business will miss out on the benefits of the tax cut, with the government imposing a 1.5 per cent levy on the 3,000 biggest companies to fund its paid parental leave scheme.

FBT tax rate impacted by deficit levy

The Treasurer said that in order to prevent high income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017. The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps. In addition, the fringe benefits rebate rate will be aligned with the FBT rate from 1 April 2015.

Reduction in R&D offset rates

The rates of the refundable and non-refundable research and development (R&D) tax offsets will be reduced by 1.5 percentage points with effect from 1 July 2014. This means that the refundable offset will be reduced to 43.5% and the non-refundable offset will be reduced to 38.5%.

Superannuation guarantee rate will rise to 9.5% on 1 July 2014

Instead of pausing the superannuation guarantee rate at 9.25% (as previously announced), the government will now allow the rate to rise to 9.5% on 1 July 2014 and will leave it at this level until 30 June 2018. As such, employers are required to increase their superannuation contributions on behalf of employees to 9.5% of ordinary time earnings from 1 July 2014.

The percentage will then increase by 0.5% each year until it reaches 12% from 2022-2023, a year later than previously proposed.

New incentive for employers to hire Australians aged 50 years or over

The Treasurer has announced that employers will be able to receive up to $10,000 in government assistance if they hire a job-seeker aged 50 years or over. This program will replace the Seniors Employment Incentive Payment.

Under the program, eligible employers will receive an initial $3,000 if they hire a full-time mature-age job seeker who was previously unemployed for six months and they employ that person for at least six months.

The employer will then be eligible to receive further payments as the employee meets certain further service periods.

Are You Ready for SuperStream?

From 1 July 2014, all employers with 20 or more employees must comply with the new data and e-commerce requirements under SuperStream.

Employers will have to comply with the following:

  1. Super payments must be made electronically to the nominated super fund.
  2. Details of the payment, such as the employee name, Tax File Number and Super fund member number are to be sent to the super fund.

We can only assume that the industry and retail funds will be notifying the employers of the required information.

Employers who have one or more employees with Self Managed Superannuation Funds (SMSFs) must receive, by 31 May 2014, the following information from those employees:

  1. The Full Name of their SMSF
  2. The ABN of their SMSF
  3. The BSB and Bank Account Number of their SMSF
  4. The electronic service address of their SMSF

Employers must also ensure that their processes are in place for them to comply from 1 July 2014. They can access the register of software providers who are intending to ensure that their software complies with the standards by going to the ATO's website and checking the "intent register".

If you are a member of an SMSF which is a client of MDB Accountants, rest assured that this is being addressed. You should receive a letter over the coming weeks addressing these issues.  Should you require further clarification contact us.


Claiming Home Office Expenses

Claiming Home Office Expenses

If you carry on all or part of your employment activities from home, then some portion of the home running expenses can be a tax deduction. Ideally, you should have a room set aside as a home office.  Whilst you do not need to have a room set aside for your home office claim, if you are using a room with a dual purpose (e.g. dining room), or a room shared with others (e.g. lounge room) you can only claim the expenses for the hours you had exclusive use of the area.

The expenses you can claim are:

  • Heating, cooling and lighting
  • Decline in value (depreciation) of home office furniture and fittings
  • Decline in value of office equipment and computer
  • Computer consumables, stationery, telephone and internet costs claimed on an actual expense basis

Methods of claiming:

Diary method/actual running expenses

You will need to keep a diary to calculate how much of your running expenses relate to doing work in your home office.  The diary needs to detail the time you spend in the home office compared with other users of the home office.  Keep diary records for a representative four-week period.

Tax Office rate per hour method

You can use a fixed rate of 34 cents per hour (updated for 2011 tax year) for home office expenses for heating, cooling, lighting and the decline in value of furniture instead of keeping details of actual costs.  You just need to keep a record of the number of hours you use the home office and multiply that by 34 cents per hour.  Under this method you can also include the decline in value of office equipment (i.e. computers, faxes, etc.) but not furniture.

The following costs are not deductible as part of home office expenses:

  • Mortgage or interest costs
  • Rates and taxes
  • Depreciation on the home

Should you wish to discuss further clarification do not hesitate in contacting our office.

Car Travel as a Tax Deduction

Car travel as a tax deduction

If you use your car for work you are entitled to claim the expenses that relate to the business costs of using your car to do your job as a tax deduction.

There are a number of methods you can use to claim the car expenses.

You must own the car to claim under any of these methods and the record keeping requirement is detailed for each method.

Method 1 â€" Cents per kilometre

  • Your claim is based on a set rate for each business kilometre you travel and you can claim a maximum of 5,000 kilometres under this method.  If you travel more than 5,000 kilometres the claim must be limited to 5,000 or you need to use an alternative method of claim.
  • You do not need written evidence but you need to be able to demonstrate that you have incurred the expense.  Diary records will suffice.

Method 2 â€" 12% of original value

  • Your claim is based on 12% of the original value of your car.  Luxury car limits apply.
  • Your car must have (or would have) travelled more than 5,000 business kilometres in the income year.

Method 3 â€" One-third of actual expenses

  • You claim one-third of your car's expenses.
  • Your car must have (or would have) travelled more than 5,000 business kilometres in the income year.
  • You need written evidence of fuel and oil costs and for all other expenses for the car.

Method 4 â€" Logbook

  • Your claim is based on the business use percentage of each car expense which is determined by a log book that must have been kept for a minimum 12 week period.  This log book must be updated every 5 years.
  • You need odometer readings for the start and end of the period that you owned or leased the car.
  • You need to detail all the kilometres you have travelled for the log book period.
  • You can claim all expenses that relate to the operation of the car and you will need to keep receipts to justify your claim.

Important Note:  If your car is provided by your employer, or as part of your salary package you cannot claim any of the car costs, whatsoever.

What you cannot claim

  • You cannot claim the cost of normal trips between home and work because that travel is private even if:
  • You do minor tasks on the way to work, such as picking up the mail
  • You travel back to work for a security call out or parent teacher interviews
  • You work overtime and no public transport is available to use to get you home

Should you like further clarification do not hesitate in contacting our office.


 

Purchasing an Investment Property

What you should be aware of

1. Rent

  • The income received is taxable to the owners of the property in the same proportion as the ownership interest as shown on the title.
  • The rent received must be at normal market rates to be able to claim all the expense in full.
  • The rent must be declared in the year it is received.

2. Interest Claims

  • Interest paid on the loan used to purchase the property is deductible, provided that all the money borrowed was used to purchase the property.
  • For accounts that are a line of credit and used privately as well, the interest claim needs to be apportioned for the private expenses

3.  Deductions

  • Repairs  - made to the property during the period it is leased are deductible but generally not repairs carried out within the initial 12 months of owning the property (these can be used to reduce a capital gain on disposal).
  • Improvements -  you make to the property are not deductible in full.  They need to be depreciated and claimed over their effective life
  • Other expense can include Advertising for tenants; Cleaning; Gardening; Insurance; Lease costs; Property agent's fees; Security; Telephone; Bank charges; Council rates; Lawn mowing; Land tax; Pest control; Travel expenses; Stationery; Travel; Body corporate fees; Electricity and gas; In-house audio/video service  charges; Legal expenses re leases etc; Mortgage discharge expenses; Quantity surveyor's fees; Postage; Water charges

4.  Building cost write off

If the building is under 25 years old you will be entitled to claim a deduction of 2.5% per year of the original cost of construction of the building for up to 40 years from the original date of construction. If you do not know the building cost you can contract a quantity surveyor to determine the building costs and prepare the depreciation schedules for the property and determine what can be claimed. This fee is tax deductible.

Contact our office today for assistance.

Tax Threshold and Multiple Income Sources

Taxpayers with two or more income sources - beware of a possible tax trap caused by the new tax free threshold.

Some taxpayers with two or more jobs or other taxable income sources may be caught in an unintentional tax trap as a result of the new increased tax free threshold.

The problem occurs even if the taxpayer and the employers do the right thing – as determined by the Australian Taxation Office (ATO) PAYG tax scales. The problem is caused as the first job attracts the tax-free threshold while second and subsequent jobs are taxed in line with the progressive tax tables supplied by the ATO.

It causes taxpayers to be, in effect, under-taxed on their ordinary earnings, which can result in a tax bill at the end of the financial year.

For example

Assuming a taxpayer has one job earning $60,000. Their employer would deduct their tax and Medicare Levy to the value of $11,960 dollars. This would leave them with no tax bill. If a taxpayer worked two jobs at $30,000 each and complied with all ATO tax scales, they would pay $2,652.00 in the first job and $7,956.00 in the second. This amounts to $10,608.00 and would leave them with a tax bill of $1,352.00

The problem compounds in the example of a taxpayer earning $60,000 over three jobs, or income sources, paying $20,000 each. The first has $312.00 tax deducted, the second $4,524.00 and third $4,524.00. This amounts to $9,360.00 tax and leaves a tax shortfall of $2,600.00.

Tax Free Threshold – FAQs

Q1.    Why is my refund lower than last year? OR Why do I have an unexpected amount owing? OR Why do I have a tax bill when I've heard that the tax rates have gone down?

As the tax free threshold was raised to $18,200 this year, it is likely that you had less tax withheld by your employer (and therefore received more money each pay) which has resulted in a smaller refund or a bill payable.

This is particularly the case for tax payers with multiple jobs (and Payment Summaries). Even if each employer follows the ATO tax scales properly to calculate tax withheld, the total tax paid on your income may not be enough to cover the tax payable because of the progressive tax scales.

Q2.    What can I do to make sure this doesn't happen to me again next year?

Have one of your jobs deduct a greater amount of tax each pay period to cover the shortfall. Contact your payroll/HR department to arrange this change. 

Q3.    I cannot afford to pay this back right now, what should I do?

MDB Accountants can defer your tax return for lodgement until the due date next year. You will need to finalise the tax return now and we will hold for lodgement in May 2014 or your due lodgement date according to the ATO.