Welcome to the Budget 2014 edition of the Spry Roughley Newsletter.
As the Treasurer foreshadowed, this is a Budget of structural reform with distinct short and long term winners and losers. Much of the headline bad news was fairly accurately reported and old news by Budget night.
The most startling change in this Budget however is the level of consolidation and refocusing of public services with a huge range of small industry assistance and health programs consolidated into larger initiatives that clearly pick winners. Indexation of many Government programs has also been paused.
For many - families, pensioners and those that rely 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.
|2% debt tax on high income earners
|| Yes. Adds 2% to the top marginal tax rate for individual incomes above $180,000 from 1 July 2014.
|Resumption of fuel excise levy indexation
||Yes. Bi-annual indexation commences from 1 August 2014. Aviation fuel excluded.
|Retirement age increase to 70 by 2035
|Including the family home in pension income and asset test
||No. But, indexing changed.
|Co-payments for visiting a doctor
||Yes. Most people will pay $7 per visit to the doctor.
|No Medicare for wealthy
|Access to family tax benefits tightened
||Yes. Primary earner income threshold for Family Tax Benefit B slashed by a third. Plus other restrictions.
|Access to unemployment benefits tightened
|Access to disability support scheme tightened
||Yes. Under 35s targeted.
|ABC Australia network scrapped
||Yes. The Australia Network's contract with the ABC has been terminated (saving $196.8m over 9 years).
|MP and senior public service wage freeze
||Yes. Freeze salaries and allowances of MPs, departmental secretaries and all other public office holders for 12 months.
Below is a summary of the budget. For a full explanation click the "learn more links" at the end of each section.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Martin Roughley, Director
Spry Roughley Services Pty Limited
For high income earners, the 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 to help pay for the National Disability Support Scheme. One side effect of the increase to 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
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 that are currently based on calculations that include the top personal tax rate will also be increased (like family trust distribution tax and excess contributions tax). Plus, to prevent anyone trying to use the Fringe Benefits Tax system to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017 to align with the FBT year. Be aware that if you have a one-off spike in income after 1 July 2014, for example a sale of business, the debt tax is likely to impact on this increase in personal income.
Medicare Key changes are:
Tax Offsets abolished specifically:
- Medicare Levy threshold increased
- Medicare safety net reduced
Learn more about this...
- Mature Age Worker Tax Offset
- Dependent Spouse Tax Offset abolished for all taxpayers
Company tax rate reduction remains
The Government will go ahead with the scheduled reduction in 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 rate increase
Tying in with the 2% debt tax (see Individuals), the Government has announced that the FBT rate will increase from 47% to 49% from 1 April 2015 until 31 March 2017 to prevent high income earners trying to avoid the levy.The problem is if you run a business and you are not trying to avoid the debt tax, you're going to pay more in FBT regardless.
Fuel indexation and other measures
As widely predicted, indexation of the fuel excise levy will resume, generating $2.2bn over the next 4 years. Bi-annual indexation by the CPI of excise and excise-equivalent customs duty will resume again on 1 August 2014. Aviation fuels are excluded.
Tax treatment of biodiesel change
Grants made under the Cleaner Fuels Grant Scheme will be reduced to zero and the excise on biodiesel will also be reduced to zero from 1 July 2015.
From 1 July 2016, the excise rate for biodiesel will be increased for five years until it reaches 50% of the energy content equivalent tax rate. The excise equivalent customs duty for imported biodiesel will continue to be taxed at the full energy content equivalent tax rate.
Product Stewardship for Oil (PSO) levy increase
The levy rate will increase to 8.5 cents per litre of grease from 1 July 2014.
R&D incentives cut back
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 to cut the company tax rate by 1.5%. However, the reduction in the company tax rate is not meant to occur until 1 July 2015.
Businesses that are undertaking R&D activities this year may want 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.
The Government has restated its commitment to remove the Minerals Resource Rent Tax and the associated measures, and the Carbon Tax. Unfortunately there has been no mention of the planned reduction in the immediate asset write-off rate for small business entities. The threshold was meant to be reduced from $6,500 to $1,000 from 1 January 2014 but the legislation was blocked in the Senate. We still have no certainty on when this change will take place.
As part of the Government's initiative to sort out and reduce the volume of announced but unenacted legislation, it has announced that it will not proceed with a number of other measures and amend others including:
Government initiatives and programs for business:
- Data matching and third party reporting - will be deferred until 1 July 2016. The expanded measures are expected to apply to taxable government grants and certain other government payments; sales of real property, shares and units in managed funds; and sales through merchant debit and credit services.
- Multi-entry consolidated groups - The Government will not proceed with the proposal to remove inconsistencies in the tax treatment of multiple-entry consolidated groups.
- Capital Gains Tax (CGT) and foreign residents - A refining of the 2013/2014 Budget measure that amends the principal asset test in the foreign resident CGT regime.
- Integrity measure for consolidated groups - Refining the measure to clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group.
The double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after the date of announcement of the original measure (14 May 2013), rather than to the exit or entry of a subsidiary that takes place on or after the date of announcement.
- Managed investment trusts tax system deferral - The Government will defer the start date of the new tax system for managed investment trusts by 12 months, to 1 July 2015. The tax law will also be amended to allow managed investment trusts and other trusts treated as managed investment trusts to continue to disregard the trust streaming provisions for the 2014/205 income year.
- Incentives for employing workers over 50
From 1 July 2014, a payment of up to $10,000 will be 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.
- Aged care providers lose payroll tax subsidy
The Payroll Tax Supplement payments to eligible residential aged care providers will cease from 1 January 2015.
- International tourism incentives
The Government is providing $43.1m over 4 years to implement a new Tourism Demand Driver Infrastructure grants program.
- Small agricultural exporters
$15m has been set aside over 4 years for small exporters in sectors where there are specific export certification registration charges
- Consolidation of support services for innovation
A raft of councils and support services to nurture innovation and enterprise have been abolished and replaced with the Entrepreneurs' Infrastructure Programme through the Department of Industry.
- Consolidation of support services for industry skills
The Industry Skills Fund (ISF) will replace a raft of skills training from 1 January 2015.
Learn more about this...
Super Guarantee rate increase rephasing
Some clarity at last on what is happening with the superannuation guarantee (SG) rate. The previous Government introduced changes to the superannuation guarantee rate to bring it up to 12% by 1 July 2019 funded by the mining tax (Minerals Resource Rent Tax). The current Government then sought to slow down the increase when it tried to repeal the mining tax. But, the repeal of the mining tax is stuck in the Senate leaving everyone in limbo about the Government's intentions for the SG rate.
The way it will work is that 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 increase by 0.5% each year until it reaches 12%.
Managing excess contributions
As previously announced by the Government, for any 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.
Learn more about this...
$7 fee for going to the doctor
A patient contribution of $7 will apply for visiting a doctor.
Pharmaceutical Benefits Scheme (PBS)
The level of co-payments for medicines on the PBS will increase from 1 January 2015:
It's important to note that these increases are in addition to the existing annual indexation for co-payments and the safety net thresholds.
Learn more about this...
Anyone accessing Government support and assistance is likely to feel the impact of the Budget's tightening of access and eligibility.
Access to family tax benefit B tightened
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.
Family Tax Benefit A (FTBA) add-on removed for additional children
The Government will remove the FTBA per child add-on to the higher income free threshold for each additional child from 1 July 2015.
Large family supplement restricted
The Family Tax Benefit Part A Large Family Supplement available to families with 4 or more children will be cut.
New Family Tax Benefit Allowance
A new allowance will be provided for single parents on the maximum rate of Family Tax Benefit Part A whose youngest child is aged between six and 12 years old from the point when they become ineligible for FTB Part B. From 1 July 2015 the allowance will provide $750 per child aged between six and 12.
First Home Saver Accounts scheme scrapped
The First Home Saver Accounts scheme has been scrapped. New accounts opened from Budget night will not be eligible for the concession with the Government co-contribution to cease from 1 July 2014 and tax concessions and the income and asset test exemptions for government benefits associated with these accounts to cease from 1 July 2015.
Age pension qualifying age increased to 70
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, to gradually reach a qualifying age of 70 years by 1 July 2035.
Change to how pensions indexed
The way the Government indexes pensions and pension equivalent payments will change to link increases to the CPI.
Seniors health card indexed and eligibility tightened
The income limits for the Commonwealth Seniors Health Card will be indexed by the CPI from September 2014. But, eligibility for the health card will be restricted by the inclusion of untaxed superannuation income in the eligibility test from 1 January 2015.
Learn or earn with 6 month wait for dole
From 1 January 2015, all new Newstart Allowance and Youth Allowance (Other) claimants who are under 30 years of age must demonstrate appropriate job search and participation in employment services support for 6 months before receiving payments.
Deterrents for refusing work
From 15 September 2014, all job seekers who refuse any work without a good reason will lose their payment for 8 weeks and will no longer be able to waive their penalty through participation in additional activities or due to financial hardship.
Access to disability support pension tightened and restricted
A range of assessments and restrictions will be introduced for those under the age of 35 on a disability support pension (DSP
Learn more about this...
Universities able to set their own fees
The cost of tertiary education will go up with Universities and other educational providers able to provide their own fee structure (or 'contribution' structure as they call it).
Removing the loan fee for FEE-HELP
The Government will remove the 25% loan fee applied to FEE-HELP loans for fee-paying undergraduate courses and 20% loan fee applied to VET FEE-HELP loans for eligible full fee-paying students in higher level vocational education and training courses.
Changes to student loan programs
The HECS-HELP benefit that was intended to provide an incentive for graduates of particular courses to take up related occupations or work in specified locations will end from 2015/2016.
While the Higher Education Loan Programme (HELP) will continue, the income threshold for payment of HELP debts commencing in 2016/2017 will reduce. A new minimum threshold will be established for the repayment of HELP debts, set at 90% of the minimum threshold that would otherwise have applied in 2016/2017. The new minimum threshold is currently estimated to be $50,638 in 2016/2017. A new repayment rate of 2% of repayment income will be applied to debtors with incomes above the new minimum threshold. Plus, annual indexation applied to HELP debts will be adjusted from the CPI to a rate equivalent to the yields on 10 year bonds issued by the Australian Government, capped at 6.0% per annum, from 1 June 2016.
Trade support loans
The Trade Support Loans Programme provides loans to apprentices undertaking a Certificate III or IV qualification that leads to an occupation on the National Skills Needs List.
Learn more about this...
Reducing the size of Government
In addition to freezing wages, the Government has put in place a wide reaching program to reduce the size of Government over the next four years.
As previously announced, the Government has set aside $2.55bn to establish the Emissions Reduction Fund to provide incentives to help Australia reach its target of reducing emissions to 5% below year 2000 levels by the year 2020.
Fair entitlements guarantee (FEG) redundancy payments scaled back
The FEG covers certain unpaid employee entitlements in the event of insolvency or bankruptcy.
Redundancy payments under the FEG scheme will be aligned to the National Employment Standards (NES) in the Fair Work Act. From 1 January 2015, the maximum payment for redundancy pay under the scheme will be 16 weeks. From 1 July 2014, indexation of the Maximum Weekly Wage used in calculating entitlements for claimants earning above the Maximum Weekly Wage of $2,451, will be paused until 30 June 2018. The changes will apply only to liquidations and bankruptcies that occur on or after the commencement date.
Learn more about this...
The indexation of fuel excise is being spent on a wide array of infrastructure projects.
National Rental Affordability Scheme to be discontinued
The Government will not proceed with Round 5 of the National Rental Affordability Scheme. Funding for tenanted NRAS properties will not be affected.
Learn more about this...
- 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
The Budget – Budget 2014/2015
Treasurer's media release - The 2014-15 Budget
• Small business to get the same protections as consumers
• Treasury - Multiple entry consolidated groups - review
• New Australian Government office for NSW Central Coast
•Portfolio Budget Statements 2014-2015
•Long-run forecasts of Australias terms of trade - working paper