Federal budget review

The federal treasurer, Wayne Swan, handed down his sixth federal budget on 14 May. The 2013–2014 federal budget could be described as a moderate one in the context of the current budget deficit of $18 billion.

It aims to set a pathway to return the budget to balance in 2015–2016 and into surplus by 2016–2017 but with continued investment in the economy.

In terms of revenue measures, the federal budget largely aims to protect the corporate tax base from international profit-shifting and erosion, close loopholes and better target concessions. Following are the taxation and superannuation highlights.

Business taxation

Further extension of monthly PAYG instalments – The Australian government has already announced that it would extend the requirement to make monthly PAYG income tax instalments to include all large entities in the PAYG instalment system, including trusts, superannuation funds, sole traders and large investors. After much speculation, it was confirmed that the proposed changes would not impact small and medium enterprises.

Increased funding for targeted tax compliance – The Australian government will provide $67.9 million over four years to ATO to undertake compliance activity in relation to trust structures. A Trust Taskforce will target the exploitation and use of trusts by taxpayers. In addition, the Australian government will provide $109.1 million over four years to ATO to increase compliance activity targeted at restructuring activity that facilitates profit shifting opportunities.

We expect that the tax laws surrounding trusts will continue to be reformed and that the Australian government will use intelligence gathered by the ATO in these compliance initiatives to guide the next phase of its consultation on trust taxation law reform.

The vast majority of management rights owners operate through tax friendly trust structures. To safeguard against inadvertently ending up under the scrutiny of the Trust Taskforce, we recommend consulting your accountant to ensure your trust structure remains compliant and continues to provide you with the tax effective measures it was established to achieve.

Personal taxation

Medicare levy increase to fund disability care – The federal budget papers confirmed that the Medicare levy would be increased by 0.5% to 2.0% with effect from 1 July 2014, to help fund the Australian government’s proposed National Disability Insurance Scheme– now renamed DisabilityCare Australia. This would also mean the effective top marginal tax rate would become 47.0% per cent from that date.

Increasing the Medicare levy also requires consequential amendment to other tax rates that are linked to the top marginal rate and the Medicare levy, such as increasing the rate of tax in respect of the fringe benefits taxable amount of an employer for a year of tax from 46.5% to 47.0%.

Phase out of medical expense tax offset – The Australian government is to phase out the net medical expenses tax offset. There will be a two step phase out of the medical expense tax offset. Taxpayers who claimed the offset in 2012–2013 will be able to claim it in 2013–2014. Taxpayers who claim the offset in 2013–2014 will be able to claim it in 2014–2015. However, an offset can only be claimed by such taxpayers from 2015–2016 for medical expenses relating to disability aids, attendant care or aged care.

Consequently, taxpayers who do not claim the offset in 2012–2013 cannot claim it in 2013–2014 or later income years – except if the net medical expenses relate to disability aids, attendant care or aged care.

Self-education expenses are to be capped – The general budget papers confirmed the treasurer’s 13 April 2013 announcement that the Australian government would introduce a $2000 cap on tax deduction claims for work related self-education expenses per person from 1 July 2014.

Superannuation – The Australian government did not announce any new major superannuation measures in the federal budget. Nevertheless, the federal budget papers provide some further details in relation to the range of recent superannuation reforms previously announced on 5 April 2013 that included:

The tax exemption for earnings on superannuation fund assets supporting income streams will be capped at $100,000 per annum per person from 1 July 2014. Under the proposed reforms, a tax rate of 15.0% will apply for superannuation fund earnings – such as dividends, interest, rent and realised net capital gains – on pension assets above $100,000 (to be indexed to CPI in $10,000 increments). The installation of a $100,000 threshold above which a 15.0% tax rate will apply to earnings on superannuation fund assets supporting current pensions will require trustees to review the superannuation fund’s investment strategy ahead of the 1 July 2014 start date. Trustees currently looking to undertake significant investments in real property may also need to consider appropriate investment structures – such as a unit trust – which could enable the asset to eventually be sold gradually over several income years to stay under the $100,000 annual threshold.

The Australian government is still committed to introducing legislation to deliver its proposal for a higher concessional contributions cap of $35,000 for people aged 60 or over from 1 July 2013 (or 1 July 2014 for people aged 50-59) instead of the general concessional cap of $25,000. Once this legislation is finalised, taxpayers aged 59 on 30 June 2013 should consider reviewing their salary sacrificing arrangements, deductions for personal contributions and transition to retirement pensions to take into account the proposed higher concessional cap of $35,000 for 2013– 014.

The Australian government will allow all individuals to withdraw from their superannuation fund any excess concessional contributions made from 1 July 2013. Taxpayers on the top marginal tax rate may have a slightly higher tax liability (due to the additional interest charge) if they choose to withdraw any excess concessional contributions which would be taxed at the top marginal rate in their hands in any event. As such, taxpayers on the top marginal tax rate may be better served by leaving the excess contributions in their superannuation fund and simply paying the excess concessional contributions tax of 31.5% (on top of the 15.0% contributions tax paid by the superannuation fund). The taxpayer can still use a release authority to withdraw an amount from her or his superannuation fund to pay the ECT liability. However, a taxpayer on the top marginal tax rate should consider withdrawing any excess concessional contributions that would otherwise automatically flow through and trigger a breach of the $450,000 bring forward rule for any non-concessional contributions. In this situation, the proposed withdrawal option may help to prevent a severe ECT penalty with an effective tax rate of up to 93.0%.

Summary

Most proposed federal budget measures are to apply from 1 July 2014. However, with an Australian federal government election set for 14 September 2013, there is no guarantee any or all of the federal budget measures will be implemented as policy, with the exception of the DisabilityCare Australia that has received bipartisan support.

The proposed tax changes contained in the Federal Budget are summarised in the table below:

Generally the proposed federal budget measures appear to be cost neutral to small and medium enterprises in the accommodation and tourism sector. With current record low interest rates and downward pressure on exchange rates, the current economic environment provides ideal conditions for continued improvement in the accommodation and tourism sector in the financial year ahead.

The Queensland state treasurer, Tim Nicholls, will hand down the Queensland state budget on 4 June 2013. The Queensland state government has announced its commitment to lowering the cost of living, whilst investing in front line services and growing a four pillar economy. My Queensland state budget review will be published in the July edition of Resort News.

AccomNews

AccomNews is not affiliated with any government agency, body or political party. We are an independently owned, family-operated magazine.

www.accomnews.com.au/