Individuals

• Temporary Budget Repair Levy. Adds 2% to the tax rate for every dollar of a taxpayer’s annual taxable income over $180,000
• Increase in the Medicare Levy from 1.5% to 2%
• Superannuation Guarantee charge increases from 9.25% to 9.5%.
• Aged care reforms introduce new assets tests for resident’s accommodation and care fees

Temporary Budget Repair Levy

What is the tax and who will pay it?

The debt tax will apply from 1 July 2014 until 30 June 2017.   The tax is payable at a rate of 2% on every dollar of a taxpayer’s annual taxable income over $180,000.  In effect, the top marginal tax rate will become 49%.

Be aware that if you have a one-off spike in income after 1 July 2014, for example from the proceeds of a sale of business, the debt tax is likely to impact on this one-off increase in personal income.

 Business

•  R&D incentive reduced. In the 2014/2015 Federal Budget, the Government announced that the Research & Development Tax Incentive will be reduced by 1.5% from 1 July 2014.  This means the refundable offset will be reduced to 43.5% while the non-refundable offset will be reduced to 38.5%.  While it is uncertain whether the legislation enacting this change will pass the current Parliament, businesses undertaking R&D activities this year may want to consider bringing forward expenditure to maximise their claim
• Living away from home allowance (LAFHA) transitional period ends on 30 June 2014. Now, the main condition to be satisfied is that the employee must have a normal place of residence in Australia that is maintained for their “personal use and enjoyment” while they are living and working in another location. This means that the employee cannot rent out their usual residence while they are away.  In most cases, LAFHAs will also be time limited to 12 months.  For employees who have been receiving LAFHAs under the transitional rules, the 12 month period is deemed to have started on 1 October 2012.

• If the employee is working on a fly-in- fly-out or drive-in drive-out basis the LAFHA is not subject to the 12 month limit.

SMSFs

• New SMSF trustee penalties. From 1 July 2014 the ATO has greater powers to enforce the superannuation rules by levying financial penalties directly on trustees.
• Concessional contribution cap changes. From 1 July 2014, the concessional contribution cap for taxpayers up to the age of 50 is $30,000. And for those 50 and above, the cap is $35,000.
• Non-concessional cap changes. The non-concessional contributions cap from 1 July 2014 is $180,000 (up from $150,000) or $540,000 over 3 years.
• Insurance inside an SMSF. From 1 July 2014, new insurance policies within a SMSF must be consistent with the death, terminal illness, and permanent and temporary incapacity conditions of release in the Superannuation Industry (Supervision) Act.

Please contact the team at McAdam Siemon if you would like further information.