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Australian Budget Summary


By Tax-News.com Editorial
May 20, 2014


Attempting to build on the Coalition's low-tax, pro-business agenda, Joe Hockey announced a company tax cut as part of his first Budget as Australian Treasurer. However, with the Government having found itself backed into a fiscal corner, this Budget 2014-15 was more about raising revenue and cutting costs than reducing tax.


Fiscal Background

One of the main themes of Hockey's speech was the country's rising deficit. Blaming the former Labor administration for presiding over five deficits in a row, he said that "the days of borrow and spend must come to an end." He admitted that the Budget would not be an easy one, but stressed that its measures are in the nation's interest.

The underlying cash deficit is projected to be AUD60bn (USD56bn) over the four years to 2017-18. It will stand at AUD29.8bn in 2014-15, or 1.8 percent of gross domestic product (GDP), before falling to AUD2.8bn in 2017-18. The Government's aim is to establish a clear path to a credible surplus, and return the underlying cash balance to surplus by the end of the decade. Its medium-term estimates project a surplus of more than one percent of GDP by AUD2024-25.

Government spending will be substantially overhauled. More than 70 government bodies, boards, committees, and councils are being abolished, and 16,500 public servants will lose their jobs over the next three years. Over the next 18 months, the Coalition will work with State and Territory Governments to reduce or remove "overlaps" between the layers of government that make up the Federation as a whole, with Hockey declaring that Australians must "fix the Budget together."

The Government also has committed itself to clearing a backlog of unlegislated tax measures, and remains determined to repeal the minerals resource rent tax (MRRT) and carbon tax. However, its revenue decisions have resulted in an AUD5.7bn reduction in revenue in accrual terms compared with the choices made by the previous Government, meaning some tough decisions are being made elsewhere in the tax system.


Major Announcements

As a result of the budgetary mess that the new Government inherited, Hockey proposed the introduction of a temporary "Budget Repair Levy".

Billed as a measure intended to ensure that high income Australians contribute to the country's finances, he expects it to raise an additional AUD3.1bn in revenue. From July 1, 2014, until June 30, 2017, the levy will be payable by the approximately 400,000 individuals whose taxable income exceeds AUD180,000. It will be charged at a rate of 2 percent. Individuals with taxable income of AUD200,000 will pay AUD400 a year, while those with an income of AUD300,000 face a bill of AUD2,400. The levy will also be reflected in a number of other tax rates that are currently based on calculations that include the top personal income tax rate, including the fringe benefits tax (FBT, see below).

Another of the headline tax reforms announced by Hockey is a 1.5 percent cut in the company tax rate from July 1, 2015. Around 800,000 small- and medium-sized companies are expected to benefit from an associated net boost to their profitability. In the case of large companies, the reduction will offset the cost of a new Paid Parental Leave (PPL) levy. This levy will be charged at 1.5 percent and will affect just over 3,000 companies. It will enter into force from July 2015 and fund a scheme that will provide recipients with up to 26 weeks' replacement wage at no less than the minimum wage.


Budget Details – Companies and Employers

Research and Development Tax Incentive

Consistent with the Government's commitment to cut the company tax rate from July 1, 2015, the Government will preserve the relative value of the Research and Development Tax Incentive by reducing the rates of the refundable and nonrefundable offsets by 1.5 percentage points, effective from July 1, 2014.

Superannuation Guarantee Rate and the Repeal of Mineral Resource Rent Tax

The Government will change the schedule for increasing compulsory employer pension contributions, known as the superannuation guarantee, to 12 percent. The superannuation guarantee rate will increase from 9.25 percent to 9.5 percent from July 1, 2014 as currently legislated to give certainty to employers and employees, given that the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 has not passed the Senate. The rate will remain at 9.5 percent until June 30, 2018 and then increase by 0.5 percentage points each year until it reaches 12 percent.

It was reiterated however, that it is the Government's policy to proceed with the repeal of the minerals resource rent tax and other associated measures as announced.

Superannuation Excess Contributions Tax

The Government will allow individuals the option of withdrawing superannuation contributions in excess of the nonconcessional contributions cap made from July 1, 2013 and any associated earnings, with these earnings to be taxed at the individual's marginal tax rate. Final details of the policy will be settled following consultation with key stakeholders in the superannuation industry.

This measure delivers on the Government's election commitment to develop an appropriate process that addresses all inadvertent breaches of the contribution caps where the error would result in a disproportionate penalty.

Mining Interest Realignments

The Government will clarify the treatment of realignments of interests between joint venture partners in the minerals and petroleum industry. This reform addresses uncertainty for realignments, which are potentially affected by the decision to limit the immediate deduction for mining rights first used for exploration. 

International Tax

The Government has decided not to proceed with changes that would have applied to multiple entry consolidated (MEC) groups. An MEC group is formed when all of the eligible companies of a potential MEC group make a written choice to form a MEC group from a particular date. The proposals were included in a list of "unlegislated" tax measures, a backlog of which the Government had committed to enact (see below).

The decisions have been made following consultations with stakeholders and the Australian Taxation Office (ATO), the Government said. A review, established to consider how to implement the measure, concluded that there is limited scope for addressing inconsistencies in the system without a reconsideration of broader international tax policy issues. It found that there was insufficient data to assess the revenue risk posed by the inconsistencies, and that the options available would not fully address the issues and would risk the introduction of significant compliance costs and uncertainties.

The Treasury will shortly begin consultations on an amendment to extend a modified form of the unrealized loss rules to multiple-entry consolidated groups, and on other measures identified by the review that will clarify the law in this area.

The Government will also refine a Budget 2013 measure that amends the principal asset test in the foreign resident capital gains tax (CGT) regime. To prevent the double counting of assets, the measure will now apply to interests held by foreign residents in unconsolidated groups, as well as in consolidated groups. For interests held by foreign residents in unconsolidated groups, the amendment will apply to CGT events occurring on or after the date that an exposure draft is released for public consultation. For interests held in a consolidated group or a multiple entry consolidated group, the measure will continue to have effect from May 14, 2013.


Personal Tax

Budget Repair Levy

As a result of the introduction of the Temporary Budget Repair Levy, a number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased. With the exception of the FBT rate, these tax rates will be increased for the same period that the Temporary Budget Repair Levy is in place. According to the Government, these consequential amendments are "important to maintain integrity and fairness in the tax system".

To prevent high income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47 percent to 49 percent from April 1, 2015 until March 31, 2017 to align with the FBT income year. The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and notforprofit hospitals, public ambulance services and certain other taxexempt 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 April 1, 2015.

Tax Offsets

The Government will abolish the Dependent Spouse Tax Offset (DSTO) for all taxpayers from July 1, 2014. Previous measures limited access to the DSTO to those whose dependent spouse was born before July 1, 1952, effective from July 1, 2012. Taxpayers who are eligible to receive the Zone Tax Offset (ZTO), Overseas Civilians Tax Offset (OCTO) or Overseas Forces Tax Offset (OFTO) were exempt from the phaseout and can currently receive the DSTO regardless of the age of their dependent spouse.

Currently, taxpayers eligible for the ZTO, OCTO or OFTO can also claim eight other dependency offsets. For all other taxpayers, the 201213 Budget replaced these eight other dependency offsets with the Dependent (Invalid and Carer) Tax Offset (DICTO), effective from July 1, 2012. This measure will also replace these dependency offsets with the DICTO for ZTO, OCTO and OFTO taxpayers from July 1, 2014. Taxpayers with a dependant who is genuinely unable to work due to a carer obligation or a disability may be eligible for the DICTO.

The Government will also abolish the Mature Age Worker Tax Offset (MAWTO) from July 1, 2014. The 201213 Budget began the phase out of the MAWTO from the 201213 income year, limiting it to taxpayers born before July 1, 1957. However, the current Government believes that encouraging mature age workers to participate in the workforce can be done more effectively through direct payments or incentives. Savings will be redirected to the Government's expanded seniors employment incentive payment called "Restart" to support mature age job seekers to reenter the workforce. From July 1, 2014, a payment of up to AUD10,000 will be available to employers who hire a mature aged job seeker, aged 50 years or over who has been receiving income support for at least six months.

Job Commitment Bonus

The Government will make the Job Commitment Bonus payments exempt from income tax, as was the original intent of the Government's election commitment.

The bonus will provide a payment of AUD2,500 to young Australian job seekers who have been unemployed for 12 months or more, if they find and keep a job and remain completely off welfare for a continuous period of 12 months. Job seekers will receive a further payment of AUD4,000 if they remain in a job and off welfare for a continuous 24 month period.

Medicare Levy

The Government will increase the Medicare levy lowincome threshold for families from the 201314 income year. The threshold for couples with no children will be increased to AUD34,367, and the additional amount of threshold for each dependent child or student will be increased to AUD3,156 for the 201314 income year. 

Medicare is the scheme that gives Australian residents access to health care. To help fund the scheme, most taxpayers pay a Medicare levy of 1.5% of their taxable income. From July 1, 2014 the Medicare levy will rise from 1.5% to 2.0%

The increase in low-income thresholds takes into account movements in the consumer price index (CPI) and ensures that lowincome families who were not liable to pay the Medicare levy in 201213 will continue to be exempt unless their incomes have increased by more than the CPI.


Indirect Tax

Reintroduction of fuel excise indexation

The Government will secure funding for additional investment in road infrastructure projects by reintroducing bi-annual indexation by the consumer price index of excise and exciseequivalent customs duty for all fuels except aviation fuels. According to the Government, this will generate an additional AUD2.2bn in revenue for building new and upgrading existing road infrastructure. This includes allowance for an AUD1.8mn increase in Ethanol Production Grants in 201415, administered by the Department of Industry, and a AUD0.7m increase in the Cleaner Fuel Grants Scheme.

The Government will amend the Excise Act 1901 to ensure that the amount spent on road infrastructure funding is greater than the net revenue from the reintroduction of indexation on fuel excise and exciseequivalent customs duty.

Consistent with the Government's goal to start construction on key projects as soon as practicable, biannual indexation will commence from August 1, 2014.


Other Measures

Miscellaneous Amendments

The Government will make a series of minor amendments to the tax laws and superannuation laws to correct technical defects, remove anomalies and address unintended outcomes which have recently been identified. This measure is estimated to have a negligible impact on revenue over the forward estimates period.

The amendments include technical corrections to the uniform penalty rules that prevent certain penalties that are levied under the law from being collected and a number of amendments to address issues, raised by industry, in relation to the consolidation regime.

These changes are said to be part of the Government's commitment to the care and maintenance of the taxation and superannuation systems, and the Government's broader deregulation agenda.

Postponement of Other Tax Measures

The Government has made further decisions in relation to the backlog of taxation and superannuation measures that were announced by former governments but not yet legislated. Accordingly, the Government has decided to:

  • defer the start date of the new tax system for managed investment trusts by 12 months to July 1, 2015, estimated to have a gain to revenue of AUD75m;
  • defer the start date of reforms to the offshore banking unit regime to income years commencing on or after July 1, 2015, estimated to have a cost to revenue of AUD180m; and
  • defer the start date of the legislative elements of the measure to improve tax compliance through third party reporting and data matching to July 1, 2016, estimated to have a cost to the Budget of AUD113.1m.

 

Tags: charities | aviation | tax compliance | carbon tax | capital gains tax (CGT) | banking | budget | offshore banking | trusts | investment | individuals | compliance | employees | fringe benefits | Other | tax rates | law | interest | Australia | Tax | tax

 

 

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