Federal Budget 2014

Most of the measures taken in the budget are unlikely to have a major impact from an economic perspective. The effect is more likely to be a longer term cut in expenditure, particularly aimed at welfare. The immediate impact will clearly be on the higher income earners as their highest marginal rate of tax effectively increases to 49%. This is likely to result in looking at more ways to reduce and defer tax.

The other immediate impact will be on lower income families that may see reduced payments from the Family Tax Benefit (FTB). A less immediate impact will be felt by consumers as petrol prices creep up with the excise on petrol now increasing with inflation. The doctor co-payment introduced will also be very unpopular and along with the FTB issue, likely to be challenged strongly in parliament.

Some good news is that the government has appeared to leave super (both in accumulation and pension phase) largely alone. The capability to withdraw super for contributions over the non-concessional limits is a sensible approach.

Also pleasing is that the government has reaffirmed the company tax rate cut of 1.5% (down to 28.5%) will be effective 1 July 2015. The proposed increase in infrastructure spending is positive and is very timely, although the changes to funding for school and hospitals could pave the way for state governments to push for a higher GST.

Remember that all of these measures will need be introduced to parliament and have to be reviewed before they become law.

The details

Individuals and families

• A 3 year temporary levy of 2% will be imposed on individuals’ taxable income in excess of $180,000 pa, from 1 July 2014 until 30 June 2017.
• The dependent spouse tax offset (DSTO) will be abolished for all taxpayers from 1 July 2014.
• The mature age worker tax offset will be abolished from 1 July 2014.
• The Medicare levy low-income threshold for families will be increased from the 2013/14 income year.
• The First Home Saver Accounts scheme will be abolished from 1 July 2015.
• From 1 July 2014, taxpayers will receive a tax receipt showing how and where their tax dollars were used.
• The income threshold at which students commence repayment of their Higher Education Loan Programme (HELP) debts will be reduced with effect from 1 July 2016. In addition, HELP debts will be indexed at a rate equivalent to the yield on 10-year government bonds (up to a 6% maximum) instead of CPI from 1 June 2016. Loan fees for undergraduate FEE-HELP and VET FEE-HELP will be abolished.
• Various reforms will be introduced to the pension system including increasing the qualifying age for the Age Pension to 70 by 1 July 2035.
• The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years from 1 January 2015.
• Various reforms to the Family Tax Benefit (FTB) Part A and Part B payments will be introduced, including reducing the FTB Part B primary earner income limit to $100,000 pa and changing certain eligibility requirements. A new $750 allowance will be introduced for single parents on the maximum FTB Part A rate, but who will no longer receive FTB Part B payments due to eligibility changes. These measures largely commence on 1 July 2015, with some transitional arrangements.
• Changes will be made to the Medicare system relating to patient contributions, indexation of fees and thresholds, and Medicare safety net arrangements.
• Two organisations have been added to the list of specifically listed deductible gift recipients.
• Round 5 of the National Rental Affordability Scheme (NRAS) will not proceed.

Companies, finance and not-for-profits 

• The start date of the new system for managed investment trusts (MITs) will be deferred by 12 months to 1 July 2015.
• The rates of the refundable and non-refundable offsets for the R&D Tax Incentive will be reduced by 1.5 percentage points.
• The consolidation integrity package announced in the 2013/14 Budget will be modified.
• The measure addressing inconsistencies in the tax treatment multiple-entry consolidated (MEC) groups will not proceed.
• The measure announced in the 2013/14 Budget to amend the principal asset test in the foreign resident CGT regime will be modified.
• No decision has yet been made on a proposed targeted anti-avoidance provision to address certain conduit arrangements.
• Alternatives to the previous government's better targeting of not-for-profit tax concession measures are not required at this time.
• The seafarer tax offset will be abolished from 1 July 2015.

Superannuation

• Individuals will be given the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate.
• The schedule for increasing the superannuation guarantee rate to 12% will be changed.

Tax administration

• The tax and superannuation laws will be amended to correct technical defects, remove anomalies and address unintended outcomes.
• The start date of the legislative elements of the measure to improve tax compliance through third party reporting and data matching will be deferred to 1 July 2016.
• The Commonwealth Ombudsman's case management of tax complaints will be transferred to the Inspector-General of Taxation.
• A number of government bodies will be abolished or merged, resulting in a reduction of 36 bodies.
• The planned reduction in 1,600 ATO staff that was due to occur in 2015/16 will be brought forward to achieve savings of $142.8m over three years.

Fuel, oil and mining

• The income tax treatment of realignments of interests between joint venture partners in the minerals and petroleum industry will be clarified for changes of ownership within a common project.
• The Product Stewardship for Oil scheme levy will be increased to a rate of 8.5 cents per litre of oil, or kilogram of grease, from 1 July 2014.
• Changes to the tax treatment of biodiesel commence from 1 July 2015.