So Many Changes So Little Time...

With budget announcements to tax changes made years in advance it is sometimes difficult to keep up with which changes come into play in which year.  To make matters more confusing, there are occasions when proposed changes are not introduced as previously announced.

To assist our clients in keeping abreast with changes in tax legislation(?), in this Newsletter we have provided a summary of changes that are already in place, together with those that may affect you over the next 12 months.

As you can appreciate, the changes listed are numerous and accordingly we have not been able to describe them in detail.  If you would like to know more – please contact your Harris Black team member.

Changes from 1 July 2012 - A Recap

Tax Rates from 1 July 2013 to 30 June 2014:

Taxable Income $ Tax Payable $
0 - 18,200 Nil
18,201 - 37,000 Nil + 19% of excess over 18,200
37,001 - 80,000 3,572 + 32.5% of excess over 37,000
80,001 - 180,000 17,547 + 37% of excess over 80,000
180,001 + 54,547 + 45% of excess over $180,000

Accelerated Depreciation For Motor Vehicles Bought From 1 July 2012 – STS Only

Any new or secondhand motor vehicles bought from 1 July 2012 qualify for an immediate $5,000 deduction. The balance is depreciated at 15% in the first year and 30% in later years.

To be part of the STS the turnover of your connected entities must be less than $2 million.

Asset Write Offs – STS Only

A full deduction can be claimed for depreciating assets bought during the year for less than $6,500.

To be part of the STS the turnover of your connected entities must be less than $2 million.

Company Tax Loss Carry-back

From 1 July 2012 a one-year loss carry-back is proposed to apply from 2012-13, where tax revenue losses incurred in that year can be carried back and offset against tax paid in 2011-12. For 2013-14 and later years, tax losses can be carried back and offset against tax paid up to 2 years earlier.

Director's Penalties

Legislation has been enacted to:

  • extended the director penalty regime to make directors personally liable for their company's unpaid superannuation guarantee amounts;
  • ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation when PAYG withholding or superannuation guarantee remains unpaid and unreported 3 months after the due date; and
  • in some instances, make directors and their associates liable to PAYG withholding non compliance tax (effectively reducing credit entitlements) where the company has failed to pay amounts withheld to the Commissioner.

Removing The CGT Discount For Foreign Individuals

Removes the CGT discount on discount capital gains accrued after 8 May 2012 for foreign resident and temporary resident individuals.

Living Away From Home Allowance (LAFHA) Amendments

  • LAFHA fringe benefits will arise where they are provided to employees whose duties of employment require them to live away from their 'normal residence' which is their usual place of residence if that is in Australia.  If the employee's usual place of residence is not in Australia, it is the employee's usual place of residence or the place in Australia where the employee usually resides while in Australia.
  • The taxable value of a LAFHA fringe benefit provided to an employee is calculated as the amount of the fringe benefit reduced by any exempt accommodation component; and any exempt food component ;  for employees (other than those working on a fly-in fly-out or drive-in drive-out basis) who:
    • maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while required to live away from that home for their work;
    • incur expenses for accommodation and food or drink for a maximum period of 12 months while living away from home at a particular work location.

Employees must:

  • provide their employer with a declaration about living away from home
  • substantiate expenses incurred on accommodation;  and
  • substantiate expenses on food or drink  where what is claimed is beyond the Commissioner's reasonable amount.

There are special transitional rules and also special rules for those working on a fly-in fly-out or drive-in drive-out basis.

FBT And In-house Benefits

Removal of the concessional FBT treatment for in-house fringe benefits accessed by way of salary packaging arrangements. This applies to salary sacrifice arrangements entered into from 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into prior to 22 October 2012.

Spouse Offset Limited

The dependent spouse tax offset for taxpayers who maintain a dependent spouse born on or after 1 July 1952 (aged 60 and under) is generally not available. 

Part IVA – Tax Avoidance Provision

Tightening of these rules so that they can be applied to more circumstances

Medical Expenses Rebate Means Tested

Effective 1 July 2012, the addition of an income test to the rebate for medical expenses. For taxpayers with adjusted taxable income above the Medicare Levy Surcharge thresholds ($84,000 for singles or $168,000 for couples or families in 2012-13), the threshold above which they may claim the net medical expenses tax offset is $5,000 and the rate of reimbursement is reduced to 10%.

Reduction Of Health Insurance Rebate And Increase In Medicare Levy Surcharge

With effect 1 July 2012, the private health insurance rebate is income tested for individuals whose income for Medicare levy surcharge purposes is more than $84,000pa and for families where that income is more than $168,000pa. The changes apply from 1 July 2012.

Many clients caught by these rules pre-paid their private health insurance however, in most cases the prepayment is about to run out and these rules will start applying.

There are 3 new "Private health incentive tiers". In conjunction with this, the rate of Medicare levy surcharge for individuals and families without private patient hospital cover may increase depending on their level of income.

The 3  "Private Health Insurance Incentive Tiers" have income thresholds as follows:

  Income ($) Private Health Insurance Rebate Medicare Levy Surcharge
Tier Singles Families Under 65 years old 65-69 years old 70 years or over
1 0 - 84,000 0 - 168,000 30% 35% 40% Nil
2 84,001 - 97,000 168,001 - 194,000 20% 25% 30% 1%
3 97,001 - 130,000 194,001 - 260,000 10% 15% 20% 1.25%
4 130,001 + 260,001 + 0% 0% 0% 1.50%

For families with more than one dependent child, the relevant threshold is increased by $1,500 for each child after the first.

Phasing-out Of The Mature Age Worker Tax Offset

The phasing-out of the mature age worker tax offset with effect 1 July 2012. It is only available to taxpayers born before 1 July 1957.

Extra Tax On Contributions For Higher Income Earners

Proposes to give effect to the Government's 2012-13 Budget measure to double the effective contributions tax from 15% to 30% for concessional contributions made on behalf of individuals with incomes greater than $300,000 from 1 July 2012.

Building And Construction Industry

With effect 1 July 2012, new requirement to detail and lodge a Taxable Payments Annual Report of payments made to contractors.

Changes from 1 July 2013 - These affect you now:

Phase-out Of Medical Expense Tax Offset

The Government is to phase out the net medical expenses tax offset, with transitional arrangements for those currently claiming the offset. However, the offset will continue to be available for taxpayers for out-of-pocket medical expenses relating to disability aids, attendant care or aged care until 1 July 2019.

Superannuation Guarantee Increases

From 1 July 2013 the SGC increases from 9% to 9.25%.

From that date employers also have to pay SGC on behalf of employees who are aged 70 or over.

$35,000 Concessional Cap

A higher concessional contributions cap of $35,000 is proposed 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. This temporary concessional cap will cease when the general cap reaches $35,000 through indexation (expected to be 1 July 2018).

Withdrawal Of Excess Concessional Contributions

All individuals will be able to withdraw from their superannuation fund any excess concessional contributions made from 1 July 2013. The withdrawn excess contributions will instead be taxed at the individual's marginal tax rate (plus an interest charge).

Increase In SMSF Supervisory Levy

As a result of the phase-in mechanism, the SMSF supervisory levy ($191 for 2012-13) is expected to increase to $321 for 2013-14 ($388 for 2014-15).

Changes from 1 January 2014 - Start planning

HELP Discounts To Be Abolished

The Government will remove the discounts applying to up-front and voluntary payments made under the Higher Education Loan Program (HELP) from 1 January 2014. The discounts that will be removed are:

  • the 10% discount available to students electing to pay their student contribution up-front; and
  • the 5% bonus on voluntary payments to the ATO of $500 or more.

Changes from 1 July 2014

Medicare Levy To Increase To 2%

The Government has increased the Medicare levy by 0.5% with effect 1 July 2014 to help fund its proposed National Disability Insurance Scheme (NDIS), now renamed DisabilityCare Australia. This will take the Medicare levy from 1.5% to 2% of taxable income.

Self Education Expenses To Be Capped

The Government will introduce a $2,000 cap on tax deduction claims for work-related self-education expenses per person from 1 July 2014.

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