Federal Budget 2014/15 - Individuals
For high-income earners, the Budget announcements will mean that you are 'contributing', as the Treasurer says, more than ever.
Don't forget that for most taxpayers, your effective tax rate will increase from 1 July 2014 regardless of the Budget with the increase in the Medicare levy to 2%. The increase was introduced to help pay for the National Disability Support Scheme. One side effect of the increase to the Medicare Levy is an increase in the rate of Fringe Benefits Tax from 46.5% to 47% from 1 April 2014.
Effective: 1 July 2014 (Debt Tax); 1 April 2015 (FBT Rate)
The debt tax, or the Temporary Budget Repair Levy as the Government has named it, introduces a 2% levy on individuals' taxable income in excess of $180,000 per annum from 1 July 2014 for 3 years.
A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased (like family trust distribution tax and excess contributions tax).
Plus, to prevent anyone trying to use the Fringe Benefits Tax system to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017 to align with the FBT year. The gap between the debt levy and the start of the FBT changes is something of an anomaly.
The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt 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 1 April 2015.
Be aware that if you have a one-off spike in income after 1 July 2014, for example a sale of business, the debt tax is likely to impact on this increase in personal income.
Medicare Levy threshold increased
Effective: 2014/2014 Income year
The low-income threshold for the Medicare levy will increase to $34,367 for couples with no children and the additional amount of threshold for each dependent child or student will be increased to $3,156.
Medicare safety net reduced
The Budget introduces a new Medicare Safety Net. The new thresholds appear to apply from 1 January 2016:
- $400 for concessional singles and concessional families
- $700 for non-concessional Family Tax Benefit A families and non-concessional singles
- $1,000 for non-concessional families
Medicare will pay 80% of any further out of pocket expenses, capped at 150% of the Medicare Benefits Schedule fee, once the threshold is reached on the expenses leading up to and beyond the safety net.
In addition, the Government has paused indexation on a number of thresholds that will increase your effective tax rate over time. These include:
- The income threshold for the Medicare Levy Surcharge for 3 years from 1 July 2015
- The income threshold for the Private Health Insurance Rebate for 3 years from 1 July 2015
- Some Medicare Benefits Schedule fees for 2 years from 1 July 2014
Mature Age Worker Tax Offset
Effective: 1 July 2014
Concluding a process started in the 2012/2013 Budget, the Mature Age Worker Tax Offset will be abolished for everyone from 1 July 2014. The original budget measure limited the offset to workers born prior to 1 July 1957.
Dependent Spouse Tax Offset abolished for all taxpayers
Effective: 1 July 2014
The Dependent Spouse Tax Offset will be abolished for all taxpayers from 1 July 2014.
Previous Budgets limited the Dependent Spouse Tax Offset to those whose dependent spouse was born before 1 July 1952, effective from 1 July 2012.
However, taxpayers who are eligible to receive the Zone Tax Offset, Overseas Civilians Tax Offset or Overseas Forces Tax Offset are currently exempt from the phase-out and can receive the DSTO regardless of the age of their dependent spouse.
These taxpayers can also claim eight other dependency offsets. From 1 July 2014, all taxpayers will be brought under the one consolidated Dependent (Invalid and Carer) Tax Offset.
For more information about how the Federal Budget affects you as an individual, please contact us on 02 9957 4033 or via our contact form.
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Last updated May 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.