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Significant changes that will impact on individuals.

Increased Medicare levy 

The big news item is a 0.5 per cent increase in the Medicare levy to fund the National Disability Insurance Scheme. Under the proposal, the levy will increase from 1.5 per cent to 2 per cent from 1 July 2014, costing Australians an average of $1 more a day to fund the NDIS. The legislation is set to be introduced into Parliament soon after the Budget and enacted during the current winter session of Parliament.

Personal income tax rates

Although individual income tax rates have remained unchanged, changes that were due to apply from 1 July 2015 have been deferred. Initially, the tax free threshold was set to increase from $18,200 to $19,400. The current legislated rates applicable for the 2013/14 income year are set to remain in place until 2017/18.

Net medical expenses tax offset  phase out

The Government announced a phase out of the net medical expenses tax offset (NMETO). The tax offset will be available until 1 July 2019, with transitional arrangements in place for those currently claiming the offset.

Tax Tip: In order to claim this rebate in the future you will need to be able to claim this rebate in this financial year. 

Self-education expenses

Leading up to the Budget, the Government announced an annual cap of $2,000 per person is to apply from 1 July 2014 for self-education expenses. 

The change will apply to employee training expenditure, providing an incentive for employers to invest in staff training. Employer provided education and training remains FBT free unless an employee salary sacrifices to obtain these benefits. Any expenditure for an employee that is subject to a salary sacrificing will also be subject to the limit.

Tax Tip: If you are planning on study which may cost more than $2,000, consider commencing or paying prior to 30 June 2014.

Superannuation Concessional (Tax Deductible) contributions caps

Concessional contributions caps have increased and are as follows: 

Between 1 July 2013 - 30 June 2014: 
For those aged under 60 years the cap is $25,000, and $35,000 for those over 60. 

1 July 2014 onwards: 
The age limit cap will be reduced to 50 years. This means that the cap for those aged under 50 years is $25,000 while the cap for individuals aged 50 years and over remains at $35,000.

The proposed $35,000 cap is not subject to consumer price indexation, whereas the $25,000 cap that will apply to those under 60 years is. The cap is expected to be set at $35,000 for all ages by 2018.

The Government has also abandoned a previous policy of increasing the concessional contributions limit to $50,000 for those with less than $500,000 accumulated in superannuation as there were issues with the complexity of the system.

Limitation of tax free income earned by superannuation funds paying pensions

In a pre-budget proposal, the introduction of a $100,000 cap is to be applied per member, on the tax exempt income that may be claimed by superannuation funds paying pensions.

The cap will commence from 1 July 2014, with members with income over this cap set to pay 15 per cent on the excess.

These are significant changes to the current tax legislation under which a pension fund is exempt from paying tax on its investment income and capital gains, however a ten year transitional arrangement will be put in place for changes to capital gains.

HELP payment discount axed

The Government has abolished discounts that were previously available for upfront and voluntary payments on Higher

Education Loan Program (HELP) loans. Currently a 10 per cent discount applies to up-front payments and a 5 per cent discount to voluntary payments of $500 or more.

The discounts will be abolished from 1 January 2014, taxpayers are advised to bring forward any HELP repayments or debt repayments before the deadline to benefit from the discount.

Private health insurance

There has been no change to the private health insurance rebate. Higher income earners without sufficient private health insurance will continue to pay a 1 per cent surcharge.

Tax rates for non-residents

For the 2013/14 income year, non residents will pay a flat rate of 32.5 per cent on all taxable income up to $80,000. For taxable income exceeding $80,000, the marginal tax rates for non-residents is the same as those for resident individuals.

Proposed legislation to remove the capital gains tax discount for non-residents seems to be on schedule to be introduced in the final few weeks of Parliament. Additionally, non-residents will be subject to a non-final withholding tax of 10 per cent of the proceeds from the sale of certain taxable Australian property with effect from 1 July 2016.

Changes to social security payments

Those individuals most likely to be affected are middle-income families and recipients of welfare payments.

Family Tax Benefit Part A

The Government has announced that it will no longer be proceeding with last year’s Budget proposal to increase the maximum payment rate of Family Tax Benefit Part A (FTB Part A).

The proposal would have commenced from 1 July 2013 and would have increased payments of up $300 per year for families with one child and $600 per year for families with two or more children.  Additionally, FTB Part A will only be paid until the end of the calendar year a child completes school.

This will affect children aged 16 years and over and will commence from 1 January 2014. Furthermore, those who no longer qualify for FTB Part A may be eligible to receive Youth Allowance, subject to the usual eligibility requirements.

Baby Bonus

The Baby Bonus has been replaced with a means-tested payment as part of the FTB Part A from 1 March 2014.

The Government will increase FTB Part A payments to $2,000 to be paid in the year following the birth or adoption of a first child or each child in multiple births, and $1,000 for second or subsequent children.

The additional FTB Part A will be paid as an initial payment of $500 with the remainder payments made in seven fortnightly instalments.

Parents who take up the Paid Parental Leave (PPL) scheme will not be eligible for the additional FTB Part A component, but will receive benefits in terms of improved access to PPL as their family expands.

Newstart

There have also been changes to the means test thresholds for eligible income support payments.

The budget changes will affect individuals on the Newstart Allowance, Sickness Allowance and Partner Allowance Pension etc. 

The threshold for individuals receiving social security benefits will increase from $62 per fortnight to $100 per fortnight from 20 March 2014 before their income support is reduced. It is planned that the threshold be indexed on an annual basis from 1 July 2015. 

Tax Avoidance

The Budget has introduced a number of measures intended to improve the integrity of the taxation system.

This will be achieved by increasing business tax compliance, closing loopholes, strengthening tax evasion systems and increasing the payment of tax instalments.

Enhance third party data matching

The ATO already conducts extensive data matching on employee income, interest, dividends, managed fund income and certain overseas income. This data matching has already provided the ATO with increased revenue and hence they are looking to expand it further.

The ATO has received extra funding to improve compliance by expanding data matching with third party information.

The funding will establish new and strengthen existing reporting systems and will affect:

• Sales of real property, shares (including options and warrants) and units in managed funds
• Transactions through merchant debit and credit services
• Certain taxable government grants and payments
• Managed investment trust and partnership distributions, company dividend and interest payments
• Transactions reported to the ATO by the Australian Transactions Reports and Analysis Centre

The ATO will have more resources than ever before to ensure that businesses remain compliant. This will put more pressure on small businesses to ensure that they are rigorous in their tax compliance and reporting requirements.

ATO Trust Taskforce

The Government has increased funding to the ATO to undertake compliance activity targeted at high wealth individual taxpayers who have been involved in tax avoidance and evasion using trust structures.

The ATO will target taxpayers who use trusts to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax.

Integrity checks on ABN registration

The ATO will be strengthening up-front checks for issuing Australian Business Numbers (ABN) and will encourage businesses to use the AUSkey and the online services of the Australian Business Register.

This is intended to reduce the regulatory costs and minimise the compliance burden for individuals and businesses.