RECENT INCOME TAX CHANGES

Transcription

1 RECENT INCOME TAX CHANGES Financial Institution Details Required From 1 July 2013, when preparing your income tax returns we will need to include your nominated Australian bank account details when a refund is expected. We ask that you please provide these details on the enclosed Income Tax Return Checklist. The ATO will not allow lodgement of your individual tax return without providing your bank details therefore it is important that this is provided to us. Increased Tax Free Threshold The tax-free threshold has been increased from $6,000 to $18,200 for the income year. Increased Medicare Levy Low Income Thresholds The Medicare Levy low-income thresholds for families and dependent child-student component of the threshold have been changed to be in line with the CPI rates. Below is a table for the new Medicare Levy thresholds: Families with the following children and/or students No levy payable if family taxable income does not exceed (figure for ) Reduced levy if family taxable income is within range (inclusive) Ordinary rate of levy payable where family taxable income is equal to or exceeds (figure for ) 0 $33,693 ($32,743) $33,694 $39,638 $39,639 ($38,522) 1 $36,787 ($35,750) $36,788 $43,278 $43,279 ($42,059) 2 $39,881 ($38,757) $39,882 $46,918 $46,919 ($45,597) 3 $42,975 ($41,764) $42,976 $50,558 $50,559 ($49,135) 4 $46,069 ($44,771) $46,070 $54,198 $54,199 ($52,672) 5 $49,163 ($47,778) $49,164 $57,838 $57,839 ($56,210) 6 $52,257 ($50,785) $52,258 $61,478 $61,479 ($59,748) Note: where there are more than six dependent children and/or students, add $3,094 for each extra child or student to the lower limit taxable income, and add the appropriate amount of child/student component of the upper phase-in limit for each child or student. Medicare Levy Surcharge Thresholds The Medicare Levy Surcharge is now determined by new income thresholds. There are no changes made to how the Medicare Levy Surcharge applies, nor are there any changes made to any exemptions that may apply to your circumstances. Below is a table for the new Medicare levy surcharge thresholds: No Change Threshold 1 Threshold 2 Threshold 3 Singles $84,000 or less $84,001-$97,000 $97,001-$130,000 $130,001 or more Families $168,000 or less $168,001-$194,000 $194,001-$260,000 $260,001 or more Rate 0.0% 1.0% 1.25% 1.5% Note: The family threshold will increase by $1,500 for each dependent child after the first. We note your income for assessment of this threshold includes: Taxable Income Reportable Fringe benefits Reportable Superannuation Contributions Net Investment losses e.g. rental losses Note: The Surcharge is not payable if you have eligible private health insurance for the full financial year, regardless of your income level. Page 1 of 6

2 Changes to the Private Health Insurance Rebate Your entitlement to this rebate will now be dependent upon your level of income. You will receive a statement from your private health insurer which you will need to provide to us to enable us to complete your tax return. You may now be eligible for a private health insurance rebate if you were covered by private health insurance, regardless of who paid for the policy. If you are covered as a dependent child on the policy, you are not eligible for the rebate but will not have to pay the Medicare levy surcharge. The income thresholds for claiming the private health insurance rebate are: Unchanged Tier 1 Tier 2 Tier 3 Singles $84,000 or less $84,001 - $97,000 $97,000 - $130,000 $130,001 or more Families* $168,000 or less $168,001 - $194,000 $194,001 - $260,000 $260,001 or more REBATE Aged under 65 30% 20% 10% 0% Aged % 25% 15% 0% Aged 70 or over 40% 30% 20% 0% Note: the family income threshold is increased by $1,500 for each dependent child after the first child. Changes to Dependent Tax Offsets There are changes to how you claim for certain dependants: If your spouse was born on or after 1 July 1952, you can no longer claim a dependent spouse tax offset for them. You can only claim the housekeeper and child housekeeper tax offsets if you are eligible for a zone or overseas forces tax offset. If you are not eligible for a zone or overseas forces tax offset, the new dependent (invalid and carer) tax offset replaces offsets for your: spouse born on or after 1 July 1952 parent parent-in-law invalid relative. To be eligible for the new offset your dependant must receive a government payment as an invalid or carer or be caring for someone who receives a government payment as an invalid. Net Medical Expenses Tax Offset Phase Out The government will phase out the amount of net medical expenses tax offset you can claim and it will now be depended upon on your level of income. You will only be able to claim an offset of 10% of your net medical expenses over $5,000 if you have an adjusted taxable income (ATI) above: $84,000 if you are single, or $168,000 if you are a couple or family. The family threshold will increase by $1,500 for each dependent child after the first. If your ATI is below these income thresholds, you are not affected by this change and can continue to claim a tax offset of 20% of your net medical expenses over $2,120. From 1 July 2013, those taxpayers who have claimed the net medical expenses tax offset for the income year will continue to be eligible for the income year (if eligible out of pocket medical expenses relevant thresholds are met), and those will then continue to be eligible for the income year. Changes to Pensioner Tax Offset and Senior Australians Tax Offset The pensioner tax offset and the senior Australians tax offset have been combined to form the seniors and pensioners tax offset. Page 2 of 6

3 Changes to the Mature Age Workers Tax Offset The eligibility test for the mature age workers tax offset has been changed. From 1 July 2012, this tax offset is only available to taxpayers who were born before 1 July Low Income Superannuation Contributions (LISC) From 1 July 2012, you may be entitled to a low income superannuation contribution (LISC) if your adjusted taxable income (ATI) is no more than $37,000 and at least 10% of your total income is from employment or business. The LISC is a government superannuation payment to help low income earners save for their retirement. The payment is 15% of the concessional (before tax) contributions made by you or your employer to your complying superannuation fund, up to a maximum payment of $500. The ATO will calculate your entitlement using the information you provide in your tax return. Employment Termination Payments Tax Offset Employment termination payments (ETPs) are now being taxed differently. A $180,000 cap, based on your yearly taxable income, is now applied to limit the concessional tax treatment of certain types of ETPs. These transitional termination payment changes apply to the period ended on 30 June 2012, although earlier year payments may affect the tax treatment of your ETP this year if they relate to the same termination of employment. Decreases to Superannuation Co-Contributions The proposed changes made via the Tax and Superannuation Laws Amendment (2013 Measures No. 2) Bill 2013 contains the changes which will: Reduce the rate of payment for the superannuation co-contributions from 100% to 50%, Decrease the maximum amount payable from $1,000 to $500, Extend the freeze on the indexation of the lower income threshold for the income year, Reduce the higher income threshold from $30,000 to $15,000 above the lower income threshold. Increases to the Tax Payable on Concessional Contributions (where a member earns more than $300,000) The Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 amends the income tax and superannuation law and the Taxation Administration Act 1953 to increase the tax payable on concessional contributions where a member earns more than $300,000. The Bill introduces the concept of Division 293 Tax. Division 293 Tax is imposed at a rate of 15% on fund members whose income and relevant concessionally taxed superannuation contributions exceed $300,000 for an income year. This would be in addition to the 15% contributions tax paid by the fund on concessional contributions. This will be payable at a personal level by a separate assessment. For further advice in relation to this change, please contact us and we will be able to assist you with the relevance to your individual circumstances. Superannuation Contribution Limits The Superannuation Contribution limits for have remained at $25,000. These contributions include Employer Contributions (including contributions made under a salary sacrifice arrangement) and Personal Contributions claimed as a tax deduction by a selfemployed person. A transitional concessional contributions cap applied until 1 July 2012 for individuals aged 50 or over. If you are aged 50 or over, the annual cap for the and financial years was $100,000, whilst for the , and financial years it was $50,000. From the year the cap has decreased to $25,000 to match all other taxpayers. We recommend to confirm with your employer of any salary sacrifice arrangements in place and to make sure you do not exceed the $25,000 limit. Page 3 of 6

4 AGAIN THIS YEAR Self Employed Superannuation Deductions Any superannuation contributions you have paid before the 30 June 2013 may be claimed as a tax deduction, if you can answer yes to any of the questions below: Were you fully self-employed? Were you partly self-employed but none of the people you worked for were required to provide superannuation support? Were you partly self-employed but your income from the people required to pay superannuation support was less than 10% of your total assessable income? Were you employed but received no superannuation support? You received less than $450 in every calendar month, You were under 18 and worked part-time for the whole year. Your work was private or domestic in nature and you worked no more than 30 hours. Reforms to Some Entitlements Your entitlements may be reduced, as occurred in the 2012 year, due to the inclusion of extra income amounts in various tests. Your entitlements included in this change consist of: Your Tax Offset entitlements Your eligibility to certain deductions and tax concessions Any Medicare levy surcharge Higher Education Loan Program (HELP) or Student Financial Supplement Scheme (SFSS) repayment amounts. Income Earned in Overseas Employment In most cases you will now need to include your foreign employment income in your assessable income, which is then taxed in Australia. You may then be entitled to a tax offset for the foreign tax you paid on your foreign employment income. Employee Share Schemes For the and future years, discounts on shares and rights you acquire under an employee share scheme will generally be included in your assessable income in the income year in which you acquire the shares or rights. However, deferral of the tax liability is possible in limited circumstances. Same-Sex Couples For and future years the definition of spouse has changed so that your spouse includes another person (whether of the same sex or opposite sex) who you were in a relationship with that was registered under a prescribed state or territory law, or although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple. This change can have implications for your entitlements to various offsets and also the assessment of some taxes. Rental Properties The Tax Office continues to identify that rental properties have been an area in which tax has been underpaid, and monitors this area carefully observing what rental property owners are deducting in their annual tax returns. We believe you should consider the following situations: Claiming the cost of the land as a capital works deduction, that is, as part of the cost of constructing or renovating the rental property. This forms part of the cost of the asset. Claiming the cost of improvements, renovations, extensions, alterations and replacement of entire structure or unit of property as repairs and maintenance expense. These are capital improvements and should be claimed as capital works deductions. Overstating claims for deductions on the interest on the loan taken out to purchase, renovate or maintain the property. For any portion of the loan that is not related to the property, you will not be able to claim the interest as a deduction. Incorrectly claiming the full cost of an inspection visit when it is combined with another private purpose, such as a holiday. In such cases, you can only claim that portion of the travel costs that relate directly to the property inspection. Claiming deductions for properties for periods when it was not available for rent. Page 4 of 6

5 Income Matching The Australian Taxation Office undertakes data matching audits on the following information: PAYG Payment Summaries, Interest Income, Dividend Income, Managed investment trust and partnership distributions, Taxable Government Grants and other government payments, Sales of real property, shares and managed funds, Sales through merchant debit and credit services, Transactions reported to the Tax Office by the Australian Transaction Reports and Analysis Centre. You need to make sure that you provide us with details of any of the above types of income you have earned to avoid the Taxation Office amending your return and charging penalties. PLANNING AHEAD FOR 2014 Personal Income Tax Rates (Residents Year) The individual income tax rates for the income year will remain the same as the income year. Below are these tax rate thresholds: Taxable income up to $18,200-0% Rate Taxable income from $18,201 to $37,000-19% Rate Taxable income from $37,001 to $80, % Rate Taxable income from $80,001 to $180,000-37% Rate Taxable income over $180,000-45% Rate Capping of Self-Education Expenses From 1 July 2014, the treasurer has announced that the Government plans to introduce an annual cap of $2,000 per person for deductions relating to work related self-education expenses. Self-Education expenses include expenses where they have a relevant connection to your current income earning activities. Commonly claimed expenses include formal qualifications and associated tuition fees, textbooks, stationery and travel expenses, conferences, seminars and self-organised study tours. Medicare Levy Increases From 1 July 2013, the government will increase the Medicare levy from 1.5% to 2% to provide funding for Disability Care Australia. The current exemptions from the Medicare levy will remain in place. Personal Income Tax Rates (Non-Residents) For the 2013/14 income year, non-residents will pay a flat rate of 32.5% on all taxable income up to $80,000. For taxable income exceeding $80,000, the marginal tax rate for non-residents are the same as those for resident individuals. Spouse Contributions You can claim an 18% tax offset on superannuation contributions of up to $3,000 made on behalf of your low income or non-working spouse. The maximum rebate allowed is $540. To be eligible to claim the tax offset, your spouse must be receiving less than $10,800 in assessable income and reportable fringe benefits a year, although a reduced tax offset is payable for spouses earning up to a total of $13,800 assessable income, reportable fringe benefits and reportable employer superannuation contributions per annum. A 'spouse' also includes another person who, although not legally married to you, lives with you on a bona fide domestic basis as your husband or wife, but does not include a person who lives separately and apart from you on a permanent basis. Page 5 of 6

6 Salary Sacrificing Sacrificing part of your cash salary into superannuation can be a great way to help reduce your income tax liability while potentially increasing your wealth. However refer below to caps associated with this. Other forms of salary sacrificing are available and continue to be an effective option for reducing your personal income tax bill. Superannuation Contribution Caps You should ensure that any contributions made during the year ended 2013 are less than the caps explained in the recent changes document at page 5. There can be significant penalties in the form of additional tax for exceeding these caps. The rate of tax is 31.5% for the amount above the cap, in addition to the normal 15% contributions tax. Pre-Paid Interest By pre-paying all or some of your interest on loans used to finance investments, you can claim a tax deduction in the current financial year. First Home Saver Accounts From 1 October 2008, if you are eligible, you can open a first home saver account, with many financial institutions. Some of the attributes associated with this style of account are: The Australian Government may make an annual contribution to your account based on the amount you have contributed to the account. You do not pay tax on earnings on the account. You also do not need to declare income from this account anywhere on your Income Tax Return. You must use all the funds in your first home saver account within six months of withdrawing them and they must be used to buy or build your first home. To withdraw your funds, you need to have contributed at least $1,000 per year in at least four financial years not necessarily consecutive years. If you buy or build a home that becomes your main residence and you haven t closed your first home saver account within 30 days of it becoming your main residence (either to buy it or to contribute to your superannuation), you must advise your account provider. If you are not required to lodge a Tax Return, you will need to lodge a first home saver account notification of eligibility. McCOSKER PARTNERS Your Partners in Business (02) mail@mccosker.com.au What we can do for you: Accounting Business Management Consulting Taxation, FBT, CGT and GST Advice/planning Bookkeeping Services Self Managed Superannuation Funds Business Finance Page 6 of 6