1 RECENT INCOME TAX CHANGES 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 Reduced levy if family taxable income is within range (inclusive) Ordinary rate of levy payable where family taxable income is equal to or exceeds 0 $34,367 $34,368 - $40,431 $40,432 1 $37,523 $37,524 - $44,144 $44,145 2 $40,679 $40,680 - $47,857 $47,858 3 $43,835 $43,836 - $51,570 $51,571 4 $46,991 $46,992 - $55,283 $55,284 5 $50,147 $50,148 - $58,996 $58,997 6 $53,303 $53,304 - $62,709 $62,710 Note: where there are more than six dependent children and/or students, add $3,156 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 $88,000 or less $88,001 - $102,000 $102,001 - $136,000 $136,001 or more Families $176,000 or less $176,001 - $204,000 $204,001 - $272,000 $272,001 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.
2 Changes to the Private Health Insurance Rebate Your entitlement to this rebate is now 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. From 1 July 2013, the Australian Government private health insurance rebate is no longer payable on the lifetime health cover loading component of the private health insurance premiums. The income thresholds for claiming the private health insurance rebate are: Unchanged Tier 1 Tier 2 Tier 3 Singles $88,000 or less $88,001 - $102,000 $102,001 - $136,000 $136,001 or more Families* $176,000 or less $176,001 - $204,000 $204,001 - $272,000 $272,001 or more REBATE (1 July March 2014) Aged under 65 30% 20% 10% 0% Aged % 25% 15% 0% Aged 70 or over 40% 30% 20% 0% REBATE (1 April June 2014) Aged under % % 9.680% 0% Aged % % 14,520% 0% Aged 70 or over 38,720% % % 0% Note: the family income threshold is increased by $1,500 for each dependent child after the first child. 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. Net Medical Expenses Tax Offset Phase Out The government will phase out if you can claim the net medical expenses tax offset and it will now be depended upon if you previously claimed the offset and on your level of income. To be eligible to claim this offset, you must have either: Received the offset in your income tax assessment, or Paid for medical expenses relating to disability aids, attendant care or aged care. You will only be able to claim an offset of 10% of your net medical expenses over $5,100 if you have an adjusted taxable income (ATI) above: $88,000 if you are single, or $176,000 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 $2,162. Note: the income tax year will be the final year you can claim the medical expenses tax offset unless you have medical expenses relating to disability aids, attendant care or aged care, in this case you would be eligible until income tax year. Page 2
3 Decreases to Superannuation Co-Contributions The amount of superannuation co-contributions received from the government have decreased and are now being income tested for eligibility. The below table sets out you individual eligibility and the amount you will receive from the government for the income year: Your Superannuation Contribution is: $1,000 $800 $500 $200 Income Your Superannuation Co-Contribution will be $33,516 or less $500 $400 $250 $100 $36,516 $400 $400 $250 $100 $39,516 $300 $300 $250 $100 $42,516 $200 $200 $200 $100 $45,516 $100 $100 $100 $100 $48,516 or more $0 $0 $0 $0 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 2013 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 , , financial years it was $50,000 and for the it was $25,000. For the income year, the annual cap remains at $25,000 for persons aged 58 or under, but increases to $35,000 for those aged 59 or over. The increase to $35,000 for the income year, commences at the age of 49, hence if you are 48 or under in your cap is still $25,000. We recommend to confirm with your employer of any salary sacrifice arrangements in place and to make sure you do not exceed the $35,000 limit, so that you do not incur Excess contributions tax. Page 3
4 AGAIN THIS YEAR Self Employed Superannuation Deductions Any superannuation contributions you have paid before the 30 June 2014 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 2013 year, due to the inclusion of extra income amounts eg Reportable Fringe Benefts and Reportable Superannuation contributions 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
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, Transactions reported to the Tax Office by the Australian Transaction Reports and Analysis Centre. It is intended that the following areas will be utilised by the ATO in matching data in future years: Taxable Government Grants and other government payments, Sales of real property, shares and managed funds, Sales through merchant debit and credit services, 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. Bank Account Details If we estimate that you are entitled to a tax refund for the income year, we will require your bank details once again this year as the Taxation Office no longer issues refund cheques. We ask that you provide us with the following information when supplying your income year tax information: Account name BSB Account number Page 5
6 PLANNING AHEAD FOR 2015 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 Personal Income Tax Rates (Non-Residents) For the 2014/15 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. Temporary Budget Repair Levy introduced The Government will introduce a three year temporary levy (the Temporary Budget Repair Levy) on high income individuals at a rate of two per cent on individuals' taxable income in excess of $180,000 per annum. This levy will apply from 1 July 2014 until 30 June 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. Abolishment of the Dependent Spouse Tax Offset The Government will abolish the Dependent Spouse Tax Offset (DSTO) for all taxpayers from 1 July Abolishment of the Mature Age Worker Offset The Government will abolish the Mature Age Worker Tax Offset (MAWTO) from 1 July First Home Saver Accounts scheme to be abolished The Government will abolish the First Home Saver Accounts scheme. New accounts opened from Budget night will not be eligible for concessions, with the Government co-contribution to cease from 1 July 2014 and tax concessions and the income and asset test exemptions for government benefits associated with these accounts to cease from 1 July Increase the Age Pension qualifying age to 70 years From 1 July 2025, the Age Pension qualifying age is intended to continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July People born before 1 July 1958 will not be affected by this measure. NOTE this measure does NOT affect the age at which you can access SUPERANNUATION. Increase the age of eligibility for Newstart Allowance and Sickness Allowance The Government intends to increase the age of eligibility for Newstart Allowance and Sickness Allowance from 22 to 24 years of age. This measure will apply from 1 January Current recipients of Newstart Allowance and Sickness Allowance, aged 22 to 24 years of age on 31 December 2014, will remain on those allowances. Page 6
7 Trade Support Loans The Government intends to establish the Trade Support Loans Programme, which will provide apprentices with financial assistance of up to $20,000 over a four year apprenticeship. Trade Support Loans will be provided at concessional interest rates and capped as follows: Year of Apprenticeship Cap Year 1 $8,000 Year 2 $6,000 Year 3 $4,000 Year 4 $2,000 Loans will be available to apprentices undertaking a Certificate III or IV qualification that leads to an occupation on the National Skills Needs List. Apprentices will be required to commence repaying the loans when their income exceeds a minimum repayment threshold ($53,345 in ) consistent with arrangements applying to university students under the Higher Education Loan Programme. Apprentices who successfully complete their training will receive a 20 per cent discount on the amount to be repaid. Family Tax Benefits There is an intention to make numerous changes to the Family Tax benefit payments from 1 st July 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 above 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 Concessional contributions (ie deductible) made during the year ended 30 June 2014 are less than the caps explained in the recent changes document at page 3. There can be significant penalties in the form of additional tax for exceeding these caps. The rate of tax for the amount in excess of the cap has now changed from 31.5% up to to the excess being included in your taxable income and hence being taxed at your marginal rate. Those contributions you have made to a superannuation fund which you are not claiming a deduction for ie Non Concessional Contribution (NCC), also have a cap of $150,000 per annum. Any NCC above this level will be subject to tax at 46.5%. We note that there are planning opportunities around this cap in relation to the 3 year bring forward rule which may assist in remaining under the threshold. Pre-Paid Interest By pre-paying all or some of your interest on loans used to finance investments, including rental properties, you can claim a tax deduction in the current financial year. High Income Earners (Division 293) Super Contribution Tax Where your Income exceeds $300,000 you will be liable for an extra tax known as Division 293 which will impose a further 15% tax on your Concessional Superannuation contributions for the year. We note that the ATO will assess whether you have exceeded the $300,000 threshold by taking into account the following: Taxable Income Reportable Fringe Benefits Net Investment losses Page 7