2013 Tax Industry Reforms

 

Understand The Changes That Could Affect You.

The tax season is upon us again and it’s time for fellow Australians to start thinking about their tax return and anticipated refund. With recent industry changes, it could affect how your tax return is completed and the amount you receive.

Based on recent trends, well over 15 million tax returns are likely to be lodged with the Tax Office in the upcoming financial year with individual returns representing almost 85%, or, around 13 million of all returns [1]. At a total population nudging 23million [2], well over half of us submit an individual tax return yearly.

Though the number of us lodging our individual returns via self-service platforms, such as the ATO’s E-tax is increasing, over 70% of us still use a Registered Tax Agent to lodge our tax returns – a figure which is likely grow in the next few years.

Why? Most of us justify the cost of professional tax advice with a better refund – especially as our income and assets grow. Also given the recent step up in tax agent licensing requirements, it has resulted in us receiving better advice! On the downside, increased licensing standards could result in slower growth of tax agents, therefore prompting higher fees. On balance however, most of us are better off financially (and emotionally) using a tax professional rather than going it alone.

Best advice aside, personal income tax rates, allowable deductions, Centrelink and family payment policies and superannuation will forever dictate how much you owe the Tax Office and conversely, the size of your refund. So although your accountant may do the hard work for you, it’s good to know the changes that are occurring.

Personal Income Tax

Step back a year or so when the government forecast a cash surplus of $1.5 billion.

In came personal tax cuts, including a rise in the tax free threshold from $6,000 to $18,200. Previously at $6,000 you could earn up to $16,000 before income tax was payable, due to the low income tax offset [3]. Now you can earn up $20,542 when taking into account the low income tax offset before income tax is payable, so some of us are definitely better off.

Additional cuts were planned for July 2015 including another rise in the tax-free threshold from $18,200 to $19,400, while also increasing the tax rate for those earning over $37,000 (but under $80,000) by 0.5%. Happy days – yet short lived.

Fast forward to May 2013 and our $1.5 billion surplus morphs into an $18 billion deficit with a promise to take it back into surplus in a few years. So it comes as no surprise to learn your personal tax cuts have been deferred, reportedly until the revenues from the overestimated new carbon tax levy (likely repealed by the coalition [4]) doubles.

The potential for personal tax cuts seemingly drift further into the future in the shadow of increased funding of infrastructure ($60B), Gonski education reforms ($10B), pharmaceutical benefits ($700M), farm household allowance ($100M), cancer prevention ($250M) and others.

Arguably, it’s possible the government will not only be deferring tax cuts indefinitely, but may actually be looking to find lost revenue in personal income tax hikes in the near future.

For now however the rates for Australian residents will remain as they were last year.

 

Taxable Income

Tax

Up to $18,200

Nil

$18,201 – $37,000

19% of each dollar over $18,200

$37,001 – $80,000

$3,572+ 32.5% of each dollar over $37,000

$80,001 – $180,000

$17,547+37% of each dollar over $80,000

Over $180,000

$54,547+45% of each dollar over $180,000

Don’t forget these rates don’t include the Medicare levy, which is currently an additional 1.5% of taxable income and is set to jump to 2% from July 1 2014, to help fund more reforms to Disability Care. If your income is below $18,200, you don’t have to pay the Medicare levy. If it’s between the lower and upper thresholds you only have to pay part of it [5]. The government will increase the low-income threshold for families to $33,693 for the 2012-13 income year. The additional amount of threshold for each dependent child or student will also increase to $3,094.

Net Medical Expenses Tax Offset

Those without private insurance and above thresholds are up for the Medicare levy surcharge, which is still a minimum of another 1%. The government will also phase out the net medical expenses tax offset (with transition arrangements for those with current claims), but it will remain available for medical expenses relating to disability aids, attendant care or aged care expenses until 2019.

Family Payments & Centrelink

In the government drive for revenue there have been a number of changes to Centrelink, family policy and payments.

One to watch closely is the government’s 3 year trial (commencing July 2014), to support age pensioners who want to downsize their home without it immediately affecting their pension. Under current rules, the value of a pensioner’s home is not assessed and does not affect their pension. This means that many seniors may not sell their home as a result of it impacting their pension.

The trial, which on the surface seems logical, will allow qualifying pensioners who want to downsize the home they have lived in for 25 years to deposit at least 80% of the excess sale proceeds into a special account, up to a maximum of $200,000 (plus interest). The funds and earnings in this account will fall under the pension income and assets test for up to ten years or until an account withdrawal is made.

Frequently abroad? From July next year, the length of time that you can be temporarily overseas and continue to receive family payments will reduce from three years to one.

Deductions for work-related self-education expenses will now be capped at $2,000 per annum from 1July2014, which could impact vocational education providers nationwide.

If you are on Newstart, parenting payment partnered [6], widow, sickness or partner allowances you can earn an extra $38 per fortnight – up to $100 prior to your income support being reduced with the income becoming indexed from 1 July 2015.

Finally, for those on higher incomes family payments will be locked down for at least 4 years [7].

Baby Bonus

On budget night the Treasurer also announced that the baby bonus would be abolished from 1 March 2014, but would be replaced with new family payments for newborns involving adjustments to the Family Tax Benefits Part A (FTB-A). The increased FTB-A payments will be $2,000 for the first child and an additional $1,000 for each child after (if they are not accessing the Paid Parental Leave Scheme).

Payments consist of an initial installment of $500, with the rest rolled into normal fortnightly payments over a three-month period. The FTB-A threshold is about $112,000 and it will be harder to get than the $150,000 threshold from the baby bonus. From the 1st of January 2014, the FTB-A will only be paid up until a teenager is finishing school as well

If you wait till June 30 to claim the FTB entitlement or Child Care Benefit (CCB), you will now have a grace period of a year (to 30 June 2014), instead of two to claim payments.  You will also only have a year to lodge your tax return in order to receive the end-of-year FTB supplements.

Superannuation

Though it had been rumoured for some time, the budget confirmed a number of superannuation reforms including a higher tax (30%) on contributions for those earning over $300,000 and an increase in the minimum pension payments draw-down amount [8]. In addition, the tax free status of retirement phase earnings for each individual member will be retained, but capped at (and indexed) at $100,000. Annual earnings above this amount will be taxed at a concessional rate of 15%.

Capital gains tax will apply to assets (in pension phase) if purchased after 1 July 2014 with special arrangements in place for capital gains on assets purchased before this date. You should see your accountant for more details.

The Government has also reduced the $50,000 concessional cap linked to super balances under $500,000 to $35,000 (unindexed) effective 1 July 2013 if you’re 60 or over and effective a year later for over 50’s.

See Your Accountant for Details

There are a number of further reforms that could affect your taxable income. The short and long of it is that, due to the ever changing tax rules, if you work and pay tax then it’s likely you will be ahead of the game if you use a qualified tax professional to do your taxes. If you’re an investor or business owner it’s a must. We recommend you meet with your accountant or business adviser to discuss medium term strategies to reduce the impact as soon as possible.

The content of this article has been provided for your general information only and is sourced from the various current publicly available articles, government and opposition websites, the budget and related information. It’ strongly recommended you talk with your accountant or business adviser prior to any course of action relation to the content of this article.


[1] Extrapolation from ATO Taxation Statistics 2010-11.

[2] 2012 Australian Jobs Report. Department of Education Employment & Workplace Relations.

[8] In response to the downturn in global financial markets, the government provided pension draw-down relief in 2008/2009 by halving the minimum payment amounts. As the government has not addressed this further in the budget we have assumed that the minimum payments will return to their normal rates next year.

Happy 2013! We are open for tax refunds.

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