The first section of this article outlines measures that are definitely going ahead come the new 2014-15 financial year, while the second section contains changes outlined in the recent Federal Budget that have yet to be legislated.

It is prudent that taxpayers prepare thoroughly for the changes that are certainly going ahead, and keep the proposed changes on their radar so they are not caught unaware.

Legislated changes

1) Rise in concessional contributions cap

The 2014-15 financial year will finally see an increase from the present $25,000 concessional contributions cap up to $30,000. The table below summarises the caps for those of different ages.

The Tax Office also confirmed the resumed indexation of the concessional contributions cap, in line with the average weekly ordinary time earnings (AWOTE). However, the temporary higher cap for those aged 49 or over is not indexed and will cease when the general concessional contributions cap is indexed to $35,000.

The imminent increase will bring about a range of changes to various contribution strategies for self-managed superannuation fund (SMSF) members and APRA-regulated superannuation fund members alike, so it is important to start planning for the increase. The increase will also provide an added incentive to pay 15% tax instead of 49% and reduce taxable income.

2) Rise in Medicare levy

There will be a rise in the Medicare levy from 1.5% to 2% for all taxpayers from July 1 this year. This was legislated by the previous government to assist with the funding in DisabilityCare. Employers will be required to install new tax rate tables into their payroll software to capture this increase to the Medicare levy.

However no change has been proposed to the Medicare levy surcharge, which is currently imposed at a rate of 1%, 1.25% or 1.5% depending on one’s circumstances. This surcharge only applies when a taxpayer does not have adequate private health insurance cover and exceeds the relevant income threshold.

3) Rise in superannuation guarantee

There will be a 0.25% rise in the superannuation guarantee to 9.5% from July 1, helping taxpayers further build their retirement savings. Employers are required to increase their superannuation contributions on behalf of employees to 9.5% of ordinary time earnings from July 1. The 9.5% rate will remain until June 30, 2018 after which the superannuation guarantee percentage will increase by 0.5% each year until it reaches 12% from 2022-23.

Budget proposals

The measures below were contained in the Federal Budget 2014-15 and are subject to successful passage through the Parliament.

1) Reduction to the R&D Tax Incentive rates

In line with the cut to the company tax rate by 1.5% to 28.5% from July 1, 2015, the government will reduce the benefit of the R&D tax offset by also reducing the rates of the refundable and non-refundable R&D offsets by 1.5% from July 1, 2014. This means that:

• the refundable R&D tax offset will reduce from 45% to 43.5% (for eligible companies with turnover less than $20 million), and
• the non-refundable R&D tax offset will reduce from 40% to 38.5% (for eligible companies with turnover of greater than $20 million).

Importantly, the reduction in the R&D tax offset rates will occur one year ahead of the corresponding fall in the corporate tax rate.

2) Temporary budget repair levy

From July 1 this year, anyone with taxable income above $180,000 will pay an additional 2% a year in tax on the part that exceeds $180,000 for the next three years – taking their marginal tax rate to 49%, including the Medicare levy. For someone earning $300,000 a year, it will mean $2,400 a year extra in tax. Strategies to avoid this proposed debt levy may include deferring tax deductible expenses to the next tax year or bringing forward income to the current tax year where possible. Consult this office to help you decide whether these strategies are suitable for you.

3) Tax receipts for individuals

The Tax Office will issue tax receipts to around 10 million individual taxpayers alongside their notice of assessment. The one-page personalised and itemised receipt will show, in dollar terms, how much of a person’s tax bill was spent on each budget area. It will also show the level of gross government debt, on a per-person basis.

4) Dependent spouse tax offset to go

The government will abolish the Dependent Spouse Tax Offset (DSTO) for all taxpayers from July 1, on the back of the 2011-12 Mid-Year Economic and Fiscal Outlook measure which – from July 1, 2012 – limited access to the DSTO to those whose dependent spouses were born before July 1, 1952.

5) Annual Seniors Supplement abolished

A payment of $876.20 a year for singles or $660.40 each for a couple is currently paid to all recipients of the Commonwealth Seniors Health Card. Following its abolition however, seniors will need to review the amount they are drawing from their superannuation pension or investments to cover the shortfall.

6) Mature age worker tax offset to go

The Mature Age Worker Tax Offset (MAWTO), with a full offset of $500 that was paid to people aged 56 and over who kept working, will be abolished. The government will redirect the savings from this to fund a $10,000 two-year subsidy called Restart for employers who take on employees aged 50 and older who have been on income support for more than six months.

Eligible employers will receive $3,000 if they hire a full-time mature age job seeker who was previously unemployed for a minimum of six months if they employ that person for at least six months. Once the job seeker has been working for the same employer for 12 months, the business will receive another payment of $3,000, then another $2,000 at 18 months and a final $2,000 at two years.

To be eligible, businesses will need to demonstrate the job they are offering is sustainable and ongoing, and that they are not displacing existing workers with subsidised job seekers.

7) Freeze on Family Tax Benefit rates

The government will maintain – in other words, freeze – the current Family Tax Benefit (FTB) payment rates for two years from July 1, 2014. Under this measure, indexation of the maximum and base rates of the FTB Part A, and the rate of the FTB Part B will be paused until July 1, 2016.

8) Freeze on eligibility thresholds for certain social welfare payments

From July 1, eligibility thresholds for non-pension payments such as Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance will remain unchanged for three years.

9) Parenting Payment Single to be indexed only by inflation

From July 1, the government will index the Parenting Payment Single only by the consumer price index as opposed to the higher of the increases in inflation, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index.

10) Cease indexation on Clean Energy Supplement

The government will remove further indexation from payment of the Clean Energy Supplement, which is paid to recipients of all social welfare payments. This means the rate of payment will be the rate payable prior to July 1, 2014.

11) Support loans for tradesmen

From July 1, the government will support those learning a trade by providing concessional Trade Support Loans up to $20,000 over a four-year apprenticeship. This will replace the current “Tools for your Trade” program.