Budget 2013: Monthly PAYG instalments

In an unexpected announcement, the Government has now made it a requirement for all large entities in the PAYG instalment system to make monthly PAYG income tax instalments. The monthly PAYG instalment system will therefore be extended to include trusts, superannuation funds, sole traders and large investors.

The system will be phased in between 1 January 2014 and 1 January 2017 and will come into force as follows:

-Corporate tax Entity with a turnover over $1 billion: 1 January 2014

-Corporate tax entity with turnover over $100 million: 1 January 2015

– Corporate tax entity with a turnover over $20 million and other PAYG entities with a turnover over $1 billion: 1 January 2016

– Other PAYG entities with a turnover $20 billion: 1 January 2017.

Budget 2013: Personal income tax rates

The 2013 Federal Budget, released on Tuesday contained a number of significant taxation changes that will impact on individual taxpayers.

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.

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 rate for non-residents are 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.  Finally, 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.

Budget 2013: Self-education expenses capped

The Government announced in last night’s Budget its intention to limit the allowable deduction for self-education expenses by individual taxpayers to $2,000 per annum from 1 July 2014.

The limit will apply to all self-education expenses such as tuition, books, courses, computer equipment as well as travel and accommodation relating to seminars, courses etc.  However, the proposal is far reaching and will impact on individuals wanting to improve their professional qualifications. Small businesses can continue to help staff with additional training and skills by offering any courses or tuition as a fringe benefit, which will be exempt from any caps.

Budget 2013: Personal income tax rates

The 2013 Federal Budget, released on Tuesday contained a number of significant taxation changes that will impact on individual taxpayers.

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.

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 rate for non-residents are 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.  Finally, 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.

Budget 2013: Self-education expenses capped

The Government announced in last night’s Budget its intention to limit the allowable deduction for self-education expenses by individual taxpayers to $2,000 per annum from 1 July 2014.

The limit will apply to all self-education expenses such as tuition, books, courses, computer equipment as well as travel and accommodation relating to seminars, courses etc.  However, the proposal is far reaching and will impact on individuals wanting to improve their professional qualifications. Small businesses can continue to help staff with additional training and skills by offering any courses or tuition as a fringe benefit, which will be exempt from any caps.

Budget 2013:Medicare Levy increase affects small business

The increase in the Medicare levy from 1.5 per cent to 2 per cent, will effectively bring the top marginal tax rate to 47 per cent. This will not only impact on individual taxpayers but will have a flow on effect to small businesses. A number of tax laws that businesses regularly comply with apply the top marginal income rate as a penalty rate of tax.

As a result, the following common tax items will be subject to tax of 47 per cent, up from the previous 46.5 per cent:

–          Fringe Benefits Tax (FBT)

–          TFN and ABN Withholding Tax

–          Family Trust Distributions Tax

–          Trusts, where Section 99A applies to retained income

–          Excess non-concessional contributions to super (with tax on excess concessional contributions to increase to 32%)

Budget 2013: Medical expense tax offset to be phased out

The Government intends to phase out the out-of-pocket medical expense tax offset. Currently, a 20% tax offset can be claimed for eligible out-of-pocket medical expenses in excess of $2,060 per annum. For general medical expenses, only taxpayers who claim the offset for the 2013 income year will be eligible to claim in future years.

Individuals who have expenses relating to disability aids, attendant care or aged care will continue to qualify for an offset up to 2019.

Budget 2013:Medicare Levy increase affects small business

The increase in the Medicare levy from 1.5 per cent to 2 per cent, will effectively bring the top marginal tax rate to 47 per cent. This will not only impact on individual taxpayers but will have a flow on effect to small businesses. A number of tax laws that businesses regularly comply with apply the top marginal income rate as a penalty rate of tax.

As a result, the following common tax items will be subject to tax of 47 per cent, up from the previous 46.5 per cent:

–          Fringe Benefits Tax (FBT)

–          TFN and ABN Withholding Tax

–          Family Trust Distributions Tax

–          Trusts, where Section 99A applies to retained income

–          Excess non-concessional contributions to super (with tax on excess concessional contributions to increase to 32%)

Budget 2013: Medical expense tax offset to be phased out

The Government intends to phase out the out-of-pocket medical expense tax offset. Currently, a 20% tax offset can be claimed for eligible out-of-pocket medical expenses in excess of $2,060 per annum. For general medical expenses, only taxpayers who claim the offset for the 2013 income year will be eligible to claim in future years.

Individuals who have expenses relating to disability aids, attendant care or aged care will continue to qualify for an offset up to 2019.

Budget 2013: Changes to franking credit benefits

Various measures have been introduced by the Government to close the loophole that enables sophisticated investors to engage in double claiming from franking credits.

Under the proposed changes that are due to come into effect from 1 July 2013, the Government will ensure that when an investor sells shares ‘ex-dividend’, and then immediately buys equivalent shares which still carry the dividend entitlement (known as ‘cum-dividend’ shares), the investor will only be able to claim one set of franking credits.  The investor will not be able to claim franking credits otherwise available in respect of one of the two dividend entitlements.

The proposed changes will focus on tightening the 45 day ‘holding period rules’, and on the basis of these changes will not affect small investors with annual franking credit entitlements that do not exceed $5,000.