2014 Australian Post Budget Presentation

www.hanrickcurran.com.au2011-2012 Budget Update 12 May 2011

2014 Pre & Post Update

21 May 2013

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House Keeping Matters

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2014 Pre Financial Year End & Post Federal Budget Update

Jamie Towers, Tax Partner

May 2014


Budget Insights

Budget Summary Individuals Business Charities Recap on changes announced during

2014/14 and previously Tax Planning


Budget Summary

2012/13 final budget outcome - $1.5 Billion surplus - $18.8 Billion deficit

Mid Year Economic Outlook = $47 Billion deficit for 2013-14

Now Predicted Deficit for 2013/14 year = $49.9 Billion


Budget Summary 2014/15

Deficit of $29.8 Billion

Large Infrastructure spend

Broken promises on ‘no new taxes’ and various expenditure cuts

Fiscally responsible, but ill-targeted?


Budget Summary 2014/15

Key Questions for 2014 / 15

Which proposals will pass through Senate and when?

Will the MRRT be repealed?

Is Mr Hockey prepping for an increase in GST next year / next election?


Individuals

2% Budget Deficit Tax (temporary budget repair levy) – applies to individual’s incomes above $180,000

Medicare levy to increase to 2% (from 1.5%)

Dependent Spouse tax offset and Mature Age Worker tax offset abolished

All apply from 1/7/2014


Individuals

FBT Rate to increase in line with Levy increases

47% from 1 April 2014(previously 46.5%) 49% from 1 April 2015

Limited window tax arbitrage (1/7/14 – 31 March 15) 2%


Individuals

Family Tax Benefit (FTB) payments indexation frozen for 2 years

FTB Thresholds frozen for 3 years

Part B income limit reduced to $100,000

Various supplements reduced


Individuals

HELP (HECS) repayment threshold reduced to $50,638 from 1/7/2016

Indexation abolished – replaced with interest linked to Federal Gov’t 10 year bond rate (capped at 6%)


Individuals

National Rental Affordability Scheme – 5th round of funding and remaining uncommitted 4th round funding abolished

All previously committed funding will remain


Individuals

Pension Age to rise to age 70

48 year old in 2014 will need to wait until they are 70 to retire


Business

Very few changes for business

R & D incentives reduced by 1.5%

Managed Investment trusts scheme deferred


Business

Superannuation Guarantee – increased to 9.5% from 1/7/14 then frozen until 2018

Rises to 12% by 2022

Government Restart program – incentives for hiring older workers – up to $10,000

Entrepreneurs Infrastructure Program


Not for Profits & Charities

Changes announced by previous Government will not proceed

Commercial activities of charities will not be taxed

FBT and other concessions will remain


Previously announced changes

At time of election – 96 announced but unlegislated measures to change the tax system. Some going back to 2001.

14 December – 55 will not proceed, rest will proceed – some with amendments



Self Education Deduction Cap – Will not proceed

FBT Changes to cars – Will not proceed

Tax on pension earnings above $100,000 – Will not proceed



Dividend washing ‘loophole’ closed – ATO believes it is avoidance and treasury have issued draft legislation to stop it

Managed Investment Trusts – (originally a 2009/10 budget measure) – deferred another year



Government’s Minerals Resource Rent Tax (MRRT) repeal bill also proposed to repeal: Small Business $6,500 + $5,000 car

instant write-off Company loss carry back rules

Bill not passed by Senate Proposed to be re-introduced in July after

Senate change


Pre 30 June Tax Planning

After 30/6/2014 – additional 2.5% in “levies”

Reality – top marginal tax rate = 49% Bring forward expenses to get the tax

benefit now at 46.5% or defer 12 months to get a higher benefit at 49%?

Depends on cost of funding


Pre 30 June Tax Planning

Assuming tax planning for 2014 Defer invoicing Bring forward expenditure Write-off any bad debts Pay superannuation contributions

pre-30 June


Pre 30 June Considerations

Trust Distributions – ensure the trustee makes an income resolution and records it on or before 30 June 2014

Division 7A loans – have you charged interest and made the minimum repayment?


Federal Budget 2014/2015Superannuation Update

By Chris Campbell - Partner

May 2014


Superannuation Guarantee Superannuation Guarantee (SG) rate- increases to 9.5% from 1 July 2014

Currently an employer must pay 9.25% of an employee’s ordinary time earnings to a superannuation fund

Previous Government legislated to increase SG from 9% to 12% phased in over 7 years:





Election promise to freeze SG increasesat 9.25% for next 2 financial years

Senate rejected this proposal, along with Mining Tax abolition Bill in 2013


Superannuation Guarantee FreezeBudget:

Freeze Superannuation Guarantee (SG) rateat 9.5% from 1 July 2014 to 30 June 2018

SG increases raise employment costs for small business

Many employers already struggling financially

Reasonable decision to freeze SG rate increases until signs of economic recovery

YearSG Rate - % of ordinary time

earnings

2013/2014 9.25%

2014/2015 9.5%

2015/2016 9.5%

2016/2017 9.5%

2017/2018 9.5%

2018/2019 10.0%

2019/2020 10.5%

2020/2021 11.0%

2021/2022 11.5%

2022/2023 12.0%


Excess non-concessional contributions tax– abolished!

Non-concessional “undeducted” contributions:

Overview:

These are contributions to superannuation from your personal “after tax” savings

Non-concessional contributions (NCC’s) are:

Not taxed on entry or exit in a superannuation fund; &

Investment earnings while in a super fund are taxed at only 15% (or nil for pension funds)… rather than up to 49% if invested in your own name

Rules:

Non-concessional cap of $150,000* per person p.a. - 2013/2014*(increases to $180,000 from 1 July 2014)

“bring forward rule” if under age 65: 3x $150,000 = $450,000 over 3 financial years (3 x $180,000 = $540,000 from 1 July 2014)



Prior to Budget:

Excess Contributions Tax (ECT) on any excess over this cap taxed at 46.5%

A very harsh tax penalty imposed on private “after tax savings”

Complex rules, easy to make a mistake e.g:

Excess concessional “deductible” contributions reduced your non-concessional cap available

Some older personal life insurance policies are actuallysuperannuation plans, & premiums are NCC’s

Poor public understanding of the consequences of exceeding your cap

ATO unsympathetic to honest mistakes on assessment of ECT

Reform of ECT on excess concessional “deductible” contributions in 2013 did not extend to non-concessional contributions



Budget reforms announced:

Abolish Excess Contributions Tax (ECT) of 46.5% onexcess contributions over NCC cap

Require any NCCs in excess of your cap to be refundedto you from your superannuation fund, tax free;

Tax the earnings that were made on the excess NCCs while in super fund at your personal marginal tax rate:

1. Automatically amend your personal tax assessment to include earnings on excess NCC’s as reported by your superannuation fund

2. Allow a tax credit of 15% where these earnings were taxed in a superannuation fund (no tax credit for tax free pension funds)

3. Shortfall interest is likely to be charged on your amended assessment, back to 1 July of the year of the excess contribution

(this could be up to 2 years depending on when you lodge your personal tax return!)


Other Superannuation measures

Retired MPs & Superannuation – no pension increases

A proposed 12 month freeze on Parliamentary salarieswill also mean that the pensions of former MPs will be frozen from indexation increases for 12 months.

Military Superannuation

From 1 July 2016:

Establish a funded superannuation scheme for new members of the Australian Defence Forces

Close current Military Superannuation & Benefits Scheme to new members

Military personnel will also have a “choice of fund” for the first time

contributions to private sector superannuation funds; self managed superannuation funds (SMSFs)



Seniors Health Care Card eligibility

Current eligibility tests based on “adjusted taxable income”

“adjusted taxable income” is the sum of the following: taxable income foreign income total net investment losses employer-provided benefits, and reportable superannuation contributions

Seniors Card Eligibility Adjusted Taxable Income

Single $50,000

Couple (combined) $80,000

Couple – Illness separated (combined)

$100,000



Budget changes:

Seniors Health Care Card eligibility – expanded income test

“adjusted taxable income” to also include:

untaxed superannuation income e.g. tax free superannuation pensions paid to those over age 60

Test similar to deeming rules that apply to superannuation pensions for age pension purposes

Grandfathering of superannuation pensions in place before 1 January 2015

Indexation income limits by CPI


“The Budget is just the beginning of an ongoing economic repair process”

Future changes to superannuation?

• Risk of future tax changes to superannuation?

• Superannuation tax concessions are seen as an “expense” against income tax the Government would otherwise collect. Are they affordable?

• National Committee of Audit 2014 recommendations:

• Delay access to super benefits by increasing preservation age to 5 years below the Age Pension age:

• age 62 by 2027; then• 65 years by 2053; then• 70 years? ( in line with age pension)

Note: Currently super can be accessed by fully retiring or “transition to retirement” from age 55,

rising to age 60 over 5 years commencing from 1 July 2016


Superannuation – What didn’t change

Taxation of superannuation funds:

Accumulation Funds: interest & other investment earnings taxed @ 15%

Capital gains taxed at 10%**(15% - 1/3rd discount after 12 months)

Franking credits on dividends refunded (30% company tax – 15% = 15% tax refund)

Pension Funds: Tax free interest & other investment earnings

Tax free capital gains

Tax free dividends & franking credits refunded (30% company tax – nil super earnings tax = 30% tax refund


Financial Year Age 60 & Over Age 50 to 59 Under age 502013/2014 $35,000 $25,000 $25,0002014/2015 $35,000 $35,000 $30,000

2013/2014If you were at least age 59 on 30 June 2013, your cap is increased for the year ending on 30 June 2014 from $25,000 to $35,000. For all others it is $25,000.


Concessional Contributions

2014/2015If you will be at least age 49 on 30 June 2014, your cap will be $35,000 for the year ending 30 June 2015.

For all others the concessional cap will increase from $25,000 to $30,000 for 2014/2015.


Contributions: Personal tax deductible

“concessional”

Personal undeducted “non-concessional”

Employer 9.25% & salary sacrifice “concessional”

Deductible contributions & earnings taxed at 15%

Transition to Retirement Income Stream No need to retire, reduce working hours

(if you want to)

Supplement your personal income with a superannuation pension


Pension: Age 60+: Tax free

Age 55 to 59: 15% tax rebate **based on individual circumstances

Tax free earnings & capital gains


Financial Year Age 60 & Over Age 50 to 59 Under age 502013/2014 $35,000 $25,000 $25,000

More than one source of income & super contributions?

Contribution cap is are your personal limit from all sources

Deductible limits do not apply to employers

Up to taxpayer (not employer) to ensure Contribution Cap is not exceeded

Rules for Excess Contributions Tax

Excess concessional contributions included in your personal tax return at your marginal rate of personal income tax (less credit for 15% tax paid in super fund)

Automatic ATO personal assessment (amendment of your tax return)

Choice to pay personally or have 85% released from the fund

Beware! Assessment backdated to 1 July of year excess occurred

Concessional Contributions 2013/2014– Tips & Traps


Super Contribution Tax Deductions

ATO Tax Ruling TR 2010/1: When is a super contribution considered to have been made?

Cheque? When the cheque is “in the hands of the trustee of the super fund”. Even if

not banked e.g. by 30 June, is still “made” unless cheque is subsequently dishonored (Note: ATO says in TR 2010/1 if cheque dated on or before 30 June in an income year, must be banked within “a few business days”)

Electronic funds transfer?

Only when credited to receiving fund’s bank a/c, NOT when transferred from the contributors account. Beware internet transfers between different banks which may be next “working” day

Concessional Contributions 2013/2014– Tips & Traps


DisclaimerThis document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.

We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication.

These notes specifically contain factual information concerning the taxation and compliance implications of certain superannuation matters. The notes are intended as a guide only and may not apply to circumstances of particular individuals. Do not act on the contents of these notes without first obtaining specific advice from a qualified tax or legal professional about your particular circumstances.

Hanrick Curran Group, its associates and the presenter hereby disclaim any responsibility for persons relying in whole or in part on these notes or the information presented at this seminar.

The Corporations Act 2001 deems superannuation funds, self managed superannuation funds (SMSFs) and pensions to be “financial products” and may consider a recommendation to contribute to a fund, increase or decrease contributions, establish or join a SMSF, or to commence a superannuation pension to be financial product advice as defined by that Act. We are not licensed to give such advice. You should consider taking advice from an AFS License holder before making a decision on any financial product.

© Hanrick Curran, June 2014All rights reserved

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2014 Australian Post Budget Presentation

Economy & Finance

Transcript of 2014 Australian Post Budget Presentation