Australian Company Incorporation Services

While the spending cuts announced in the government’s recent Federal Budget have received much of the publicity, there are several tax and superannuation issues that everyone must also heed.

Personal Taxation

The government announced several changes to personal taxation. In order to determine the impact of this change the following recommendations are made:

 The Budget Repair Levy

• Quantify the impact of the levy on your after-tax income for the three years to come
• Review your salary packaging arrangements to determine the impact of the higher FBT rate which also reflects the levy.
• Talk to your Chartered Accountant and assess the different outcomes which may result from legitimate tax planning ideas, such as bringing forward the timing of income, maximizing deductions, salary sacrifice and income splitting.

Changes to Family Tax Benefit

• The current Family Tax Benefit payment rates will be frozen for two years from 1 July 2014. Under this measure, indexation of the maximum and base rates of Family Tax Benefits Part A and the rate of Family Tax Benefit Part B will also be paused until 1 July 2016.
• From 1 July 2015, Family Tax Benefit Part B will be reduced when the primary earner’s income exceeds $100,000 per year (currently $150,000 per year).
• Talk to your Chartered Accountant to quantify the impact of these changes to your after-tax income.

 Company Taxation

The federal government announced several changes to the company taxation rates.

  A lower company tax rate (for some) from 1 July 2015

• A 28.5% tax rate for companies is expected to apply from 1 July 2015
• At a company level, consider the impact of the tax cut on after-tax profits and franking capability. Changes in the tax rate warrants an examination of business tax planning ideas with your Chartered Accountant
• At a shareholder level, consider the impact on future franked dividends and the associated tax offset for resident shareholders.

 The Paid Parental Leave levy on large companies with taxable incomes exceeding $5 million

• The benefit of the 28.5% company tax rate will be offset for large companies by the imposition of the Paid Parental Leave levy of 1.5% on that part of their taxable income exceeding $5 million.
• At a company level, the design and implementation of the levy should be the focus of tax implementation teams who will also need to communicate the impact of the levy to shareholders
• At a shareholder level, consider the impact on future franked dividends and the associated tax offset for resident shareholders.

Loss Carry Backs

The loss carry back was implemented by the previous Labour government, with effect from the 2012-13 income year. It provides a refundable tax offset for the current year that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is carried back. The offset is capped at the lesser of $300,000 or the entity’s franking account balance. The Coalition government wants to repeal this measure from the start of the 2013-14 income year, but the necessary legislation is contained in the MRRT Repeal Bill, blocked in the Senate.

 Small Business Measures

The Coalition has introduced legislation to lower the small business instant asset write-off from $6,500 to $1,000, and withdraw special rules for vehicle depreciation (which allow a deduction for the first $5,000 of the cost). Both measures are meant to apply from 1 January 2014 but the government has been unable to pass the legislation through the Senate. Until they are repealed, these concessions are still available under the law.

Announced, but ‘unenacted’ tax and superannuation measures

On 14 December 2013, the government announced its decision concerning ‘announced but unenacted tax measures’ with which it would proceed. These were measures identified by organisations such as the Institute of Chartered Accountants, deemed most important from a taxpayer certainty viewpoint. The Federal Budget includes reconsideration of these unenacted measures – specifically those to do with tax consolidation and managed investment trusts.

 Tax measures to proceed

The ‘to proceed’ measures include:

• Debt equity rules – limiting the scope of the integrity provision in section 974-80 of the Income Tax Assessment Act 1997 (Cwlth)
• Loss recoupment rules – multiple classes of shares
• Look-through treatment of earn-out arrangements for CGT purposes
• Changes to tax hedging rules (Taxation of Financial Arrangement provisions)
• Cross-border GST ‘connected with Australia’ rules
• Superannuation changes (fund mergers and unlawful payments from funds).

Protection for taxpayers who relied on announcements, but now find the tax measure will not proceed

Safe harbour measures have been developed to protect those taxpayers who relied on the announcement of specific tax changes, only to find the government will no longer proceed with them. This protective legislative measure is expected to be introduced to Parliament soon.

 Superannuation Guarantee

In response to uncertainty surrounding the rate at which the Superannuation Guarantee would apply from 1 July 2014, the government has confirmed that the 9.5% rate will apply and remain in place until 1 July 2018. This is essentially a ‘re-phasing’ of the eventual rate increase to 12%. Employers should talk to their Chartered Accountant about how to manage their Super Guarantee obligations and provide assistance designing workplace communications explaining the impact on employer-employee remuneration arrangements.

Superannuation Excess Contributions Tax

Excess non-concessional contributions to superannuation funds are currently taxed at penalty rates, up to as much as 93%. In a win for common sense, the government has announced that individuals who make excess contributions after 1 July 2013 can simply withdraw the excess component (and associated earnings). No excess tax will apply, and the related earnings will be taxed at the individual’s marginal rate.

For more advice about this, and the other tax and superannuation changes, contact us.