2013/14 Australian Federal Budget: how it affects me!

The recently announced Budget delivered no real surprises after the majority of the proposed changes had been drip-fed to the market in previous months. Wayne Swan blamed a stubbornly high Australian dollar and lower commodity prices for a dramatic fall of some $17 billion in forecasted tax receipts, leading to an estimated budget deficit for 2012/13 of $18 billion. And that was why there wasn’t the $1.5b surplus promised. He knew there was a high dollar and lower commodity prices a year ago... why did he not make appropriate changes then? Or tell us then that there would not be a surplus? If I gave this excuse to my board, I would be fired on the spot!

Key takeouts relevant to me
From a financial planning perspective
  • From a Financial Planning perspective, there have been a few changes in relation to superannaution and taxation which may have an impact on your personal situation. We have provided a brief summary on some fo the key changes.

  • Cap on Tax Free Earnings - At the moment, any income in the pension phase is tax free. From the 1st of July 2014, the tax free portion will be capped at $100,000 per individual. Any earnings above this will incur a 15% tax. There is no change to the taxation of lump sum withdrawals, these will still be tax free. There is however an exemption around the capital gains tax as this could cause many funds to exceed the $100,000 cap. For assets purchased prior to the 5th of April 2013, until the 1st of July 2024 the old tax system will apply (no tax in pension phase). This gives you ten years to structure your assets within the superannuation environment.
  • Refund of Excess Contributions Current excess contributions are taxed at 46.5%. Excess contributions will now be taxed at your marginal tax rate as opposed to the 46.5%. In addition, excess contributions can be withdrawn from the fund.
  • Higher Concessional Caps If you are aged over 60, from the 1st of July 2013 your concessional cap will increase from $25,000 to $35,000. From the 1st of July 2014, this will apply to anyone aged 50 and over. These amounts will be indexed.
  • Additional 15% tax for high income earners on concessional contributions For those that earn more than $300,000, an additional 15% tax will be applied to concessional contributions. These contributions include superannuation guarantee and salary sacrifice Contributions. If you earn more than $300,000, you need to review your super contributions.

Taxation/Cash Flow/Social Security
  • Cap on Self Education Expenses There will be a cap of $2,000 on self education expenses that can be claimed in a Financial Year.
  • Replacement of Baby Bonus This change has attracted the most attention. Essentially the baby bonus will be replaced by the Family Tax Benefit A.
  • Increase of 0.5% in Medicare Levy Another of the well documented changes. The increase in the Medicare levy will be used to help fund DisabilityCare Australia.(.05% on 100k taxable income is $500 - well worth it to support disabled kids and education!!) 
  • Ending of discount of early repayment of HECS/HELP debt From the 1st of January, there will be no discount for up-front and voluntary payments of HECS and HELP debt
  • Given the uncertainty around which changes will be implemented, it is very much a wait and see approach for everyone. If you have any questions, please don’t hesitate to contact on of our Advisors.

From an Innovation Perspective 
  • More timely R&D credits for smaller business Quarterly payments of the 45% refundable tax offset from 1 January 2014for companies having a turnover of less than $20 million. This measure is designed to provide a cash flow benefit to SME’s as they will not need to wait until lodgement of their income tax return for their refundable R&D tax offset. There are a number of tests in the draft legislation that potentially make it difficult for those companies, at which the assistance is targeted, to actually qualify for the payments. BSI have made submissions to treasury in this regard.
  • Denying Companies with turnover of $20b or more to access R&D Incentives encouraging R&D for conglomerates to go offshore! This measure was announced in February and and is expected to affect 20 corporate groups including large banks, miners, refiners, retailers and telcos. Whilst the budgeted savings may be significant ($1.1 billion over the forward estimates), the potential cost to the economy from these corporates potentially shifting R&D activities and other operations offshore could be massive!