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Federal Budget 2014 – Personal Tax Income Measures

Article By Adam Hurwood | | Accounting & Tax

Introduction of a Temporary Budget Repair Levy (TBRL)

Effective date: 1 July 2014 (for a period of 3 years)

As speculated in the lead up to the Budget announcements, the Government has introduced a temporary 2% TBRL applying to high income earners. For a period of three years from 1 July 2014, the highest marginal tax rate of 45% will be increased to 47%.

The Government has also confirmed that a number of other tax rates that are currently based on calculations referencing the highest marginal tax rate will also be increased over the same period, such as the Fringe Benefits Tax (FBT) rate.

The TBRL will only apply to you if you have taxable income exceeding $180,000 and is only payable on the amount in excess of $180,000.

For example, if you had taxable income of $230,000, the additional 2% TBRL only applies to $50,000 (the amount above $180,000) resulting in an increase in tax payable (ignoring the Medicare Levy) of $1,000.

Removal of Dependant Spouse Tax Offset and Mature Age Workers Tax Offset

Effective date: 1 July 2014

The Dependant Spouse Tax Offset (DSTO) and the Mature Age Workers Tax Offset (MAWTO) will be abolished.

The DSTO is currently income tested and only available where, amongst other things, your adjusted taxable income is below $150,000. For the year ended 30 June 2013, the maximum DSTO was $2,423.

As a result of prior year Budget changes, the MAWTO is only available to those born before 1 July 1957 and has a maximum value of $500. The maximum offset was available for an income below $53,000.

Increase in the Medicare Levy Low Income Thresholds for Families

Effective date: 1 July 2013

The Government has announced an increase in the new Medicare Levy thresholds that are applicable for the current financial year (ending 30 June 2014), but for families only. The new threshold is $34,367 (previously $33,693). The threshold increases by $3,156 for each dependent child or student (the previous increase was $3,094).

Thresholds for individuals and pensioners will remain at their 2012/13 levels, being $20,542 and $32,279 respectively.

Pausing indexation of Medicare Levy Surcharge and Private Health Insurance Rebate Thresholds

Effective date: 1 July 2015 for a period of two years

The Government has announced that it intends to freeze the indexation of the thresholds used to determine your ability to claim a Private Health Insurance Rebate or be liable for the Medicare Levy Surcharge. The same threshold (based on an adjusted taxable income calculation) is used for determining both. This freeze will last for two years, with indexation due to recommence from 1 July 2017.

Changes to the Higher Education Loan Programme (HELP)

Effective date: 1 July 2016

HELP is a loan scheme which assists eligible fee paying students to pay their higher education fees off over time. Currently, the outstanding balance of HELP loans are indexed to CPI, and are not subject to repayment until the students adjusted taxable income exceeds the minimum repayment threshold ($51,309 for 2013/14).

The Government proposes 2 major changes to the programme:

The annual indexation of outstanding HELP loans will be changed to the rate equivalent to the yields on 10 year bonds issued by the Australian Government (capped at 6%). Under the current rules, the outstanding debt is indexed to CPI resulting in an effective interest rate of 0%.

A new minimum repayment threshold will be established for the repayment of HELP debts, set at 90% of the minimum threshold which would otherwise have applied in 2016/17. This new threshold is estimated to be $50,638 in 2016/17.