Last night, the Australian Government handed down the 2014/2015 Federal Budget.  Following several weeks of media leaks suggesting all Australians would be required to contribute through a combination of tax increases and welfare cuts, there were few surprises when the budget was finally delivered.

Pilot’s summary below outlines the major taxation related matters in the budget.

Personal Taxation

Temporary Budget Repair Levy

The Government announced the introduction of a Temporary Budget Repair Levy on earnings of more than $180,000 for the three years from 1 July 2014.  The levy is proposed to be 2% of taxable income in excess of $180,000.  Combined with the already announced increase to the Medicare levy to fund the National Disability Insurance Scheme, the top marginal rate (including applicable levies) will move to 49% from the same date.

It is likely that this increase in the effective top marginal rate to 49% will also impact a number of other taxes including excess contributions tax and tax withheld due to failing to supply a TFN or ABN.

Corporate Taxation

Fringe Benefits Tax (“FBT”) Rate Increase

As a result of the Temporary Budget Repair Levy, the FBT rate will also be increased from 47% to 49% to align with the top marginal tax rate (including applicable levies).  This change is proposed to take effect from 1 April 2015.

Reduction in Corporate Tax Rate

The Government has confirmed its commitment to cutting the corporate tax rate to 28.5% from 1 July 2015.  For large companies this reduction will offset the cost of the Government’s 1.5% Paid Parental Leave levy.

Reduction in Research and Development (“R&D”) Incentives

Due to the proposed reduction in the corporate tax rate by 1.5%, a corresponding reduction will be made to the R&D tax offsets available.  Note that it is proposed that this reduction take effect from 1 July 2014, a year earlier than the corporate tax rate cut.

Uncertainty Regarding Mineral Resource Rent Tax (“MRRT”) Repeal and Associated Measures

Several measures including the company loss carry-back rules, small business instant asset write off threshold of $6,500 and the small business upfront motor vehicle deduction were intended to be repealed together with the MRRT. As this bill stalled in the Senate, there is present uncertainty regarding whether these concessions will be able to be claimed from July 2014.

Superannuation Guarantee Rate Increase

To provide certainty to employers, the Government has announced that the increase in the Superannuation Guarantee rate to 9.5% will proceed from 1 July 2014 as currently legislated rather than leaving the rate at the present 9.25% rate as was proposed with the repeal of the MRRT. The announcement states this rate will stay in place until July 2018.

Not-For-Profit (“NFP”) Changes

Better Targeting of NFP Tax Concessions

In December 2013 the Government announced that it would not proceed with proposed measures to tax NFPs on activities which did not directly further their altruistic purpose but would explore simpler alternatives. It has now been announced that such measures are not required at this time and that the Government is not looking to introduce alternative measures.

FBT Exempt Cap Increase

In order to preserve the cash value of benefits received by employees of NFPs, the annual FBT cap (currently $17,000 and $30,000 depending on the type of employer) will be increased.

Next Steps

If you are concerned about the impact of these proposed changes on your business please contact Murray Howlett of our Taxation Services Division on (07) 3023 1300.