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Confused about Tax Legislation? Joe Hockey agrees!

Treasurer Joe Hockey yesterday told media that the Federal Government plans to drop a number of tax changes that were announced by the Labor Party while they were still in power, but will retain several more. Importantly, Mr. Hockey also highlighted that a number of pieces of tax legislation that have been announced to the public over more than 12 years had never yet been legislated.

96 tax announcements dating back to the Labor Government, and even before that to 2001 when Peter Costello was Treasurer, have somehow become waylaid in the Federal Government pending tray and never been legally enacted as legislation.

“You cannot go forward with a complicated and unresolved taxation system if you want to give business and consumers the best hope that what they work hard to achieve will be achieved,” Mr. Hockey told reporters in Sydney.

Some of the tax changes to be axed include:

  • The self-education expenses cap – Labor planned to limit self-education expense claims to $2000, but the Liberal Government has reversed that decision and claims will remain uncapped.
  • Fringe Benefits Tax crackdown on salary sacrificed cars – back in July, Kevin Rudd announced that the ‘Statutory Formula’ method of accounting for personal use of a motor vehicle would be scrapped, which would leave many people in a worse financial situation than they had been. The car industry predicted a significant slump in motor vehicle sales, and within days salary packaging companies like NLC had laid off as many as half their staff. The Liberal Party promised during the election campaign that they would reverse that decision, and Mr. Hockey yesterday confirmed that decision. As this was one piece of legislation that had not yet been passed through Parliament, there is in fact no further legislative action required. The traditional options of ‘Statutory Formula’ or ‘Operating Cost Method’ continue to be available. (And NLC has already restored 23 of the 72 jobs that it axed.)
  • 15% tax on Super Pensions above $100,000 per annum – all Australians get a tax break on their super contributions, and then expect to withdraw their savings as a tax-free pension when the time comes. The Labor Government proposed to tax the money coming out of those funds if it was greater than $100,000 per annum, but the Liberal Government has knocked that on the head as well. For now, your superannuation pensions will continue to be paid out tax free.

However, there are several Labor initiatives that the Liberal Government has pragmatically decided it will retain. The one which will get least argument in this regard is a series of increases to the cigarette tax. But they’re also phasing out the tax break for people with high medical expenses.  And, as per the Labor initiative, they’re cutting tax breaks on R&D for companies with income of $20 billion or more.

As we anticipated before the election, a number of Labor announcements have never made it into legislation. And the current Commonwealth Government certainly appears to be committed to improving consistency and transparency surrounding tax issues. A number of initiatives which were announced over the past decade may now make it formally into legislation, whilst others may be rescinded (expect more announcements to come over the next six months), but at the very least we expect that there will be greater clarity and less ambiguity.

Labor announces plan to tax Superannuation income streams

Superannuation Minister Bill Shorten and Treasurer Wayne Swan this morning announced Labor plans to tax Superannuation income streams above $100,000 at 15%, commencing on 1st July 2014.

Superannuation Minister Bill Shorten (Image: news.com.au)

“We all know that concessions can’t be open ended. Once you’ve achieved a comfortable level in retirement savings, you probably don’t need as much as those who haven’t gotten to that point.” Income streams up to $100,000 will remain tax free. In their media conference Shorten and Swan also announced a range of further reforms, including:

  • simplification of the design and administration of the higher concessional contribution caps
  • bringing forward to 1st July 2013 the commencement of the higher contributions concession cap for people aged 60 and over, who will be able to contribute up to $35,000 at concessional tax rates (those aged 50+ will  need to wait until 1st July 2014 for their $35,000 cap to kick in) – significantly, these higher caps will not be limited to individuals with superannuation balances below $500,000, as it was decided this would impose too high an administrative overhead
  • reforms to the excess contributions tax (ECT) to ensure that people who have contributed above the cap are not penalised with a level of tax above their normal marginal rate, and they have the opportunity to withdraw the excess contributions from their super fund if they so wish
  • extending the normal deeming rules to superannuation account-based income streams

If you have any questions about the impact this will have on you, and whether you need to make any changes to your current retirement planning, please contact Michelle Mulligan on (03) 9014 7125.

SMSF levies to rise from 2013-2014

The Federal Government recently announced that levies for self-managed superannuation funds will increase to $259 in 2013-14, an increase of more than one third from $191 this year.

The ATO will collect the levy during the year rather than waiting until tax returns are submitted.

The levy recently declined from $200, leading both the SPAA and Association of Superannuation Funds of Australia to query the size of the increase, arguing that greater transparency is needed around the ATO’s special levy relating to the introduction of a series of back office improvements.