How will the budget affect you?
On 14 May 2013, Treasurer Wayne Swan delivered his sixth annual budget. With a raft of reforms, spending cuts and tax changes, working out how the budget may affect you is a challenge.
Our accountants have spent the past week digesting this year’s budget and its implications for individual tax.
Below, we cover the changes that are most likely to impact on individual tax payers:
1. Income Tax Rates
In general, income tax rates will remain untouched by the budget. However, all plans to increase the tax free threshold from the current $18,200 to $19,400 in 2015 have been scrapped.
At this stage, the rates for 2013/14 are set to stay in place until at least 2017/18.
Tax Rates for Non Residents:
From next year (2013/14), non-Australian residents will pay a flat tax rate of 32.5% of their taxable income up to $80,000. For each dollar above $80,000 the tax rates will be same as resident Australians.
2. Medicare Levy
As previously announced in the weeks leading up to the budget, the compulsory Medicare Levy will be increased from 1.5% to 2%.
This will take effect from 1 July 2014 and will help fund the introduction of the National Disability Insurance Scheme.
3. Net Medical Expenses Tax Offset
The net medical expenses tax offset will slowly be phased out starting from 1 July 2013.
During the phase out period, it will also be harder to claim the offset. Only if you claim the offset in your 2012/13 tax return, can you then claim it again in 2013/14. Taxpayers who then claim it in 2013/14 can claim it again in 2014/15.
Unfortunately if you are not eligible to claim the offset in 2012-2013, you will not be able to claim the offset in future years.
4. Work Related Self-Education Expenses
In past years there has been no limit to the amount of expenses you could claim under item D4 in your tax return.
From 1 July 2014 this will change with introduction of a $2,000 limit for this item. For an in-depth look at items you can claim in this section, please take a look at our Self Education Expenses as a Tax Deduction blog.
5. Baby Bonus
The current $5,000 baby bonus will be abolished from 1 March 2014 – saving $1.1 billion over the next five years.
Instead – families who are eligible for Family Tax Benefit A will receive an extra $2000 following the birth of their first child and an extra $1000 for each subsequent child.