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14 May 14 Temporary budget repair levy Bills introduced

On 13 May 2014 the Parliamentary Secretary to the Treasurer introduced a package of Bills into the House of Representatives to enact a three-year progressive budget repair levy in the primary form of additional income tax on Australian resident and foreign resident individuals commencing in the 2014-15 financial year.

The levy is payable at a rate of 2% of each dollar of a taxpayer’s annual taxable income over $180,000. No levy is payable where the taxpayer has a taxable income of $180,000 or less except in cases where a tax law integrity rule applies the top personal marginal tax rate as a flat rate to certain types of income.

The package consists of the following Bills:

  • Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014
  • Income Tax Rates Amendment (Temporary Budget Repair Levy) Bill 2014
  • Family Trust Distribution Tax (Primary Liability) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Fringe Benefits Tax Amendment (Temporary Budget Repair Levy) Bill 2014
  • Income Tax (Bearer Debentures) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Income Tax (First Home Saver Accounts Misuse Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Income Tax (TFN Withholding Tax (ESS)) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Superannuation (Departing Australia Superannuation Payments Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Superannuation (Excess Non-Concessional Contributions Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Superannuation (Excess Untaxed Roll-Over Amounts Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Taxation (Trustee Beneficiary Non-disclosure Tax) (No. 1) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Taxation (Trustee Beneficiary Non-disclosure Tax) (No. 2) Amendment (Temporary Budget Repair Levy) Bill 2014
  • Tax Laws Amendment (Interest on Non-Resident Trust Distributions) (Temporary Budget Repair Levy) Bill 2014
  • Tax Laws Amendment (Untainting Tax) (Temporary Budget Repair Levy) Bill 2014, and
  • Trust Recoupment Tax Amendment (Temporary Budget Repair Levy) Bill 2014.

These Bills amend the Income Tax Assessment Act 1997, the Income Tax Rates Act 1986, the Income Tax (Transitional Provisions) Act 1997 and other taxation imposition and ratings Acts.

The temporary budget repair levy will also be reflected in a number of tax rates that are currently based on the top personal marginal tax rate (45%), as well as those based on a calculation comprising the top personal rate and the Medicare levy (currently 1.5%, but legislated to increase to 2% from 1 July 2014).

The levy in summary

The effect of these Bills is to introduce an additional income tax in the form of a three-year progressive levy on taxable incomes in the 2014-15 financial year and the two following years.

Individuals with a taxable income of $180,000 or less will not pay the levy except where their income (or part thereof) is subject to some other tax rate based on the top personal marginal tax rate or based on a calculation comprising the top personal rate.

Individuals with a taxable income of more than $180,000 will pay a 2% levy on that part of their taxable income above $180,000.

When a trustee has income that is taxed as if the income were that of an individual, the trustee will be liable for the levy where the net income of the trust to which the trustee is liable to be assessed and pay income tax exceeds $180,000.

The fringe benefits tax (FBT) rate will increase from 47% to 49%, so that the rate of FBT remains equal to the top personal marginal tax rate. However, to prevent lower income employees of not-for-profit institutions and hospitals and ambulance workers being adversely affected, changes are being made to existing exemption and rebate caps to maintain the cash value of those caps for the duration of the increased rate.

As the FBT year commences on 1 April and concludes on 31 March, the increase in the FBT rate is to be applied from 1 April 2015. To increase the rate part way through the FBT year would create a large administrative burden on employers. The increase in the FBT rate will cease on 31 March 2017 for a similar reason.

The levy cannot be reduced by non-refundable tax offsets. That is, the taxpayer’s income tax liability for an affected financial year is calculated as the taxpayer’s basic income tax liability on taxable income less the taxpayer’s tax offsets, to which the levy liability is then added. However, a taxpayer with excess foreign income tax offsets after applying foreign income tax offsets against the basic income tax liability may apply those excess offsets against the taxpayer’s levy liability.

Where a taxpayer has a tax liability as a result of the levy and is also entitled to credits, such as an entitlement to a refund of excess refundable tax offsets or PAYG withheld amounts, the Commissioner will apply the taxpayer’s credit entitlement against both the taxpayer’s basic income tax liability and levy liability under Division 3 of Part IIB of the Taxation Administration Act 1953.

For those taxpayers whose employers withhold tax throughout the year according to ATO withholding schedules, new withholding schedules will be issued by the Commissioner to take account of the levy, so that contributions are made towards the end of year tax liability throughout the year.

Upon enactment of these Bills, the Commissioner will generally be able to take account of the levy in determining the PAYG instalment amounts.

The levy will also be reflected in a number of tax rates that are currently based on the top personal marginal tax rate, as well as those based on a calculation comprising the top personal rate and the Medicare levy.

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