Mid-Year Economic and Fiscal Outlook (MYEFO) update … or the Mid-Year Budget
On Monday 22 October, the Federal Government released its earlier-than-normal Mid-Year Economic and Fiscal Outlook (MYEFO) update. The MYEFO contains a number of new announcements, and some withdrawals of previously announced programmes from recent budgets.
The content of the MYEFO update received mixed reviews, with some describing it as "a 'nip and tuck' tax mini-budget with a strong focus on cash collection", and others warning us that "(t)he government is cashing up the ATO to further investigate the small business sector, which it clearly perceives as low tax compliant.
As part of MYEFO, the government has discussed some measures relating to tax and superannuation which we have summarised below:
Monthly PAYG instalments for large companies
Tax instalments for large companies will be aligned with their income and trading conditions by requiring companies to make Pay As You Go (PAYG) income tax instalments monthly, rather than quarterly. This will also align large companies' PAYG instalments with their GST payments.
This reform will be phased in over three years, with companies moving to monthly PAYG instalments:
· from 1 January 2014 for companies with a turnover of $1b or more;
· from 1 January 2015 for companies with a turnover of $100m or more; and
· from 1 January 2016 for companies with a turnover of $20m or more.
Although this will not affect the final income tax liability of a company, it will have cash flow and compliance implications.
Tax administration - Directors liability for corporate fault
A number of provisions in the taxation laws that impose a personal liability on individuals involved in the management of a company (for example directors), for offences committed by the company, will be removed. Each of these provisions provides that where any notice, process or proceeding may be served on a company under a relevant tax law, the Commissioner may serve on a company director the same notice. That is, the Commissioner may, if the Commissioner thinks fit, hold a director of a company personally liable for a liability of the company.
The repeal of these particular tax provisions does not mean that directors cannot be personally liable for company tax. That is far from the position.
This measure forms part of a broader project to implement a nationally consistent approach for imposing personal liability on individuals for corporate fault, and removing excessive regulatory burdens on company directors.
Private Health Insurance (PHI) Rebate - Indexing the government's contribution
The government's contribution to PHI will be calculated using commercial premiums as at 1 April 2013 and then indexed annually by the lesser of CPI or the actual increase in commercial premiums.
Removal of rebate on lifetime health cover loading
The PHI Rebate on the Lifetime Health Cover (LHC) loading component of PHI premiums will be removed. The LHC loading is an additional 2% charge to a person's PHI premium for every year elapsed after their thirty-first birthday before they take out PHI. LHC loadings are only payable against the hospital component of a person's PHI premium. The measure will take effect from 1 July 2013.
Baby Bonus - reduced to $3,000
From 1 July 2013, the Baby Bonus payment for second and subsequent children will be reduced to $3,000. In addition, eligible families will remain able to claim Family Tax Benefit Part A and/or Part B, as well as the Child Care Rebate and the new Schoolkids Bonus, to assist them with the costs of raising their child.
Reform of living-away-from-home (LAFH) allowances and benefits
The start date of the reforms to LAFH allowances and benefits, announced in the 2011-12 MYEFO and the 2012/13 Budget, has been deferred from 1 July 2012 to 1 October 2012.
Removal of concessional treatment of "in-house" fringe benefits if accessed through a salary sacrifice arrangement
The concessional FBT treatment for in-house fringe benefits will be removed if they are accessed by way of a salary sacrifice arrangement. This measure will apply from 22 October 2012 for salary sacrifice arrangements entered into from its announcement on 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into prior to its announcement on 22 October 2012.
In-house concessions for non-salary sacrifice arrangements will remain.
In-house fringe benefits arise when employees receive goods or services from their employer or an associate of their employer that are identical or similar to those provided to customers by the employer or an associate of the employer in the ordinary course of business. The taxable value of such benefits were previously concessionally calculated (ie. 75 per cent of lowest sales price or value with a further annual $1,000 reduction in taxable value per employee).
Under the changes, the taxable value of in-house fringe benefits provided through a salary sacrifice arrangement will be either the lowest price at which an identical benefit is sold to the public or under an arm's length transaction, depending on the nature of the benefit.
Employers will need to be careful that any existing employee salary sacrifice arrangements for in-house benefits are "quarantined", to avoid accidentally breaching eligibility for the remaining 17 months of the transitional period. We expect a breach will arise where a pre-22 October 2012 salary sacrifice arrangement is re-negotiated, including by way of alternation, renewal or extension.
Self Managed Superannuation Fund (SMSF) levy reforms
The levy imposed on SMSFs will be reformed, by ensuring the levy is collected from SMSFs in a more timely way, and increasing the levy to ensure the Tax Office's costs of regulating the sector are fully recovered.
Payment of the SMSF levy will be brought forward such that it is levied and collected in the same income year. This will ensure consistency with APRA regulated funds, which pay the Superannuation Supervisory Levy in the same financial year it is levied. The change in the timing of the collection of the SMSF levy will be phased in over the two years 2013/14 and 2014/15.
In addition, the SMSF levy will be increased from $191 to $259 pa from 2013/14.
From 1 July 2012, the Government will amend the law to allow the tax exemption for earnings on assets supporting superannuation income streams to continue following the death of a fund member in the pension phase until the deceased member's benefits have been paid out of the fund.
This proposed continuation of the exempt current pension income (ECPI) provisions beyond the death of a member will be subject to the existing requirement for the benefits of a deceased member to be paid out of the fund as soon as practicable following the member's death.
Please do not hesitate to contact your Lowe Lippmann advisor if you wish to discuss any of these matters further.