What's New @ Dewings?

The Federal Government announced this week that they will not proceed with a number of tax initiatives announced by the previous Labor Government. These are measures that were not legislated prior to the election. These measures include:

• The proposed $2,000 cap on claiming deductions for self education expenses. This is a welcome announcement. As we highlighted in a recent newsletter one of the biggest problems with this measure was that it proposed extending the definition of self-education beyond merely courses conducted at universities and other educational institutions. The effect would have been to limit self-paid training of almost any kind, including conferences and related travel.

• The proposed change to the way in which motor vehicle fringe benefits are calculated. This proposal had caused considerable consternation for both the car industry and salary packaging specialists, as it had the potential to make motor vehicles less attractive as a salary packaging tool - which could mean less cars being sold.

• The proposed tax on superannuation pensions where the income of the super fund exceeds $100,000. The Coalition had been largely silent on this measure prior to the election. Superannuation income is traditionally tax free for members that are receiving a pension, however Labor had proposed to tax any excess income over $100,000 at 15%.

Morgan Stanley here in Adelaide have released their September Investment Viewpoint.

"Australia and Germany head to the polls on the 7th and 22nd of September respectively. Barring any surprises, we expect the outcomes in both cases are unlikely to upset markets...We are cautiously optimistic and feel the worst is over, but Europe’s recovery is still fragile and the level of public debt remains a burden."

Read more: Morgan Stanley Investment Viewpoint September 2013

Amongst the recent bickering between the major parties over their respective budget costing announcements, the changes proposed by the Coalition for small-medium businesses may have been overlooked a little.

As a part of its promised $31 billion in savings, the Coalition has pledged to:

• abolish the instant tax write-off for assets costing less than $6,000;
• abolish the up-front deduction of $5,000 for the cost of a motor vehicle; and
• scrap the company loss carry back provisions, which allows companies that make a loss in one year to offset that loss against prior year profits (rather than carrying it forward and having to wait for future year profits to offset it) - effectively giving businesses a cash injection in the form of a tax refund.

This is indicative of more pain to come, regardless of who wins the election this weekend. A change in Government will likely not be the panacea for the economy that many expect as global economic factors, more than anything else, continue to weaken the Federal Budget position. A surplus is unlikely for a number of years yet, despite the rhetoric from both sides.

You can read more of of the Coalition's costing analysis here.

If you were 59 years of age or older as at 30th June 2013, you can now put away up to $35,000 in concessional superannuation contributions. 'Concessional' contributions are those amounts which are taxed at the lower super fund rate of 15%. It's this rate that makes superannuation such a tax effective savings strategy.

The previous cap on concessional contributions was $25,000 for everyone. This is part of an overall strategy to increase the concessional limit for all taxpayers. This same increase will apply for those aged 50 and over from 1st July 2014 and for all taxpayers by 1st July 2018.

If you are over 60 and have the funds available, this increase is welcome news and may result in your retirement nest egg being considerably larger. Please contact us if you'd like any further information.

Peak industry professional bodies have joined together to call on the government to abandon its proposal to cap self-education expenses at $2,000, as proposed in the recent Federal Budget.

Among them, the Tax Institute of Australia (TIA) has recently issued a media release calling the proposal 'bad policy' which will result in 'unintended consequences'. They, and other bodies, will continue to pressure the government to consider alternative measures that would tighten the existing law to prevent exploitation without penalising those legitimately seeking to further their education by funding it themselves.

We hope the government reconsiders this blunt initiative, and will continue to keep you posted.

You can read the full text of the TIA's media release here.