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HLB Mann Judd outlines common debt levy strategies

HLB Mann Judd partner Peter Bembrick has highlighted common strategies used to manage the two per cent debt levy introduced in this year’s federal Budget.

News Staff Reporter 08 September 2014
— 1 minute read

“The questions on everyone’s lips since Budget night have been ‘how does the new levy work?’ and ‘how can we avoid paying it, or at least reduce the amount we pay?’” said Mr Bembrick.

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The answer depends on the individual circumstance, Mr Bembrick said, but several strategies appear plausible.

On 1 April 2015 the FBT rate will become 49 per cent so that from that date there will once again be no advantage in salary packaging fringe benefits (other than those with specific concessions in the FBT legislation) as compared to paying expenses from after-tax salary.

However, there will be a nine-month window of opportunity from 1 July 2014 to 31 March 2015 where a two per cent differential does exist, and some short-term salary packaging may be worth considering, said Mr Bembrick.

“There will also be a greater incentive to maximise deductible superannuation contributions after 1 July 2014, and in this regard it helps that the concessional contribution cap for individuals under 50 increases from $25,000 to $30,000,” he said.

“Other strategies that people will seek to apply in the short term, as is always the case when taxes rise, include anything that acts to bring income forward into the 2014 tax year, or push deductions back into the 2015 year.”

“There is also likely to be an increased focus on earning income through private companies and family trusts during the next three years, especially with the company tax rate also going down to 28.5 per cent on 1 July 2014.”

“Common strategies may include retaining profits in a private company, and delaying paying dividends to individuals until after the debt levy has disappeared," Mr Bembrick said.

Those earning over $180,000 may be able to do some planning to minimise its effect, especially in the short term, but ultimately for most people any potential savings may not be worth the effort.

The levy will be two per cent of the excess, so for example someone with a taxable income of $300,000 for the 2015 tax year will pay a levy of just $2,400.

Because of this, “it is likely that the levy will be reasonably successful in achieving its objective of collecting additional revenue,” Mr Bembrick said.

HLB Mann Judd outlines common debt levy strategies
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