Debt levy tax

[pale ale]

Hi guys,
I am not really up with the new debt levy for those earning over $180k.
It appears I will probably earn about $185k this financial year.
Would it be wise to salary scrifice 6 or 7K into super on my final pay run for the year?
Would this save me a few thousand? Should I just forget about it as it would only be a small amount of extra tax?

thanks for any advice.

 

[alexlee]

Assuming your TAXABLE income is 185k (and not, say, 185k including super), the debt levy tax is.... ta dah!!!!! ONE HUNDRED DOLLARS!!!

Take a pill and chill.

 

[Scott No Mates]

But if you salary sacrifice $5-7k it will be taxed at 15% not 42% saving well over $1,000 in tax

 

[alexlee]

But if you salary sacrifice $5-7k it will be taxed at 15% not 42% saving well over $1,000 in tax

Yes, saving $1,000 in tax, the price being you have to lock it away until you're 65+, depending on your current age.

 

[Bantam Roosta]

Pale ale, the tax is 2% of anything over $180,000. It does not include your entire income once you cross the threshold, it only includes the amount above the threshold. So as Alex has pointed out, you will be out of pocket 2% of $5k, which is $100.

The bigger reason to reduce your income below $180,000 is for the total tax benefit. If you SS $5,000, you will save approx $1,600 (ex any fees), however, the cost is that you can't access the money for x years.

So, SS nothing and pay $2,350 tax on the $5,000, or SS $5,000 and pay $750 tax on the $5,000.

BR

 

[CHAOS]

Does anyone know if the 180k is applied per individual income?

Just asking because the Gov likes to family income together when it suits.

 

[Scott No Mates]

There would be a revolt if it were family or household income. It applies to single incomes.

 

[CHAOS]

Thanks Scott

we have been having the part-time v full-time work option for 2015 discussion. So far the diff after tax is an increase of 10k - I haven't calculated the reduction in private health rebate or the additional medicare levy yet either. At least the debt levy is not applicable

 

[pale ale]

Thanks guys! I thought I would only get taxed extra on the amount over $180k. Not worth the hassle for $100.

 

[Ed Barton]

It doesn't come into effect until next FY.

 

[baby blue eyes]

I don't think you will be able to sal sac away. These levies and taxes generally apply to adjusted taxable income and that includes sal sac to super, fbt etc...

 

[Bantam Roosta]

It doesn't come into effect until next FY.

Good point. Sometimes we miss the obvious.

I don't think you will be able to sal sac away. These levies and taxes generally apply to adjusted taxable income and that includes sal sac to super, fbt etc...

I think super will be ok. To account for the 'loophole' created by SS, FBT for the next three years goes up 2% to 49% from 1 April 2015 until 31 March 2017 so that you can't dodge the debt levy. However, Super SS is not considered a fringe benefit for tax purposes, so this would be ok. Some basic discussion on the possibilities here.

BR

 

[Ed Barton]

I don't think you will be able to sal sac away. These levies and taxes generally apply to adjusted taxable income and that includes sal sac to super, fbt etc...

Which may include investment losses.

 

[Paul@PFI]

The deficit levy will be applied to those with an adjusted taxable income that exceeds $180,000.

ATI is a complex formula but is fairly simple. Its taxable income plus investmnet losses (ie neg gearing) plus salary sacrifice amounts (other than exempt benefits) plus extra super etc.

Salary sacrifice may not work since its an add-back. eg extra super doesnt work. Even using exempt fringe benefits (eg paying strata fees by sal sac) doesnt work since your income falls by say $3k but also rises by $3k if the deduction is lost.

 

[Paul@PFI]

Good point. Sometimes we miss the obvious.

I think super will be ok. To account for the 'loophole' created by SS, FBT for the next three years goes up 2% to 49% from 1 April 2015 until 31 March 2017 so that you can't dodge the debt levy. However, Super SS is not considered a fringe benefit for tax purposes, so this would be ok. Some basic discussion on the possibilities here.

BR

For a taxpayer aged over preservation age and working then maximising salary sacrifice and a TTR pension straegy would already be a prudent tax saving strategy and already save that taxpayer around $5800pa. This would be worth far more than being concerned for a mere $100 levy.

(Assuming top marginal rate and max $35Kpa employer super v's SGC 9.25% on $180K)

For a taxpayer aged under preservation age who cant use the TTR strategy then a contribution will still result in the levy but would deliver tax savings on the SS contribution that offsets it (by a factor of 7.5 to 1). Just remember its preserved.

 

[Paul@PFI]

Which may include investment losses.

Correction ; Which does include investmnet losses.

 

[speary]

Hi Paul,

Do you have a link to where it state that the debt levy will be applied to adjusted taxable income? Everything I have read suggests taxable income, and a quick google search says taxable income, and most reports talk about the loophole of salary sacrificing etc. to beat the levy.

 

[Paul@PFI]

The EM to the Bill before Parliament clearly outlines that the levy will be assessed on taxable income. However the integrity measures also include increases to other tax rate incl FBT rates etc so avoidance is countered.

The FBT "loophole' exists for one year. Its still draft. I wouldnt be surprised if the FBT rate was adjusted for "year one" to equalize out any benefit. This bill will be chalenge to get through with the year one issue. (Year one the measurer raises no $) There is also a "exempt" group who wont have benefits wound back eg hospital and other workers will have their FBT cap raised for the 3 years to avoid unintended tax on their exempt benefits.

Its unusual that this issue has been give such media attention v's its impact on so few. For workers on $300K pa the impact of the Div43 tax on super is something that got little press.