This levy will commence from 1 July 2014 and will apply for three years to 30 June 2017. As a result of this change, the top marginal tax rate will rise from 47 per cent to 49 per cent.The temporary levy is expected to raise $3.1 billion over the forward estimates period and will mean individuals with taxable incomes of $200,000 pay an extra $400 a year in tax, and those on incomes of $300,000 pay an extra $2,400 a year.

While the Temporary Budget Repair Levy is designed to apply to individuals with higher incomes, it may also impact individuals earning below $180,000. For example, if an individual sells an asset – like property or shares – and realises a capital gain, or if they are aged between 55 and 59 and take a superannuation lump sum benefit that includes a taxable component. If this pushes their total taxable income over $180,000 the debt levy will apply for that financial year.

For individuals who are affected by the levy, there are a number of strategies to consider.

Increase superannuation contributions

Contributing to superannuation via salary sacrifice in an effective strategy where contributions are made from your pre-tax salary. Given that contributions to superannuation are taxed at a flat rate of 15 per cent, this strategy is an effective way to build assets for retirement.

With the top marginal tax rate increasing to 49% salary sacrificing to superannuation could provide a tax saving of up to 34%. For example if an individual earning above $180,000 sacrificed $10,000 to superannuation they could receive a tax benefit of $3,400.

Please note: individuals earnings above $300,000 per annum may be subject to tax of up to 30% on concessional contributions to superannuation.

Borrowing for investment

Borrowing for investment purposes, otherwise known as gearing, is an effective strategy to accumulate wealth over time. This strategy effectively enables you to use the banks money to grow individual wealth.

One of the added benefits of ‘gearing’ is that the interest on your investment loan is tax deductible. If your interest cost is more than the income you receive from the investment this is referred to as ‘negative gearing.’ This amount is what is used to minimise your tax.

The increase in the top rate of tax would increase the benefit of negative gearing by 2 per cent. For example, an investor with a tax loss of $10,000 would currently receive a tax benefit of around $4,700. From 1 July 2014, this tax would increase to $4,900. Although nominal, every dollar makes a difference.

If you would like further information on how the Temporary Budget Repair Levy may affect you, or the appropriateness of the above strategies to your individual circumstances, please consult your financial adviser.