2012 Federal Budget Review

May 9, 2012

Greetings!
 

 

We have pleasure in enclosing a summary of the significant announcements from the Federal Government's 2012 Budget.

 

There are some great opportunities in tax planning in the lead up to 30 June 2012 as a result of the measures announced recently and in the federal budget.

 

In particularly if you are;

  • Aged over 50
  • Single and earn greater than $84,000
  • A family and earn greater than $164,000
  • Have private health insurance
  • Or an individual likely to earn greater than $300,000 in 2013 through sources other then salary and wages

 

There are genuine savings available, so talk to us now in preparedness for 1 July 2012.

 

Kind regards

 

Chris & Andrew

Leenane Templeton Chartered Accountants & Business Advisors

 

 

 

Highlights

 

2012/13 Federal Budget highlights

The Federal Budget for 2012/13 was handed down by the Treasurer, Mr Wayne Swan, at 7:30 pm (AEST) on 8 May 2012. The Budget was a fiscally tight one, designed to return the Budget to surplus. It contained anticipated tax changes, such as superannuation changes and the abolition of previously announced measures, such as the company tax rate cut and the Tax Breaks for Green Buildings. However, it also contained a raft of other tax measures, including significant changes to the tax loss measures and the decision not to proceed with the standard tax deduction and the interest discount.

 

Here are the tax and superannuation highlights;

 

 

Individuals & Families

 

Standard work-related expenses deduction will not proceed

The government has announced that it will not proceed with the standard deduction for work-related expenses which was announced in the 2010/11 Budget.

 

Source: Budget Paper No 2, p 36; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012.

 

 

 

50% discount for interest income

The government has announced that the 50% tax discount for interest income announced in the 2010/11 Budget will not proceed.

Source: Budget Paper No 2, p 35; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012.

 

 

 

 

Medical expenses tax offset tightened
A means test will be introduced for the net medical expenses tax offset (NMETO).
 
For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012/13), the threshold above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10% for eligible out of pocket expenses incurred.

 

Date of effect
This measure will apply from 1 July 2012.
 
Source: Budget Paper No 2, p 34; Treasurer's press release "2012-13 Budget builds on growing record of tax reform", 8 May 2012.

 

 

 

 

Dependency tax offsets consolidated
The eight dependency tax offsets will be consolidated into a single, streamlined and non-refundable offset that is only available to taxpayers who maintain a dependant who is genuinely unable to work due to carer obligation or disability.
 
The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.
 
The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. Taxpayers who are currently eligible to claim more than one offset amount in respect of multiple dependants who are genuinely unable to work will still be able to do so.

 

Date of effect

This measure will apply from 1 July 2012.

Source: Budget Paper No 2, p 35; Treasurer's press release "2012-13 Budget builds on growing record of tax reform", 8 May 2012.

 

 

 

Mature age worker tax offset to be phased out
The mature age worker tax offset (MAWTO) will be phased out for taxpayers born on or after 1 July 1957.
This will not affect any person who currently receives MAWTO.
Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in 2011/12.

 

Date of effect
This measure will apply from 1 July 2012.

 

Source: Budget Paper No 2, p 37; Treasurer's press release "2012-13 Budget builds on growing record of tax reform", 8 May 2012.

 

 

 

Medicare low income thresholds
The Medicare levy low income thresholds will be increased to $19,404 for individuals and $32,743 for families for the 2011/12 income year. The additional amount of threshold for each dependent child or student will also increase to $3,007.

 

The government will also increase the Medicare levy threshold for single pensioners below Age Pension age to $30,451 for the 2011/12 income year. This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.

From 1 July 2012, the low-income threshold for this group will be fixed at the level applicable to seniors entitled to the Senior Australians Tax Offset.

Source: Budget Paper No 2, p 37; Treasurer's press release "Keeping low-income earners exempt from Medicare levy", 8 May 2012.

 

 

 

Exemptions from flood and cyclone levies
Exemptions for the temporary flood and cyclone reconstruction levy (the temporary flood levy) will be extended to include individuals who were eligible for an Australian Government Disaster Recovery Payment (AGDRP) in 2010/11 even if they did not apply for and receive the payment, as required under the existing exemptions.

 

Exemptions from the temporary flood levy will also be extended to include those people who have been affected by a natural disaster in 2011/12. The classes of individuals to whom the extension apply are those who, in 2011/12:

  • are eligible for an AGDRP for a disaster event
  • are directly affected by a Natural Disaster Relief and Recovery Arrangements (NDRRA) declared disaster and would have met the AGDRP criteria, or
  • are a New Zealand non-protected special category visa holder who received an ex gratia payment from the Australian Government in relation to a disaster that occurred.

The government introduced the temporary flood levy for 2011/12 only to contribute towards rebuilding costs following the natural disasters that affected Australia in 2010/11.

Source: Budget Paper No 2, p 45.

 

 

 

School kids Bonus to replace education expenses tax offset
The education expenses tax offset will be replaced with a new Schoolkids Bonus of $410 pa for each primary school student and $820 pa for each secondary school student. The bonus will be paid to eligible families in two equal instalments in January and July each year. As a transitional arrangement for 2011/12, the education expenses tax offset will be paid out in full to eligible families in June 2012.

Date of effect
The payments will replace the education expenses tax offset from 1 January 2013.

 

Source: Budget Paper No 2, p 146; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012; Prime Minister and Deputy Prime Minister joint press release "Spreading the Benefits of the Boom", 8 May 2012.

 

 

Family Budget

 

 

 

Companies & Finance

 

Company tax cut will not proceed

The proposed measure to lower the company tax rate from 2013/14 and to implement an early start to the company tax rate cut from 2012/13 for small businesses will not proceed.

 

Source: Budget Paper No 2, p 22-23.

 

 

 

Company tax loss carry-back measures

Companies will be allowed to carry back tax losses in 2012/13 to offset against tax paid in 2011/12 to get a refund against the tax previously paid. From 2013/14, tax losses can be carried back and offset against tax paid up to two years earlier. Only tax losses of up to $1m can be carried back each year. The loss carry-back is also available to entities taxed like companies. It is only applicable to revenue losses and is limited to a company's franking account balance.

 

Date of effect

This measure will apply from 1 July 2012.

 

Source: Budget Paper No 2, p 39; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012; Prime Minister and Deputy Prime Minister joint press release "Spreading the Benefits of the Boom", 8 May 2012.

 

 

 

 

Further limitations on LAFHA

The tax concession for living-away-from-home allowances (LAFHA) and benefits will be reformed by limiting access to the concession:

  • to employees who maintain a home for their own use in Australia which they are living away from for work purposes (as previously announced), and
  • for a maximum period of 12 months in respect of an individual employee for any particular work location.

The 12-month limit will not affect the tax concession for "fly-in fly-out" arrangements. The treatment of travel and meal allowances given to employees travelling for short periods of up to 21 days will also not be affected by the changes.

 

Date of effect

The changes will apply from 1 July 2012 for arrangements entered into after 7:30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to such time.

 

Source: Budget Paper No 2, pp 24-25; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012.

 

 

 

 

International

 

 

Non-resident taxpayers: rate changes

The personal income tax rates and thresholds that apply to non-residents' Australian income will be adjusted. This will ensure that they better align with the rates and thresholds that will apply to residents over the forward estimates.

 

Date of effect

From 1 July 2012, the first two marginal tax rate thresholds will be merged into a single threshold. The marginal rate for this threshold will align with the second marginal tax rate for residents (32.5%) and will apply to all taxable income below $80,000.

 

From 1 July 2015, the same marginal rate will again rise from 32.5% to 33%.

 

Source: Budget Paper No 2, p 34; Treasurer's press release "2012-13 Budget builds on growing record of tax reform", 8 May 2012.

 

 

 

 

CGT discount for non-residents abolished

The 50% CGT discount for non-residents will be abolished for capital gains.

 

The CGT discount will remain available for capital gains accrued prior to this time where non-residents choose to obtain a market valuation of assets as at 8 May 2012.

 

Date of effect

This measure will apply to capital gains accrued after 7:30pm (AEST) on 8 May 2012.

 

Source: Budget Paper No 2, p 31; Treasurer's press release "2012-13 Budget Builds on Growing Record of Tax Reform", 8 May 2012.

 

 

 

Budget Time Dollars

 

 

 

Superannuation

 

Deferral of higher concessional contributions cap

The start date of the 2010/11 Budget measure increasing concessional contribution caps for individuals over 50 with low superannuation balances will be deferred by two years, from 1 July 2012 to 1 July 2014.

 

Under the higher concessional contributions cap measure, individuals aged 50 and over with superannuation balances below $500,000 will be able to make up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap.

 

The two-year deferral means that for 2012/13 and 2013/14, all individuals will be able to make concessional contributions of up to $25,000 per year as permitted under the general concessional contributions cap. In 2014/15, the general cap is likely to increase to $30,000 through indexation, and the higher cap would then commence at $55,000.

 

Source: Budget Paper No 2, p 40.

 

 

 

 

Concession for superannuation contributions reduced for high income earners

The tax concession which very high income earners receive on their concessional contributions will be reduced, so it is more in line with the concession received by average income earners.

 

Currently, the 15% flat tax on concessional contributions provides high income earners with a significantly larger tax concession than those on lower marginal tax rates. From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy).

 

The definition of "'income" for the purpose of this measure includes concessional superannuation contributions. If an individual's income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions in excess of the threshold. "Concessional contributions" for the purpose of the measure includes notional employer contributions for members of defined benefit funds.

 

The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to "excess contributions tax". These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.

 

Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details. It is estimated this measure will affect around 128,000 people in 2012/13, or 1.2% of people contributing to superannuation.

 

Date of effect

This measure will apply from 1 July 2012.

 

Source: Budget Paper No 2, p 41.

 

 

 

 

Employment termination payment tax offset

The government will limit the availability of the employment termination payment (ETP) offset so that only that part of an affected ETP, such as a golden handshake, that takes a person's total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

 

Amounts above this whole-of-income cap will be taxed at marginal rates. The whole-of-income cap will complement the existing ETP cap ($175,000 in 2012/13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

 

The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15% for those over preservation age and 30% for those under preservation age. Existing arrangements will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment-related dispute and death.

 

Date of effect

This measure will apply from 1 July 2012.

 

Source: Budget Paper No 2, pp 33-34; Treasurer's press release "2012-13 Budget builds on growing record of tax reform", 8 May 2012

 

Speak with Newcastle Accountants  Leenane Templeton for tax and accounting advice 

 

 

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