BRM Holdich E-News
8 May 2012
2012 – 2013 Federal Budget
The following sections summarise the relevant taxation announcements made by the Federal Government in releasing the 2012 – 2013 Federal Budget on 8 May 2012.
Key proposed measures include:
- Confirmation of legislated changes to personal income tax rates and thresholds;
- Scrapping of the proposed company tax rate reduction;
- Companies to be able to ‘carry-back’ losses;
- More changes to Living-Away-From-Home Allowances;
- No changes to the previously announced small business depreciation measures;
- Doubling of superannuation contributions tax where the member’s income is over $300,000;
- Deferral to 1 July 2014 of the proposed $50,000 superannuation contributions cap for those aged 50 and over with superannuation balances below $500,000;
- Scrapping of the proposed standard tax deduction and 50% discount on interest income; and
- Schoolkids Bonus to replace the Education Tax Refund.
Please contact us should you require further information or would like to discuss any of these items.
Confirmation of Personal Income Tax Rates and Thresholds
The release of the Federal Budget has confirmed the already legislated changes to the personal income tax rates and thresholds to apply from 1 July 2012, these changes are detailed in the following table:
The impact of these changes is summarised as follows:
- The changes are intended to compensate lower income earners from the increased cost of living resulting from the introduction of the Carbon Scheme. This is achieved by increasing the tax free threshold from $6,000 to $18,200.
- However, as taxable income increases this benefit is effectively clawed back through increases in the next two marginal tax rates, being 15% to 19% and then 30% to 32.5%.
- Therefore, the income tax reduction is evident up to a taxable income of $37,000, with any benefit effectively phasing out once taxable income reaches $80,000.
- The tax payable on taxable incomes of $80,000 and above is unchanged.
- At the same time the low income tax offset reduces from $1,500 to $445 for the year ended 30 June 2013, making the effective tax-free threshold $20,542.
Note also that the Flood Levy applies for the year ended 30 June 2012 only.
Finally, remember that the passing of the Private Health Insurance Bills with effect from 1 July 2012 results in the medicare levy surcharge rate and private health insurance rebate changing where applicable based on the level of taxable income.
Company Tax Rate Reduction Scrapped
The Federal Government had previously announced that the company tax rate would reduce from 30% to 29% for the year ended 30 June 2014 and subsequent income years. Further, this reduction could be accessed by a company that is a small business entity sooner, for eligible companies this reduction was to apply from the year ended 30 June 2013.
These measures will now not proceed.
Companies to be able to ‘Carry-Back’ Losses
The proposal is to allow companies to ‘carry-back’ losses, offsetting past profits and hence receiving a tax refund for tax previously paid on that profit.
For the year ended 30 June 2013 a ‘one year loss carry-back’ will apply, tax losses incurred in the 2013 financial year can be carried back and offset against tax paid for the 2012 financial year.
For the year ended 30 June 2014 and subsequent years a ‘two year loss carry-back’ will apply, tax losses incurred in the year can be carried back and offset against tax paid for up to the previous two years.
The loss carry-back is capped at losses of $1 million, so the maximum cash benefit is $300,000. Further, the benefit will be limited to the company’s franking account balance.
Note that the measure relates only to companies, so many small businesses in sole trader, partnership or trust structures will not benefit from this measure. Further, the measure applies to revenue losses only, it does not apply to capital losses.
More information on how this measure will operate will be released by the Federal Government shortly.
More Living-Away-From-Home Allowance (‘LAFHA’) Changes
The Federal Government intends, after consultation, to introduce further legislation to ensure that LAFHAs are only available to employees who are legitimately maintaining a second home in addition to their actual home, and further to provide that tax concession for a maximum period of 12 months.
Note that this measure is not intended to apply to ‘fly in fly out’ arrangements, with these being excluded from the 12 month time limit.
Further, these changes are intended to apply from 1 July 2012 to arrangements entered into after 8 May 2012, and from 1 July 2014 to arrangements entered into prior to that date.
These changes are in addition to those previously announced, from 1 July 2012 these impact expatriates and move the operation of the LAFHA provisions from the fringe benefits tax legislation to the income tax legislation.
Other Business Measures
- The ‘Tax Breaks for Green Buildings’ program will now not proceed.
- The wine produce rebate will be amended to preserve the integrity of this scheme, ensuring that producers will not be able to claim multiple rebates for the same quantity of wine above the total wine equalisation tax payable, in particular where the wine is subject to blending and / or further manufacture.
- There is to be no change to the luxury car tax threshold.
- The Road User Charge will increase from 1 July 2012, reducing the related fuel tax credit.
No Changes to the Previously Announced Small Business Depreciation Measures
The budget has not proposed any changes to the previously announced small business depreciation measures that will apply from 1 July 2012.
These measures are:
- Increasing the small business immediate asset write off threshold from the existing $1,000 to $6,500; and
- Allowing small businesses to claim an upfront deduction of $5,000 for the purchase of motor vehicles, with the balance of the cost pooled for depreciation purposes.
Small businesses are generally those with an aggregated turnover of less than $2 million.
These measures will provide small businesses with tax deduction timing benefits where available. Where small businesses have the flexibility to manage their depreciable asset purchases and requirements consideration should be had to the timing of such purchases in light of these effectively accelerated depreciation write offs.
Doubling of Superannuation Contributions Tax where Income is above $300,000
The proposed measure is to from 1 July 2012 increase the superannuation contributions tax payable from 15% to 30% where the member’s ‘income’ is over $300,000. This measure therefore effectively reduces the superannuation tax concession for such taxpayers from 30% to 15%.
It is noted that:
- ‘Income’ for these purposes is likely to be similar to adjusted taxable income, and will include superannuation guarantee contributions.
- The measure will not apply to concessional superannuation contributions above the cap as these are effectively already taxed at the top marginal rate.
- The measure does not impact on the income tax rate payable by the superannuation fund on its earnings, being 15%, or on the tax exemption for assets supporting a pension.
- It is not yet clear how this additional tax will be collected, but it would appear likely that it will be collected from the superannuation fund receiving the contribution.
Deferral of Higher Concessional Contributions Cap for those Aged 50 and Over
The Federal Government will defer the proposed higher concessional superannuation contributions cap for those aged 50 and over with superannuation balances below $500,000 to 1 July 2014.
The existing higher cap ceases on 30 June 2012, so taxpayers aged 50 and over will only be able to make concessional superannuation contributions up to $25,000 for the years ended 30 June 2013 and 2014, the same limit as for all other taxpayers.
This deferral will potentially impact salary sacrificing arrangements, personal superannuation contributions and transition to retirement pension strategies for effected taxpayers.
Standard Tax Deduction and 50% Discount on Interest Income Scrapped
These measures were originally announced in the 2010 - 2011 Federal Budget and were anticipated to commence on 1 July 2013, however these measures will now not proceed.
Broadly the measures were to allow a standard tax deduction for work-related expenses and the cost of managing tax affairs, and to provide a capped 50% discount on the tax payable on interest income.
Schoolkids Bonus Cash Payment to Replace Education Tax Refund
This proposed Annual Non-taxable Payment (‘Payment’) will replace the Education Tax Refund (‘Offset’) from 1 January 2013 and will be $410 for each child in primary school and $820 for each child in high school.
The key difference is that this Payment is upfront whereas the Offset was claimed in an income tax return, it is therefore ‘automatic’ rather than being subject to substantiation of receipts from expenditure on eligible items.
However, in the same way as the Offset, this Payment will generally only be available to families receiving Family Tax Benefit Part A.
In transitioning from the Offset to this Payment the 2011 - 2012 Education Tax Refund is proposed to be paid to all eligible families as a lump sum in June 2012. Effectively this means that receipts and a claim in the 2012 income tax return will now not be required.
Limit on Employment Termination Payments (ETP) Offset for ‘Golden Handshakes’
The proposal is to limit the availability of the ETP Offset for ‘Golden Handshakes’, note that the measure does not impact on existing arrangements for genuine redundancy, invalidity, compensation and death ETPs.
From 1 July 2012 the ETP Offset will only apply to the part of the ‘golden handshake’ that takes the taxpayer’s taxable income to $180,000, the remaining ETP will be taxed at marginal tax rates.
The ETP Offset effectively taxes an ETP at a maximum tax rate of either 15% or 30% depending on preservation age up to an indexed cap.
Consolidation of Dependant Tax Offsets
It is proposed that from 1 July 2012 the various dependant tax offsets will be consolidated into one non-refundable offset. This new offset will be based on the highest rate of the existing offsets, effectively resulting in an increase in this offset for many eligible taxpayers.
Phasing Out of the Mature Age Worker Offset
It is proposed that the Mature Age Worker Offset be phased out from 1 July 2012 for taxpayers born on or after 1 July 1957 (ie those aged under 55 years).
Medical Expenses Offset to be Means Tested
It is proposed that the Medical Expenses Tax Offset be means tested from 1 July 2012. Currently this offset is 20% of the excess of eligible out-of-pocket medical expenses over $2,000.
The proposal is for the threshold to increase to $5,000 and for the offset to reduce to 10% for those taxpayers with taxable income above $84,000 for singles and $168,000 for families.
Removal of Capital Gains Tax (‘CGT’) 50% General Discount for Non-Residents
The proposed measure is to remove the CGT 50% General Discount for non-residents on capital gains accrued after 8 May 2012.
The discount will remain available for capital gains that accrued prior to 8 May 2012, non-residents will require a market valuation of assets at 8 May 2012 for this purpose.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
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Adelaide SA 5000