In this special OBT budget summary:
A couple of little tax ‘nasties’ in the 2013 Budget as the Government blitzes expenditure. For example, non-residents will be surprised to find they have been locked out of the 50% CGT discount from Budget night.
While the promised company tax rate did not eventuate, the other announced tax benefits aimed at small business remain.
The small business CGT concessions also remain intact. Plus lots of other small details, date changes and amendments of which to be aware.
If you have any queries or would like to discuss how the Treasurer’s announcements
apply to your particular circumstances, please call us at OBT on 07 3408 3444.
Personal tax rates – no changes to already legislated resident rates to apply from 1 July 2012
The Government did not make any changes to the currently legislated tax rates for residents that are to apply from 1 July 2012 – these were legislated in the package of carbon tax Bills that were passed and received Royal Assent in 2011. Note that the flood levy is also scheduled to cease on 30 June 2012.
The Clean Energy (Income Tax Rates Amendments) Act 2011 has amended the Income Tax.
Rates Act 1986 to deliver 2 rounds of tax cuts through increases in the tax-free threshold and corresponding adjustments to statutory tax rates and thresholds – the first, from 1 July 2012 and, the second, from 1 July 2015:
- from 1 July 2012, the tax-free threshold will be increased to $18,200, and the first 2 marginal tax rates will be increased from 15% to 19% and from 30% to 32.5%, respectively; and
- from 1 July 2015, the tax-free threshold will be $19,400, and the second marginal tax rate will be increased from 32.5% to 33%.
Note there are also changes concerning individuals and trustees and access to a tax-free threshold for those who are residents for only part of a year. From 1 July 2012, part-year residents and trustees will be able to access a tax-free threshold of at least $13,464. Their access to the remaining $4,736 of the full tax-free threshold will be pro-rated. From 1 July 2015, part-year residents and trustees will be able to access a tax-free threshold of at least $14,664. Their access to the remaining $4,736 of the full tax-free threshold will be pro-rated.
Low income tax offset The Clean Energy (Tax Laws Amendments) Act 2011 has amended the ITAA 1936 to adjust the operation of the low-income tax offset (LITO):
- from 1 July 2012, individuals will be entitled to receive the LITO if their taxable income is below $66,667. The maximum value of the LITO will be reduced from $1,500 to $445 and will be phased out at the rate of 1.5 cents for every dollar of taxable income over $37,000. Together with the other changes, this will mean low-income earners will have an effective taxfree threshold of $20,542; and
- from 1 July 2015, individuals will be entitled to receive the LITO if their taxable income is below $67,000. The maximum value of the LITO will be reduced to $300 and will be phased out at the rate of 1 cent for every dollar of taxable income over $37,000. Together with the other changes, this will mean low-income earners will have an effective tax-free threshold of $20,979.
Amendments to the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge Fringe Benefits) Act 1999 will increase the Medicare levy low-income thresholds and the associated phase-in limits. These changes will apply from the 2012-13 income year ie from 1 July 2012.
The Medicare levy low-income threshold for individuals entitled to an offset under s 160AAAA of the ITAA 1936 will be increased from $30,685 to $32,279. This threshold will apply to both seniors and pensioners entitled to the new seniors and pensioners tax offset (SAPTO) – see below. The low-income threshold amount for a single individual with no dependants will be increased from $18,839 to $20,542.
The Medicare levy family income threshold for individuals with a spouse and/or dependants who are entitled to an offset under s 160AAAA of the ITAA 1936 will be increased from $44,500 to $46,000. This threshold will apply for seniors and pensioners eligible for the new SAPTO.
The individual low-income threshold amount in the Medicare levy surcharge provisions will be increased from $18,839 to $20,542. As a result, taxpayers with income for surcharge purposes below $20,542 will not be liable to pay the Medicare levy surcharge on any taxable income and amount subject to family trust distribution tax they have received in the income year.
Note: The Government said the amendments would roll most of the LITO into the statutory tax rates and thresholds, “delivering tax cuts for taxpayers earning less than $80,000 per year”. When introducing the Bills on 13 September 2011, the Treasurer said that under the changes, “all taxpayers under $80,000 will pay less tax”. He said the Bills will mean that all taxpayers with taxable income up to $80,000 will get a tax cut from 1 July 2012 and again from 1 July 2015. Therefore, taxpayers earning above $80,000pa will not get tax cuts.
SAPTO: New tax offset combines SATO and pensioner offsets
The ITAA 1936 has also been amended to merge the pensioner tax offset with the senior Australians tax offset (SATO), creating a new seniors and pensioners tax offset (SAPTO). From 1 July 2012, the pensioner tax offset will no longer be available and all individuals previously eligible for the pensioner tax offset will be eligible for the SATO, which will be known as the seniors and pensioners tax offset (SAPTO).
Currently, the maximum amounts of SATO are: $2,230 for a single; $1,602 for a member of a couple not separated by illness; and $2,040 for a member of a couple separated by illness.
Recipients of “social security pensions” and “service pensions” under the Social Security Act 1991and the Veterans Entitlements Act 1986, as well as recipients of limited other benefits largely payable to pension recipients, will be eligible for the SAPTO so long as the individual is not in jail for the whole year. This accords with the requirements for the former SATO. Only benefits available to individuals fitting the description of pensioner are to entitle the individual to an amount of SAPTO.
A person entitled to both the SAPTO and the beneficiary tax offset in an income year will be able to claim one, but not both, of the offsets if they are of the same value, or the offset of the greater value if they are not the same.
In addition, the Medicare Levy Act 1986 has been amended to extend the income threshold at which recipients of the SATO are exempt from the Medicare levy to all recipients of the new SAPTO. From 1 July 2012, individuals exempt from the Medicare levy up to the income threshold applying to recipients of the pensioner tax offset will be exempt from the Medicare levy up to the income threshold applying to individuals entitled to the SAPTO (being the income threshold that formerly applied to individuals entitled to the SATO).
Standard tax deduction gets the chop
The Government announced that it would not proceed with the 2010-11 Budget announcement to allow a standard tax deduction for work-related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013. In its MYEFO statement released on 29 November 2011, the Government deferred the start date of the standard deduction by 12 months until 1 July 2013. The Government says this will provide savings to the Budget of $2bn over the forward estimates period.
The Government is pursuing other simplification measures such as tripling the tax-free threshold to $18,200 from 1 July 2012. The ATO is also continuing to make it easier for people to complete their tax return through improvements in pre-filling.
Discount for interest income not to proceed
The Government announced that it will not proceed with the 2010-11 Budget announcement for a 50% discount for interest income which was due to commence on 1 July 2013.
The Government said its public consultation process involving key sector groups, industry participants and consumer groups “revealed concerns with the complexity involved in calculating the discount and its overall effectiveness”. Based on this feedback from industry and stakeholders, the Government decided not to proceed with this measure.
The Government expects the discontinuance of the discount will provide savings to the Budget of $923.5m over the forward estimates period.
No strings Schoolkids Bonus cash payment to replace Education Tax Offset
On 6 May 2012, in the lead-up to the Budget, the Prime Minister announced that the Government would make a new no-strings cash payment, called the Schoolkids Bonus, to certain families with children at school. The announcement was confirmed in the 2012 Budget papers. It will apply from 1 January 2013, and each year, families will receive the Schoolkids Bonus worth:
- $410 for each child in primary school;
- $820 for each child in high school.
The new automatic payment will replace the Education Tax Refund (or offset) from 1 January 2013. Under the existing system, the Prime Minister said 1 million families were not claiming what they were entitled to – either claiming less than the full amount, or claiming nothing at all. That’s 80% of eligible families, she said.
According to the Prime Minister, because the payment is automatic and upfront, it means:
- Parents don’t need to keep receipts – it’s a guaranteed payment.
- Parents will receive the full amount every time, so families won’t miss out if they lose receipts.
- Parents don’t have to pay out of their own pocket, then wait months to get paid back through the tax system – the payment will be paid upfront, twice a year (in January and July each year), before the start of Term 1 and Term 3.
- No paperwork is required.
Note: Treasury has indicated that the Schoolkids Bonus will not be a taxable payment.
In the same way as the Education Tax Refund, the Schoolkids Bonus will be available to families receiving Family Tax Benefit Part A plus young people in school receiving Youth Allowance and some other income support and veterans’ payments.
As part of the transition to the new Schoolkids Bonus, the Education Tax Refund for 2011-12 will be paid out in full to all eligible families as a lump sum payment in June 2012. The Prime Minister said this means families will receive their full Education Tax Refund entitlement ahead of tax time – so parents won’t have to worry about keeping receipts or making claims when they do their tax this year.
Legislation to enable these changes is proposed to be introduced into Parliament in the Parliamentary sitting week 8-10 May 2012.
Limit on ETP offset for “golden handshakes”
The Government will limit the availability of the employment termination payment (ETP) tax offset.
At present, the ETP tax offset ensures that ETPs are taxed at a maximum rate of 15% for those over preservation age and 30% for those under preservation age, up to an indexed cap ($165,000 in 2011-12 and $175,000 in 2012-13).
From 1 July 2012, 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.
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.
Medicare levy thresholds increased for 2011-12
From the 2011-12 income year, the Medicare levy low-income thresholds will be increased for singles to $19,404 (up from $18,839 for 2010-11) and to $32,743 for those who are members of a family (up from $31,789 for 2010-11).
The additional amount of threshold for each dependent child or student will also be increased to $3,007 (up from $2,919).
The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2011 to $30,451 (up from $30,439). This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy while they do not have an income tax liability.
Date of effect: The measure will apply from 1 July 2011.
Changes to Family Tax Benefit Part A
The Government announced 4 changes affecting the Family Tax Benefit (FTB) Part A.
From 1 January 2013, the Government will limit eligibility for FTB Part A to young people under 18 years of age or, where a young person remains in secondary school, the end of the calendar year in which they turn 19.
Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance subject to usual eligibility requirements.
The Government will increase the maximum payment rate of FTB Part A by $300 pa for families with one child and $600 pa for families with 2 or more children. For families receiving the base rate of FTB Part A, the increase will be $100 pa for families with one child and $200 pa for families with 2 or more children.
The increased rate will come into effect from 1 July 2013.
Portability of payments
As part of the measures to reduce the period of time that people who travel overseas will continue to be paid, the FTB Part A payments above the base rate will be reduced to the base rate after 6 weeks of a temporary absence from Australia (down from 13 weeks). In addition, the current requirement that the portability period is not reset until the person has returned to Australia for a period of 13 weeks will be reduced to 6 weeks.
The changes will take effect from 1 January 2013.
Streamlining income reporting processes
The Government will provide $27.2m to streamline income reporting processes for recipients of FTB (and for holders of the Commonwealth Seniors Health Card) who are no longer required to lodge a tax return as a result of the Government’s tripling of the tax free threshold from 1 July 2012. This will allow people in the $6,000 to $18,200 income range to update their incomes online, over the phone or in person with the Department of Human Services, so that their FTB entitlement can be reconciled or CSHC eligibility determined.
Mature age worker offset to be phased out
The Government will phase out the mature age worker tax offset from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the tax offset will be maintained for taxpayers who are aged 55 years or older in 2011-12.
To help older Australians who wish to continue in work, the Government will provide a Jobs Bonus of $1,000 to 10,000 employers who recruit and retain a worker aged 50 or over for 3 months.
This reform implements another recommendation of the 2010 Henry Tax System Review.
Means testing medical expenses offset
The medical expenses tax offset will be means tested from 1 July 2012.
The Government announced that, 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 the medical expenses offset will be increased to $5,000 (indexed annually thereafter). In addition, the rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses incurred. People with income below the surcharge thresholds will be unaffected.
Company tax cut shelved
The Treasurer has announced that the proposed reduction in the company tax rate to 29% will not proceed. The reason given by the Treasurer was that it had become clear that the proposed tax rate cut would not be approved by Parliament.
The Treasurer added that the savings from not proceeding with the company tax cut will be used to fund other measures, including the loss carry-back arrangement for companies.
Businesses to be allowed to carry-back losses
The Budget confirmed the Treasurer’s announcement on 6 May 2012 that the Government would allow businesses to carry-back losses. Mr Swan said the proposed changes would “allow businesses to ‘carry back’ their losses, to offset past profits and get a refund of tax previously paid on that profit”. The carry-back will be available to companies and entities that are taxed like companies.
As part of the loss carry-back, from 1 July 2012, companies will be able to carry back up to $1m worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1m worth of losses against tax paid up to 2 years earlier.
The Treasurer said loss carry-back “received strong and widespread support” at the Tax Forum last year and was developed further in close consultation with business representatives and tax experts through the Business Tax Working Group, which recommended the measure in its Final Report on the Tax Treatment of Losses.
The Treasurer said the Government would release a Discussion Paper about the introduction of loss carry-back shortly.
Luxury Car Tax threshold – no change
Prior to the Budget, there had been calls for an increase in the Luxury Car Tax (LCT) threshold. In these austere times where the Government was looking for Budget savings, it was not surprising that those calls fell on deaf ears – the Budget did not make any changes.
The LCT threshold is currently (for 2011-12) $75,375 for fuel-efficient cars and $57,466 for other cars. For LCT purposes, fuel-efficient cars are cars that have a fuel consumption of 7 litres per 100 kilometres or less. The $57,466 threshold has moved very little since 2004-05 when it was $57,009. A so-called “luxury car” is a car with a GST-inclusive value above the LCT threshold. Generally, the LCT rate for cars delivered or imported after 3 October 2008 is 33%.
Superannuation contributions tax to double to 30% for incomes above $300,000
From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012.
Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates.
There will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners.
The definition of “income” for the purpose of this measure will include taxable income, concessional superannuation contributions (eg superannuation guarantee contributions and salary sacrificed contributions), adjusted fringe benefits, total net investment loss, target foreign income and tax-free government pensions and benefits, less child support.
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 that are in excess of the threshold. For example, someone with income excluding their concessional contributions of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), would have the reduced tax concession only apply to $5,000 of their contributions.
Importantly, the reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap of $25,000 and are therefore subject to excess contributions tax (ECT). Excess concessional contributions are effectively taxed at the individual’s top marginal tax rate and therefore do not receive a tax concession.
“Concessional contributions” for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. For members of defined benefit funds (both funded and unfunded schemes), it will include all of their notional employer contributions.
No change to taxation of super fund earning
The proposed measure is expected to save $946m over the forward estimates and will affect 128,000 individuals in 2012-13. Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details.
Date of effect
The measure will apply from 1 July 2012.
Higher concessional contributions cap for over 50s deferred to 1 July 2014
The proposed higher concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014.
Accordingly, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012-13 and 2013-14 income years. In 2014-15, the general cap is expected to increase to $30,000 through indexation, and the higher cap would then commence at $55,000 for eligible taxpayers aged 50 and over.
The annual $50,000 concessional contributions cap for those aged 50 and over was due to revert to the lower general concessional contributions cap of $25,000 from 1 July 2012. However, in response to the Henry Report, the Government proposed to allow individuals aged 50 and over with total superannuation balances below $500,000 to continue making up to $50,000 in concessional contributions beyond the scheduled end of the transitional period on 30 June 2012. The higher cap for eligible persons over 50 will not be indexed but instead set at $25,000 more than the general concessional contributions cap.
Deferring the start date of the higher concessional contributions cap by 2 years is expected to save $1.46bn over the forward estimates.
Date of effect: This measure will apply from 1 July 2012.
Small business measures
A number of announcements were made which benefit small business. These include:
- From 1 July 2012, small business entities will be able to write-off business assets costing less than $6,500 per asset.
- From 1 July 2012, small business entities will be able to write-off the first $5,000 of a new or used motor vehicle.
Note: These changes have already been legislated.
A federal small business commissioner will be established with a budget of $2m. The details and terms of reference have not been announced though the Commissioner will represent and advocate small business interests to the government.
The Small Business Advisory Service will be made ongoing with additional funding of $28m over four years. This will fund service providers across Australia to assist small business through additional support and advisory services.
Source: Budget Paper No 2; Prime Minister’s press release, 6 May 2012; Treasurer’s press release, 8 May 2012; Minister for Financial Services and Superannuation press release, 8 May 2012; publicaccountants.org.au