Superannuation
Superannuation was once more targeted by the Treasurer as a source of ‘savings’. Almost $2.5 billion of the savings in the Budget come from reducing the tax effectiveness of superannuation. This will be achieved through, firstly, halving the concessional tax rate for those earning over $300,000, and secondly, a new across-the-board concessional contribution cap of $25,000 (deferring the higher $50,000 cap for the over 50s for two years).
Halving of concessional tax rate
Leading up to the Budget the Government announced that it would halve the concessional tax rate for superannuation contributions for higher income earners, ie, those earning over $300,000. The Government has argued that those on very high incomes get the greatest tax benefit from superannuation’s concessional tax treatment and that it is only fair they pay more. From 1 July 2012, individuals with income greater than $300,000 per annum will have the tax concession on their contributions reduced from 30 per cent to 15 per cent (excluding the Medicare levy).
While the measure has some attraction from an equity perspective, it is also likely there will be a flow through effect. If reducing the taxation incentive results in a reduction of funds invested into superannuation or simply a reduced total pool of funds, then all consumers are impacted through reduced returns.
This measure is also likely to reduce confidence in superannuation as a savings vehicle, through changes in the rate of the concession and increased uncertainty around changes in the rules. However, the basic premise of superannuation, which is to encourage people to lock away savings for the long term by receiving concessional tax treatments, has not changed.
Deferment of higher contribution cap for older Australians
The IPA, as part of our pre-Budget submission, urged the Government to adopt a long-term and demographic-based approach to superannuation policy. We specifically called on the Government to provide more generous concessional contribution caps for those aged over 50 years, given their greater need to top up their nest eggs. The Government announced that Australians 50 years and over with less than $500,000 in superannuation balances would be permitted to contribute up to $50,000 through the concessional arrangements. This promise has now been deferred by two years. It is expected to affect around 150,000 people who currently take advantage of the higher cap for those over 50.
SMSF auditor registration
While the Minister has yet to announce (at the time of writing) the start date or specifics of the SMSF auditor registration measure, the Budget indicates that the registration system will start 1 January 2013. Funding has been allocated to both ASIC and the ATO to assist with registration of SMSF auditors. However, the Budget papers also state that these funds will eventually be recouped through user fees.
While the specific fee amounts have not been revealed, it has been clarified there are likely to be three types of fees: one fee to sit the exam (where required), another for registration and a third for an ongoing annual licence.
Small business and tax
The Federal Budget did not go far enough to assist small business. Given that the small business sector contributes approximately 30 per cent to Australia’s GDP, over 50 per cent of private sector employment and over 95 per cent of all businesses, it is the Institute’s view that this sector needed greater recognition in this Budget and in the Government’s policy agenda. There are, however, certain measures which will provide small business owners with much needed relief.
From 1 July 2012, the Government will introduce a new asset write-off regime that allows a small business owner to write off immediately business assets they buy that cost less than $6500.
The 2012/2013 Budget Papers state that this initiative is intended to “improve the cash flow and reduce red tape for up to 2.7 million small businesses (with a turnover of less that $2 million)”.
Assets bought by a business that cost $6500 or more will be depreciated in a single pool at 30 per cent. These assets must be depreciated at 15 per cent in the first year.
A further feature in the 2012-13 Budget is the ability for small businesses to claim an immediate deduction of up to $5000 for new or used motor vehicles bought after 1 July 2012, which has already been legislated.
The Budget also provides for businesses to carry back tax losses. The Federal Treasurer 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 provision 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 losses of up to $1 million to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.
It was announced earlier this year that the Federal Government intends to appoint a small business commissioner and has set aside $2 million to fund the establishment of the office.
An additional $28 million in funding has been given to the Small Business Advisory Service (SBAS). This provides funding to service providers across Australia that give advice to small businesses. The Budget Papers state that this service will be made ongoing.
Company tax rate cut shelved
The Treasurer has announced that the proposed reduction in the company tax rate to 29 per cent will not proceed. The reason given by the Treasurer is that it had become clear that the proposed tax rate cut would not be approved by Parliament.
Personal tax changes
Various dependant tax offsets will be consolidated into a single, streamlined non-refundable offset from 1 July 2012. The new offset will only be available to taxpayers who maintain a dependant who is genuinely unable to work due to carer obligations or disability. The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many. Taxpayers who are currently eligible to claim more than one offset amount in respect of multiple dependants will still be able to do so.
Medicare levy thresholds up
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 $3007 (up from $2919). 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.
Changes to Family Tax Benefit
The Government introduced a range of measures 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. From 1 July 2013, the Government will also increase the maximum payment rate of FTB Part A by $300 pa for families with one child and $600 pa for families with two or more children. For families receiving the base rate, the increase will be $100 pa for families with one child and $200 pa for families with two or more children.
Means testing medical expenses offset
From 1 July 2012, the medical expenses tax offset will be means tested. For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles, $168,000 for families in 2012/13) the threshold above which a taxpayer may claim the medical expenses offset will be increased to $5000. In addition, the rate of reimbursement will be reduced to 10 per cent for eligible out-of-pocket expenses. People with income below the surcharge threshold will be unaffected.
Non-resident tax rates to change
The Government announced that it will adjust the personal income tax rates and thresholds that apply to non-residents’ Australian income. From 1 July 2012, the first two marginal tax rate thresholds will be merged. The marginal rate for this threshold will align with the second marginal tax rate for residents (35 per cent) and will apply to all taxable income below $80,000. This rate will rise again in June 2015 to 33 per cent.
LAFHA changes
Changes to the living-away-from-home allowance (LAFHA) will affect employees who either do not maintain a second home, or maintain two homes indefinitely. The Government announced it would better target people legitimately maintaining a second home for an initial period. This will limit access to the concession to employees who maintain a home in Australia and are living away from that home for work, and provide the tax concession for a maximum period of 12 months for an individual employee for any particular work location.
Schoolkids Bonus
The Budget contained a previously announced measure called the Schoolkids Bonus. This is a new cash payment which will be made to certain families with children at school. It will apply from 1 January 2013, and each year families will receive a payment of $410 for each child in primary school and $820 for each child in high school. The payment can be spent on anything and does not have to be related to education.
The new automatic payment will replace the Education Tax Refund (or offset) from 1 January 2013. 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.
