2011-12 Federal Budget Overview
Taxation and Superannuation
The Federal Treasurer handed down the 2011-12 Federal Budget on 10 May 2011, promising to get Australia back into the black, get more people into jobs and spread the opportunities of the mining boom mark II.
Australia’s deficit for 2010-11 is estimated to be $45.7billion and is also estimated to return to a modest surplus of $3.5 billion in the 2012-13 income year.
Some of the measures announced on Tuesday night drew on the Henry Review’s Australia’s Future Tax System Review. The Gillard Government noted since the 2010-11 Budget, it has announced 12 measures identified by the Henry Review.
A number of the changes announced in Tuesday's Budget were minor amendments, including some changes to the capital gains tax and goods and services tax (GST).
The significant tax and superannuation changes announced in Tuesday's budget are set out below.
Businesses
Small businesses
An immediate write-off of $5,000 will be available for small businesses that purchase motor vehicles from the 2012-13 income year. The remaining balance can then be transferred to the general small business depreciation pool (depreciated at 15% in the first year and 30% in later income years).
The Entrepreneurs Tax Offset (ETO) will be abolished from the 2012-13 income year.
These measures form part of the proposed small business tax reforms to be introduced in 2012-13 income year, including:
Cars and fringe benefits tax (FBT)
The current Statutory Formula 4-percentage rate scale for valuing fringe benefits will be replaced with a single statutory rate of 20%. The change will be phased in over four years (as set out in the table below) and will only apply to new vehicle contracts entered after 7:30pm (AEST) on 10 May 2011. Existing vehicle contracts will be grandfathered.
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Distance travelled during the FBT year
(1 April – 31 March)
|
Statutory rate (multiplied by the cost of the car to determine a person’s car fringe benefit)
|
|
Existing contracts
%
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New contracts entered into after 7:30pm (AEST) on 10 May 2011
|
|
From 10 May 2011 (%)
|
From 1 April 2012 (%)
|
From 1 April 2013 (%)
|
From 1 April 2014 (%)
|
|
0 – 15,000 km |
26
|
20
|
20
|
20
|
20
|
|
15,000 – 25,000 km |
20
|
20
|
20
|
20
|
20
|
|
25,000 – 40,000 km |
11
|
14
|
17
|
20
|
20
|
|
More than 40,000 km |
7
|
10
|
13
|
17
|
20
|
The log-book (Operating Cost) method will continue to be available.
Charities
A statutory definition of “charity” for all Commonwealth laws will be introduced effective 1 July 2013. Consultation on this definition will be undertaken - the Government has indicated that the definition will be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations. The introduction of a statutory definition of charities may impact on the status of current charities and not-for-profits.
Charities' tax concessions will be reigned in and be available only for unrelated commercial activities that are directed to further the charity’s altruistic work. Further impacts of this measure include:
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Charities will pay income tax on profits from unrelated commercial activities that are not directed back to their altruistic purposes (i.e. the earning they retain in their commercial undertaking);
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Charities will not have access to FBT exemptions or rebate, GST concessions, or deductible gift recipient support for their unrelated commercial activities;
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This reform will not affect the use of tax concessions to further charities' altruistic purposes, even where the charitable operation is conducted commercially. For example it will not affect non-for-profit hospitals, op-shops that sell second hand household items and clothing, charitable child care centres, and businesses whose purpose is to provide meaningful employment to disabled persons.
The tax treatment of unrelated commercial activities of charities will commence on 1 July 2011 and will initially apply to new unrelated commercial activities commencing after 7:30pm (AEST) on 10 May 2011. Transitional provisions phasing out the current tax treatment for unrelated commercial activities of charities are expected to be introduced. The Government will be consulting on this change.
A new independent statutory agency, the Australian Charities and Not-for-profits Commission (ACNC) will become responsible for determining the legal status of groups seeking charitable, public benevolent institution and other not-for-profit benefits for all Government agencies. From 1 July 2011, the ATO will separate its role of determining charitable status from the role of administering tax concessions. The ACNC will commence operation from 1 July 2012.
Individuals
There are no changes to personal tax rates however the flood levy will apply to individual taxpayers with a taxable income over $50,000 for the 2011-12 income year only (for details of the flood levy see Hill Rogers Spencer Steer Roundup – April 2011.
Minors - low income tax offset on unearned income
From 1 July 2011, minors will no longer be able to access the low income tax offset (LITO) to reduce tax payable on unearned income (such as dividends, interest, royalties and other income from property). As such their tax free-threshold for unearned income will return to the $416 threshold.
Unearned income of minors that are orphans or disabled, as well as compensation payments and inheritances received by minors will not be affected by this measure.
Low income tax offset
The proportion of the LITO received in an individual’s week-to-week pay slip will increase from 50% to 70% effective from 1 July 2011. Affected individuals will receive more of their LITO upfront, with the remaining 30% continuing to be paid as a lump sum on the assessment of the income tax return.
Private health insurance 30% rebate
Treasury officials have confirmed that the Federal Government is planning to re-introduce a package of bills which will result in income testing access to the 30% private health insurance rebate. While this was not formally announced as part of last night’s budget, it is anticipated that the bills will be reintroduced during the Budget session.
Superannuation
Refund of excess concessional contributions up to $10,000
The Government will provide eligible individuals with the option to have excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax.
This measure will apply where an individual has made excess concessional contributions of up to $10,000 (not indexed) in a particular year and will only be for breaches in respect of 2011-12 or later years, and only for the first year in which the breach occurs.
The government said it will consult with the superannuation industry on the implementation of this measure.
The measure provides no relief to individuals who may have incurred excess contributions tax by breaching the concessional contribution cap in the 2007-08, 2008-09, 2009-10 and 2010-11 financial years. It will also provide no relief for individuals who inadvertently breach their non-concessional contribution cap either before or after 1 July 2011.
Operation of the higher cap for over 50s
The Government will set the proposed higher concessional contributions cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000, to $25,000 above the “general” $25,000 concessional cap. In other words, the differential between the caps will always be $25,000 which will be added to the indexed concessional cap.
Increased SMSF levy
The SMSF levy will increase from $150 to $180 with effect from the 2010-11 income year. The increase will go towards funding the implementation of ‘stronger super’ reforms previously announced by the Government.
Minimum pension payments: 25% reduction for 2011/12
The Government will phase out the pension drawdown relief that has been provided over the 2008-09, 2009-10 and 2010-11 years. Minimum payment amounts for account-based, allocated and market linked pensions will be reduced by 25% for 2011-12 and will return to normal in 2012-13. This measure was introduced to assist holders of these pensions to recoup capital losses incurred as a result of the global financial crisis.
For example, for 2011-12, the minimum payment amount for a pensioner under age 65 will be 3% of the account balance.
Government co-contribution
In last year’s budget the Government announced that the income thresholds for the superannuation co-contribution would be frozen until 30 June 2012. This year the Government announced that this freeze will continue for an additional year. Under the co-contribution scheme the Government provides a matching co-contribution of up to $1,000 for contributions made into superannuation out of after-tax income.
This measure will continue to freeze the co-contribution income thresholds at $31,920 and $61,920 respectively until 30 June 2013.
Greater use of tax file numbers (TFNs)
The Government will allow superannuation fund trustees to make greater use of TFNs to locate member accounts and to facilitate the consolidation of multiple member accounts. This measure delivers on the Government’s election commitment.
Payslips
The Government will ensure that employees receive information on their payslips about the amount of superannuation actually paid into their account. Employees and employers will also receive quarterly notification from their superannuation fund if regular payments cease, with effect from 1 July 2012. This measure delivers on the Government’s election commitment.
October Tax Forum
The Federal Government has indicated that the October Tax Forum (Forum) will provide an opportunity for participants and the broader Australian community to have their say about options for further reforming Australia’s tax and transfer system. The Federal Treasurer is expected to release a discussion paper concerning the Forum in the middle of the year.
The Forum is only scheduled for two days and sessions will focus on discussions concerning personal tax, transfer payments, business taxes, environmental and social taxes and system governance. The Gillard Government has reaffirmed it will not consider those parts of the Henry Review it rejected and has ruled out increasing Australia’s GST rate.
For any queries regarding the taxation aspects of the Budget please contact Steve Fitzsimons on 02 9232 5111 or Steve.Fitzsimons@hr-ss.com.au
For any queries regarding the superannuation aspects of the Budget please contact Garvin Jones on 02 9232 5111 or Garvin.Jones@hr-ss.com.au
