2012-13 FEDERAL BUDGET WRAP
|Last night the Treasurer handed down his fifth Federal Budget and managed to deliver a surplus – just. The Government is projecting a $1.5bn surplus for 2012-13 on the back of a $44bn deficit in the current financial year – a turnaround that will be partly funded through $33.6bn in Budget savings. |
The Government is calling this a “traditional" Labor Budget, commentators prefer the term “Robin Hood" Budget” – either way it is appears to be a very political budget framed to provide the most assistance to lower and middle income earners.
The Treasurer has taken away things we were promised but never had, such as the reduced tax on interest income, the standard work-related tax deduction and the cut to the company tax rate – all recommendations of the Henry Tax Review. Instead the Budget has delivered a no-strings yet means-tested “Schoolkids Bonus” of up to $820 for each child in secondary school and $410 for those in primary school, as well as further boosts to hand-outs and welfare payments to help cushion household budgets in the lead up to the 2013 election.
There was some good news for small business with a confirmation of the business carry-back of losses and implementation from 2012-13 of the instant asset write-off.
Below is an outline of the major announcements.
No changes to personal tax rates for Australian residents
The Treasurer did not announce any changes to the tax rates legislated as part of the carbon tax bills to apply from 1 July 2012 (see Boyce e-Newsletter Issue 2 | 2012 for details).
Tax changes for non-residents
Non-residents will pay more income tax with those earning below $80,000 to be taxed at 32.5% from 1 July 2012, rising to 33% from 1 July 2015.
Non-residents will also no longer have access to the 50% CGT discount on capital gains accrued after 7.30pm (AEST) on 8 May 2012. The CGT discount will remain available for capital gains that accrued prior to this time where non-residents choose to obtain a market valuation of assets as at 8 May 2012.
Standard tax deduction and discount for interest income – both scrapped
The Government reneged on an earlier promise by announcing it would not proceed with the standard tax deduction for work-related expenses, saying that it is instead implementing other simplification measures such as increasing the tax-free threshold to $18,200 from 1 July 2012.
The Treasurer also said that the Government will not be proceeding with the 2010-11 Budget announcement of a 50% discount on the assessability of interest income which was to commence on 1 July 2013.
No-strings Schoolkids Bonus and Family Tax Part A to increase
In one of the many pre-Budget announcements, the Prime Minister revealed that the Government would make a no-strings cash payment to families of school aged children – to be called the Schoolkids Bonus. This automatic payment will replace the Education Tax Refund and parents will not be required to substantiate expenditure.
This measure will deliver to families in receipt of Family Tax Benefit Part A, a bonus of $410 for each child in primary school and $820 for each secondary school child.
The Opposition has cynically labelled the decision to make the first Schoolkids Bonus payment to families in June 2012 rather than post 1 July 2012 “an accounting fiddle” to help protect the Government’s surplus next year. It is also critical that there is no requirement by the Government for parents to spend the money on education expenses.
Increases to Family Tax Benefit Part A will mean up to $300 per annum extra for families with one child and up to $600 per annum for families with two or more children, effective from 1 July 2013.
Mature Age Worker Offset phased out
The Government will phase out the mature age worker tax offset (MAWTO) from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in 2011-12.
To assist older Australians who wish to continue to work, the Government will provide a Jobs Bonus to employers who recruit and retain a worker aged 50 or over for three months.
Flood and cyclone levy exemptions expanded
The Budget papers confirmed the Treasurer’s announcement on May 6 that people who suffered flood damage in 2012 will be made exempt from the flood and cyclone levy that applies for the 2011-12 financial year. Anyone who was eligible to receive the Australian Government Disaster Relief Payment (AGDRP) will be exempt from the levy, even if they did not apply or receive the payment.
The flood and cyclone levy is still scheduled to cease on 30 June 2012.
Medical Expense Offset to be means tested
The Government will means test the medical expenses tax offset from 1 July 2012.
Currently the medical expense tax offset or rebate for 2011-12 is 20% of the excess over $2,060. This is indexed annually to CPI.
The Government has announced that for people with taxable incomes above $84,000 for singles and $168,000 for couples or families, the threshold above which a taxpayer may claim the medical expense offset will be increased to $5,000 (indexed annually). In addition the rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses.
Higher income earners may see this as something of a double-hit when taken with other health-related changes such as the income test on private health insurance rebates. People with incomes below the thresholds will be unaffected.
Company tax cut canned
The Government will not proceed with the measure to lower the company tax rate by 1% from the 2013-14 income year, nor implement an early start to the company tax rate cut for small businesses from the 2012-13 income year. This measure was initially sold as the business community’s ‘dividend’ from the mining tax.
The Treasurer justified the Government’s back-flip by saying that it was clear that the proposed company tax rate cut would not be supported in the Parliament.
Businesses to be allowed to carry-back losses and access immediate asset write-offs
In a Federal Budget that contains relatively few spending initiatives for the 2012-13 year, the Treasurer delivered support for small business by formally announcing the loss carry-back tax break for companies, 90 per cent of which it estimates will go to businesses earning under $2 million.
The Treasurer commented that the Government recognises the “patchwork economy” in Australia and this measure will provide support to businesses in need and allow them to compete.
A one year loss carry-back will apply in 2012-13, where tax losses incurred in that year can be carried back and offset against tax paid in 2011-12. For 2013-14 and later years, tax losses can be carried back and offset against tax paid up to two years earlier. Companies will be able to carry back up to $1 million of losses each year providing a cash benefit of up to $300,000 a year.
The loss carry-back tax break will be available to companies and entities that are taxed like companies.
Small businesses will from 1 July 2012 also be able to access a $6,500 immediate asset write-off and a special $5,000 immediate deduction on the purchase of motor vehicles. These measures, which were announced well before yesterday’s Budget, are worth around $1 billion in 2012-13, according to Treasury. However in order to benefit, businesses will have to have ready money available to buy assets and make investments.
FBT - Living away from home allowance changes
The Treasurer announced measures to reduce tax concessions on living-away-from-home allowances (LAFHA) and benefits by “better targeting it at people who are legitimately maintaining a second home in addition to their actual home for an initial period.”
This will limit employers from being able to give tax concessions to employees who aren’t maintaining a second home, or who are maintaining two homes indefinitely. The tax concession will now only apply for a maximum period of 12 months in respect of an individual employee for any particular work location.
The new 12-month limit will not be applied to people working on ‘fly-in, fly-out’ arrangements, such as in the mining industry. Nor will it affect the tax treatment of travel and meal allowances paid to workers on short-term work trips.
The reforms 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 that time.
Increase to the concessional cap deferred
The Government will defer the higher concessional contributions cap for individuals 50 and over with superannuation balances below $500,000 from 1 July 2012 until 1 July 2014. All taxpayers, irrespective of their age or superannuation account balances, will be subject to the $25,000 concessional contributions cap for the 2012-13 and 2013-14 income years.
Deferring the start date of the higher concessional contributions cap will provide savings of $1.46bn over the next four financial years. It will have significant implications for salary sacrificing arrangements, deductions for personal contributions and transition to retirement (TTR) pension strategies.
Reduction of higher tax concession for contributions of “very high income” earners
From 1 July 2012, individuals with incomes greater than $300,000 will pay 30% contributions tax on their concessional contributions to superannuation - in essence a return of the superannuation surcharge.
The definition of ‘income’ for the purpose of this measure includes concessional superannuation contributions, adjusted fringe benefits, net rental losses added back, 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 is in excess of the threshold. Unfortunately this sees a return to the levels of complexity in superannuation that had been abolished not all that many years ago.
The SMSF Professionals Association of Australia (SPAA) believes that the introduction of this measure will undermine confidence in the retirement income system and argues that it will affect individuals at the peak of their earning capabilities and who may not have been able to adequately save for retirement due to broken working patterns. The Minister for Financial Services and Superannuation, Mr Bill Shorten, says there will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high-income earners.
New income support supplement
To assist with cost of living pressures, the Government announced a new supplement for eligible income support recipients including those on Newstart Allowance, Youth Allowance, and Exceptional Circumstances Relief Payment.
The new supplement will provide $210 per annum for singles and $175 per annum for each member of a couple and will be paid in two instalments in March and September each year, commencing 20 March 2013.
Heavy vehicle road user charges increase
Registered vehicles with a gross mass of greater than 4.5 tonnes operating on public roads will pay an increased Road User Charge from 1 July 2012.
The charge will increase from 23.1 cents to 25.5 cents per litre to be collected through a reduction in the fuel tax credit paid by the Commonwealth Government to heavy vehicle operators.
If you would like to discuss the impact of any of the 2012-13 Budget announcements to your business, please contact your local Boyce Accountant.
Source Information: Thomson Reuters 2012 Federal Budget Report, SMSF Professionals Association of Australia Federal Budget News Alert 8 May 2012
Image of the Treasurer, Wayne Swan courtesy of Daily Telegraph