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Federal Budget 2011/2012
The 2011-2012 Federal Budget has outlined a number of taxation changes the government plans to implement in order to bring the budget back to surplus. These changes may have an impact on you as taxpayers in the areas of Personal Taxation, Superannuation, Business Taxation and Capital Gains Taxation.
Should you have any queries or to make an appointment to discuss your circumstances, please call your usual contact at Wise Lord & Ferguson on (03) 6223 6155 or contact us
The 2011-2012 Federal Budget has outlined a number of taxation changes the government plans to implement in order to bring the budget back to surplus. These changes may have an impact on you as taxpayers in the areas of Personal Taxation, Superannuation, Business Taxation and Capital Gains Taxation.
The changes that may affect you include:
Personal Taxation
Personal Taxation
1) Low Income Tax Offset brought forward to result in more money in pay packets
From 1 July 2011, the Government will increase the proportion of the low income tax offset (LITO) that is delievered through worker's weekly pay packets. This means that taxpayers will be taxed less during the year, instead of being compensated after they put in their tax return at the end of the financial year. Please note however that there has been no change to the amount of LITO available to taxpayers.
2) The Flood Levy
The government did not make any changes to the currently legislated tax rates. However if your income exceeds $50,000 in the 2011-2012 financial year you will be liable to pay the flood levy, which is 0.5% of your income between and $50,001 and $100,000 and 1% from $100,000 onwards. This levy will only apply to the 2011-2012 financial year.
3) Minors are no longer entitled to the low income tax offset on unearned income
In order to discourage income splitting between adults and children, minor’s (children under 18 years of age) access to the low income tax offset (LITO) for unearned income will be removed from the 1 July 2011. Therefore they will no longer be able to use LITO in order to reduce the tax payable on unearned income such as dividends, interest, rent, royalties and other income from property. This will greatly reduce the amount discretionary trusts are able to distribute to minors tax free.
4) The inability to claim self-education expenses against government assistance payments
The government will amend the tax law to disallow deductions to be claimed against all government assistance payments, with effect from July 2011. That does not stop students who received Youth Allowance from claiming a deduction for the 2010-2011 tax year, or the $550 deduction for the 2006-2007 to 2009-2010 tax years.
Superannuation
1) A higher concessional contribution cap for those 50 and over
The government will set the concessional cap at $25,000 above the normal cap for tax payers 50 and over with superannuation balances of less than $500,000.
2) Increase in minimum pension drawdowns
At the start of the global financial crisis, the minimum annual payment amounts for pensions and annuities were reduced by 50% to assist with superannuation fund cashflow. For people under 65, this meant a reduction from 4% to 2% per annum of the account balance. In 2011-12, this reduction will change to 25% and will return to the standard minimum rate from 2012-13 onwards.
3) The presence of information relating to superannuation contributions made by your employer on your payslips.
Employees will now receive information on their payslips about the amount of superannuation actually paid into their account. They will also receive quarterly notifications from their superannuation fund if regular payments cease. This will come into effect from the 1 July 2012.
4) Refund option for excess contributions of up to $10,000
From 1 July 2011 eligible individuals who breach the concessional contributions cap by up to $10,000 will be provided with a one off option to request that these excess contributions be refunded to them. Therefore, the excess contributions will be assessed at their marginal rate of tax, rather than the excess concessional contributions tax rate of 31.5%, which is in addition to the 15% contributions tax for the fund. Please note however, that this new refund option will only apply to first time breaches from 1 July 2011.
Business Taxation
1) The replacement of the Entrepreneur’s tax offset with a small business motor vehicle write-off
Instead of the Entrepreneur’s tax offset, small businesses will now be able to write-off the first $5,000 of any motor vehicle purchases from 2012-2013. The remainder of the purchase value can transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years.
This is meant to be in addition to the government’s proposed tax reforms for small businesses to be introduced in 2012-2013 that would:
Allow immediate write-off for all assets valued under $5,000(up from the $1,000 presently).
Allow a write-off for all other assets except buildings in a single depreciation pool at a rate of 30%, and;
A reduction in the company tax rates to 29% for incorporated small businesses.
2) A change in the statutory fraction relating to the measurement of car fringe benefits,
Over the next 4 years the government plans to progressively change the statutory fraction for newly purchased motor vehicles to a flat rate of 20%. All cars purchased before the 10 May 2011 will still be able to use the existing percentages. However, new statutory rates will be imposed on vehicles purchased after 10 may 2011. The new rates will be phased in over the next four years.
This means that the use of the operating cost method to calculate car FBT liabilities may become more appealing as employers upgrade their cars, as it may result in a lower taxable value than the statutory method may provide in the future.
Therefore, it is more important than ever to maintain log books to obtain the business percentage of the cars and record the running costs attributed to each car.
3) The change of the definition of “charity”
The government intends to ensure that the tax concessions provided to charities are targeted only at those activities which directly further its altruistic purposes. Therefore, income tax concessions such as the FBT exemptions or rebate, GST concessions or deductible gift recipient support will only be available in relation to profits generated by unrelated commercial activities that are directed back to a not-for profit entity to carry out its altruistic work. This will come into effect on the 1 July 2011.
Also a statutory definition of charity will be consulted on and introduced for all Commonwealth laws. This definition will then be used when determining or re-assessing the charitable status of not-for profits; therefore there may be some changes to the status of not-for profits in the near future.
4) Income tax relief and roll-over for water reforms
Amendments will be made to ensure that income tax, including CGT does not discourage State and Territory reforms to streamline governance arrangements applying to private water supply and drainage systems.
These changes will provide capital gains and capital allowance roll-overs to ensure that taxation does not hinder water reforms implemented by State and Territory governments.
Capital Gains Tax
1) The extension to main residence exemptions for special disability trusts.
The government will extend the 2009-2010 budget measure that provides a CGT main residence exemption to special disability trusts (SDTs). The measure will backdate the CGT main residence exemptions for SDTs to apply to CGT events happening in the 2006-2007 and later income years. The government will also provide a CGT exemption for assets transferred into a SDT for no consideration and will give a market value cost base for testamentary transfers
Personal Taxation
- Low Income Tax Offset brought forward to result in more money in pay packets,
- The flood levy,
- Minors no longer being entitled to the low income tax offset in relation to unearned income, and;
- The inability to claim self-education expenses against government assistance payments.
- A higher concessional contribution cap for those 50 and over,
- Increase in minimum pension drawdowns,
- The presence of information relating to superannuation contributions made by your employer on your payslips, and;
- Refund option for excess contributions of up to $10,000.
- The replacement of the Entrepreneur’s tax offset with a small business motor vehicle write-off,
- A change in the statutory fraction relating to the measurement of car fringe benefits,
- The change of the definition of “charity”, and;
- Income tax relief and roll-over for water reforms.
- The extension to main residence exemptions for special disability trusts.
Personal Taxation
1) Low Income Tax Offset brought forward to result in more money in pay packets
From 1 July 2011, the Government will increase the proportion of the low income tax offset (LITO) that is delievered through worker's weekly pay packets. This means that taxpayers will be taxed less during the year, instead of being compensated after they put in their tax return at the end of the financial year. Please note however that there has been no change to the amount of LITO available to taxpayers.
2) The Flood Levy
The government did not make any changes to the currently legislated tax rates. However if your income exceeds $50,000 in the 2011-2012 financial year you will be liable to pay the flood levy, which is 0.5% of your income between and $50,001 and $100,000 and 1% from $100,000 onwards. This levy will only apply to the 2011-2012 financial year.
3) Minors are no longer entitled to the low income tax offset on unearned income
In order to discourage income splitting between adults and children, minor’s (children under 18 years of age) access to the low income tax offset (LITO) for unearned income will be removed from the 1 July 2011. Therefore they will no longer be able to use LITO in order to reduce the tax payable on unearned income such as dividends, interest, rent, royalties and other income from property. This will greatly reduce the amount discretionary trusts are able to distribute to minors tax free.
4) The inability to claim self-education expenses against government assistance payments
The government will amend the tax law to disallow deductions to be claimed against all government assistance payments, with effect from July 2011. That does not stop students who received Youth Allowance from claiming a deduction for the 2010-2011 tax year, or the $550 deduction for the 2006-2007 to 2009-2010 tax years.
Superannuation
1) A higher concessional contribution cap for those 50 and over
The government will set the concessional cap at $25,000 above the normal cap for tax payers 50 and over with superannuation balances of less than $500,000.
2) Increase in minimum pension drawdowns
At the start of the global financial crisis, the minimum annual payment amounts for pensions and annuities were reduced by 50% to assist with superannuation fund cashflow. For people under 65, this meant a reduction from 4% to 2% per annum of the account balance. In 2011-12, this reduction will change to 25% and will return to the standard minimum rate from 2012-13 onwards.
3) The presence of information relating to superannuation contributions made by your employer on your payslips.
Employees will now receive information on their payslips about the amount of superannuation actually paid into their account. They will also receive quarterly notifications from their superannuation fund if regular payments cease. This will come into effect from the 1 July 2012.
4) Refund option for excess contributions of up to $10,000
From 1 July 2011 eligible individuals who breach the concessional contributions cap by up to $10,000 will be provided with a one off option to request that these excess contributions be refunded to them. Therefore, the excess contributions will be assessed at their marginal rate of tax, rather than the excess concessional contributions tax rate of 31.5%, which is in addition to the 15% contributions tax for the fund. Please note however, that this new refund option will only apply to first time breaches from 1 July 2011.
Business Taxation
1) The replacement of the Entrepreneur’s tax offset with a small business motor vehicle write-off
Instead of the Entrepreneur’s tax offset, small businesses will now be able to write-off the first $5,000 of any motor vehicle purchases from 2012-2013. The remainder of the purchase value can transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years.
This is meant to be in addition to the government’s proposed tax reforms for small businesses to be introduced in 2012-2013 that would:
Allow immediate write-off for all assets valued under $5,000(up from the $1,000 presently).
Allow a write-off for all other assets except buildings in a single depreciation pool at a rate of 30%, and;
A reduction in the company tax rates to 29% for incorporated small businesses.
2) A change in the statutory fraction relating to the measurement of car fringe benefits,
Over the next 4 years the government plans to progressively change the statutory fraction for newly purchased motor vehicles to a flat rate of 20%. All cars purchased before the 10 May 2011 will still be able to use the existing percentages. However, new statutory rates will be imposed on vehicles purchased after 10 may 2011. The new rates will be phased in over the next four years.
This means that the use of the operating cost method to calculate car FBT liabilities may become more appealing as employers upgrade their cars, as it may result in a lower taxable value than the statutory method may provide in the future.
Therefore, it is more important than ever to maintain log books to obtain the business percentage of the cars and record the running costs attributed to each car.
3) The change of the definition of “charity”
The government intends to ensure that the tax concessions provided to charities are targeted only at those activities which directly further its altruistic purposes. Therefore, income tax concessions such as the FBT exemptions or rebate, GST concessions or deductible gift recipient support will only be available in relation to profits generated by unrelated commercial activities that are directed back to a not-for profit entity to carry out its altruistic work. This will come into effect on the 1 July 2011.
Also a statutory definition of charity will be consulted on and introduced for all Commonwealth laws. This definition will then be used when determining or re-assessing the charitable status of not-for profits; therefore there may be some changes to the status of not-for profits in the near future.
4) Income tax relief and roll-over for water reforms
Amendments will be made to ensure that income tax, including CGT does not discourage State and Territory reforms to streamline governance arrangements applying to private water supply and drainage systems.
These changes will provide capital gains and capital allowance roll-overs to ensure that taxation does not hinder water reforms implemented by State and Territory governments.
Capital Gains Tax
1) The extension to main residence exemptions for special disability trusts.
The government will extend the 2009-2010 budget measure that provides a CGT main residence exemption to special disability trusts (SDTs). The measure will backdate the CGT main residence exemptions for SDTs to apply to CGT events happening in the 2006-2007 and later income years. The government will also provide a CGT exemption for assets transferred into a SDT for no consideration and will give a market value cost base for testamentary transfers
Should you have any queries or to make an appointment to discuss your circumstances, please call your usual contact at Wise Lord & Ferguson on (03) 6223 6155 or contact us
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