Federal Budget 2011-2012
Well the Federal Budget came and went last night. As with recent Labor Budgets, there were no surprises announced by Wayne Swan as the key elements have been announced over the past few weeks.
Our take out is that the Government is faced with the challenges of bringing the budget back to surplus, meeting the demands of the Independents and Greens to get any legislation passed, adhering to their own philosophy of wealth distribution and an economy that is booming in the mining sector but subdued in other sectors. Below you will find some details that may be relevant to you and a video presentation of my take outs from last night.
Whilst most measures will need legislation to be introduced, it is important to have a plan in place to maximise existing opportunities and to be positioned appropriately for any potential changes.
If you have any questions about how the Budget or other Government measures may impact you or your family please do not hesitate to me at the office on 9436 2867.
2011-2012 Federal Budget Report
As anticipated the Government addressed excess concessional contributions and will commence phasing out the minimum pension drawdown. The disability support pension received much attention with increased scrutiny around work capacity and new participation requirements but more flexibility in working hours. Before any of these announcements can be implemented, legislation will need to be passed through Parliament.
Phasing out dependant spouse tax offset
The Government will phase out the dependant spouse tax offset for taxpayers with a dependant spouse born on or after 1 July 1971. Taxpayers with an invalid or permanently disabled spouse, supporting a carer, or people who are eligible for the zone, overseas forces and overseas civilian tax offsets will not be affected by this change.
Bringing forward the low income tax offset
From 1 July 2011, the Government will increase the amount of low income tax offset (LITO) that is available to low and middle income earners through their regular pay during the year from 50% to 70% of their total entitlements.
The remaining 30% of their LITO benefit will still be paid as a lump sum on assessment of income tax returns.
An individual’s total LITO entitlement in any one year remains unchanged but the adjustment will deliver up to $300 in more timely tax relief to low and middle income earners.
Small business CGT concessions
The Government will ensure that trusts will not be able to avoid being treated as connected entities for the purpose of testing eligibility for the concessions on the basis that trusts do not own assets for their own benefit. These changes will also ensure that some small businesses will be able to access the concessions because the changes will make their business assets ‘active’.
This measure will have effect for CGT events happening after 7:30pm (AEST) on 10 May 2011.
Extension of the CGT main residence exemption in relation to special disability trusts
The Government will extend the 2009-10 Budget measure that provides a capital gains tax (CGT) main residence exemption to special disability trusts (SDTs) with effect for income tax assessments for the 2006-07 and later income years.
This measure backdates the CGT main residence for SDTs and provides equivalent taxation treatment for SDTs established under different Acts. In addition the measure will provide a CGT exemption in the advent of the death of the principal beneficiary for the intended recipient of the principal beneficiary’s main residence, if the recipient disposes of the dwelling within two years of the principal beneficiary’s death.
Reform of car fringe benefit tax rules
The Government will reform the current ‘statutory formula’ method for determining the taxable value of car fringe benefits by replacing the current statutory rates with a single rate of 20% that applies regardless of the distance travelled. Under the current statutory formula method, the calculated fringe benefit decreases as the distance travelled by the vehicle increases.
Increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds to $18,839 for individuals and $31,789 for families, with effect from 1 July 2010. The additional amount of threshold for each dependent child or student will also increase to $2,919. The Government will also increase the Medicare levy threshold for single pensioners below Age Pension age to $30,439, with effect from 1 July 2010.
Removing minor’s eligibility for low income tax offset on unearned income
From 1 July 2011 the Government will remove the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their unearned income, such as dividends, interest, rent, royalties and other income from property.
Income earned by minors from work will still be eligible for the full benefit of the LITO. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors will not be affected by this measure.
Small business accelerated initial deduction for motor vehicles
The Government will allow small business to claim up to $5,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 2012-13 income year. The remainder of the motor vehicle value will be pooled in the general small business pool (depreciated at 15% in the first year and then 30%).
The Government has previously announced that any new business asset worth less than $5,000 can be written off immediately from the 2012-13 income year.
Interim changes to improve the taxation of trust income
The Government will implement the recommendations of the Board of Taxation to take interim steps to improve the trust income tax provisions, with effect from 1 July 2010. These interim steps are necessary to provide certainty while the Government updates and rewrites the trust income tax provisions in Division 6 of Part III of the Income Tax Assessment Act 1936.
To implement the Board’s recommendations, the Government will introduce legislation to:
• enable the streaming of capital gains and franked distributions; and
• target the use of low tax entities, especially exempt entities, to reduce the tax payable on the taxable income of a trust.
Additional payment option for child care rebate
Families in receipt of the Child Care Rebate (CCR) will have the additional option of receiving CCR payments directly to their bank account on a fortnightly basis from 1 July 2011. This measure builds on reforms in the ‘Mid Year Economic and Fiscal Outlook 2010-11’, which allowed families to receive CCR payments fortnightly as a fee reduction via their child care service. The proposal will allow families to choose from a greater range of CCR options.
Reduction in the minimum payment for account-based pensions in 2011-12
The Government will phase out the minimum pension drawdown relief that has been provided over the last three income years. Minimum payment amounts for account-based, allocated and market linked (term allocated) pensions will be reduce by 25% for 2011-12 and will return to normal in 2012-13.
The Government previously provided pension drawdown relief in the 2008-09, 2009-10, 2010-11 income years by halving the minimum payment amounts.
Refund of excess concessional contributions
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.
The measure will apply where an individual has made excess concessional contributions of up to $10,000 (not indexed) in a particular year and is only available for breaches in respect of the 2011-12 or later income years, and only for the first year, commencing from 2011-12, in which a breach occurs.
Superannuation information on payslips
From 1 July 2012 the Government will ensure that employees receive information on their payslips about the amount of superannuation actually paid into their account; and employees and employers will receive quarterly notification from their superannuation fund if regular payment cease.
Operation of the higher contribution cap for over 50s
The Government will set the higher concessional contributions cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000, due to apply from 1 July 2012, to $25,000 above the general concessional cap. This measure clarifies the operation of the higher cap for the over 50s which was introduced in the 2010-11 Budget.
The general concessional contribution cap is set at $25,000. When it increases due to indexation, the higher cap will increase by the same dollar amount.
The Government will continue the freeze on the indexation applied on the income threshold above which the maximum superannuation co contribution begins to phase down for an additional year to 2012-13. This means the lower and higher thresholds will remain at $31,920 and $61,920 respectively. The Government currently provides a matching contribution of up to $1,000 for people with incomes of up to $31,920 with the amount available phasing down for incomes up to $61,920.
Self Managed Super Funds (SMSF)
The Budget reforms relating to self managed funds (SMSF’s) were previously announced as part of the ‘Stronger Super Government Response to the Super System Review’ announced on 16 December 2010.
The reforms include:
• The introduction of administrative penalties that the ATO can apply in cases of non compliance by SMSF trustees;
• The introduction of knowledge and competency requirements on SMSF service providers, including the registration of SMSF auditors;
• Tightened legislative restrictions on SMSF investment in collectables and personal use assets;
• Requiring SMSFs to value their assets at net market value and the ATO to publish valuation guidelines;
• The appointment of the ATO to collect and publish data on the sector;
• Changes to the registration and rollover processes, and illegal early release penalties to deter the use of SMSFs for illegal activity.
Most changes will have effect from 1 July 2012. The tighter legislative standards for investments in collectables and personal use assets will apply to new investments from 1 July 2011, with all holdings of collectables and personal use assets to comply by 1 July 2016. Amendments to the Anti Money Laundering and Counter Terrorism Financing Act 2006 will have effect from 1 July 2013 and amendments to the SMSF registration and rollover processes will have effect from 1 July 2014.
Social Security measures
Disability Support Pension
Allow recipients to work up to 30 hours a week
The Government will allow all Disability Support Pension (DSP) recipients to work up to 30 hours a week and remain eligible for a part pension for up to 2 years. This will allow recipients granted DSP under the current 15 hours a week test (in place since 11 May 2005) to increase their working hours without the suspension of their DSP entitlement.
It also addresses the inconsistent treatment of people granted DSP before or after May 2005. DSP recipients will still be subject to an income test.
New and existing DSP recipients under the age of 35 with some capacity to work will be subject to new participations requirements from 1 July 2012. Recipients assessed as having a partial work capacity of eight or more hours per week, and are not working, will be required to attend Centrelink interviews on a quarterly basis for the first 18 months after they receive the payment and then twice a year in order to create a participation plan. Participation interviews will continue whilst the recipient is under the age of 35, maintains a partial work capacity and is not working.
Existing recipients under the age of 35 without an assessed work capacity level, whom Centrelink deem likely to benefit from participation interviews, will undergo a revised assessment to determine whether they should be subject to the new requirements. DSP recipients who have a work capacity of less than eight hours a week, or who are already participating in open employment, an Australian Disability Enterprise or the Supported Wage System, will be excluded from the participation requirements.
Implementation of more efficient and accurate assessments for Disability Support Pension
From 3 September 2011, DSP recipients will need to provide evidence that they have tested their future work capacity by participating in training or work related activities. This activity test will not apply to claimants who are clearly unable to work due to, for example, profound disability. This measure was previously announced to commence 1 January 2012.
From 1 July 2012, the Government will provide indefinite portability of the DSP for recipients who have a severe and permanent disability and no future capacity to work. However, DSP recipients who stay longer than 13 weeks will no longer be entitled to add-on payments such as the Pension Supplement or Rent Assistance. If a carer accompanies the DSP recipient overseas, any Carer Payments or Carer Allowance payable will cease at 13 weeks.
The measure also extends portability where a DSP recipient with a severe disability has a carer who is posted overseas for work and wishes to continue their carer responsibilities. From 1 July 2011, the DSP recipient will be entitled to continue to receive their pension for the period of their family member’s posting.
Family Tax Benefit
More flexible advances for Family Tax Benefit Part A
From 1 July 2011, the Government will provide families in receipt of Family Tax Benefit (FTB) Part A with more flexible access to advance payment of their entitlement. They will be eligible for an advance of up to 7.5 per cent (subject to an assessment), up to a maximum of $1,000, of their annual FTB Part A entitlement. Advances will be repaid over six months by reducing future fortnightly FTB payments.
Families will also be able to apply to receive an advance of the minimum amount of around $160 on a regular basis, paid every six months. Families who choose to receive a continuous advance will also be able to take one off advances to cope with unexpected expenditure requirements.
Aligning Family Tax Benefit Part A eligibility with Youth Allowance age of independence
From 1 January 2012, eligibility for FTB Part A will be limited to children up to the age of 21. When a child turns 22 years of age, they may be eligible to receive Youth Allowance (YA) subject to the relevant means testing rules.
Pause indexation of Family Tax Benefit supplements for three years
Indexation of FTB Part A and B supplements will be paused for three years. These payments will be fixed at the current 2010-11 levels of $726.35 per annum per child for FTB Part A and $354.05 per annum for FTB Part B until 1 July 2014.
Pause indexation of upper limits and thresholds for a further two years
The higher income thresholds and limits for family payments will remain fixed until 1 July 2014 (as opposed to being indexed in line with CPI). This means that:
• FTB Part B primary earner income limit will remain at $150,000;
• The income limit for receiving the dependency tax offsets will remain at $150,000;
• The Baby Bonus eligibility limit will remain at $75,000 of family income in the six months following the birth or adoption of a child, equivalent to $150,000 a year;
• The Paid Parental Leave primary carer income limit will remain at $150,000 in the financial year before the birth or adoption of a child;
• The higher income free threshold of FTB Part A will remain at $94,316 of family income, with an additional $3,796 provided for each child after the first.
Income limits are the amount a family can earn before they are no longer eligible for family payments, and the higher income free area for FTB Part A is the income level at which FTB payments begin to reduce. The FTB Part A income cut off for each family varies depending on the number and age of their children.
New start date for paid paternity leave
The start date for paid paternity leave which was to commence 1 July 2012, will be deferred by 6 months to 1 January 2013. Eligible working fathers and other partners who are providing full time care or sharing the child’s care will be paid two weeks paternity leave at a rate equivalent to the national minimum wage for children born on or after 1 January 2013.
Incentives for single parents and parenting payment reforms
The Government will introduce reforms to encourage single parents receiving income support to transition into paid employment. Single principal carers with a youngest child aged less than 16 on Newstart Allowance (NSA) will be subject to a more generous income test from 1 July 2013. NSA payments will reduce by 40 cents for every dollar of income earned above $62 per fortnight as opposed to 50 cents in the dollar for income from $62 dollars per fortnight and 60 cents for income above $250 per fortnight. This will bring the taper rate for single parents receiving NSA in line with that of Parenting Payment Single (PPS), and reward part time work.
From 1 January 2013, parents who were on PPS or Parenting Payment Partnered (PPP) prior to 1 July 2006 will be eligible for PPS or PPP until their youngest child turns 12 rather than the current 16 years. Parents that transition onto NSA will be eligible for the more generous income test taper.
The following transitional arrangements will apply to parents whose youngest child will be above the threshold age on implementation:
• Parents with a youngest child born before 1 January 2000 (so has turned 13 before 1 January 2013) will continue to be assessed under current arrangements and will remain on Parenting Payment until their youngest child turns 16 years of age;
• Parents with a youngest child born between 1 January 2000 and 1 January 2001 (so has turned 13 during 2013) will cease to be eligible for Parenting Payment once their youngest child turns 13 years of age; and
• Parents with a youngest child born before after 1 January 2001 (so turns 12 on or after 1 January 2013) will cease to be eligible for Parenting Payment once their youngest child turns 12 years of age.
In addition to these transitional arrangements, children born after 1 July 2011 will extend Parenting Payment eligibility for parents in receipt of payment before 1 July 2006 in the same way as for parents who came onto payment after 1 July 2006. This means they will extend eligibility until they turn six (partnered parents) or eight (single parents)