Leaving political rhetoric aside, the 2012 Budget contained no significant surprises that hadn’t been previously announced. The winners are Mr Swan’s “battlers” and the aged care sector.
The 2012/13 Budget is projected to deliver a modest surplus of $1.5bn.
Turning to specific details:
Part 1 – Taxation – Commentary by Ken Mansell
Another budget night spent trying to assess what the various tax changes will mean. Below are some of the more important, and not previously announced, changes… Let’s call it the good the bad and the ugly.
The Good
Company loss carry-back
The Government will allow companies to carry-back tax losses to receive a refund against tax previously paid. 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. It will apply to their revenue losses only and will be subject to integrity rules, and limited to a company’s franking account balance.
… yes I am struggling for another good tax news item…
Capital gains tax — amendments to the revenue asset and trading stock roll‑overs for interposing a company
The Government will broaden the revenue asset and trading stock roll‑overs that apply to the exchange of interests in a company or unit trust for shares in another company. These changes will apply from 7.30pm (AEST) on 8 May 2012. This measure ensures that these revenue asset and trading stock roll‑overs will be available for all interests that qualify for the general conditions of each of the roll‑overs, rather than only shares in consolidated groups.
The Bad
Personal income tax — changes to tax rates for non‑residents
The Government 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 into a single threshold. The marginal rate for this threshold will align with the second marginal tax rate for residents (32.5 per cent) and will apply to all taxable income below $80,000.
Personal income tax — better targeting of the employment termination payment tax offset
From 1 July 2012, only that part of certain ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset. Amounts above this whole‑of‑income cap will be taxed at marginal rates. Existing arrangements will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment‑related dispute and death.
Personal income tax — mature age worker tax offset phase 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. This measure is estimated to increase revenue by $255.0 million over the forward estimates period.
Personal income tax – A consolidated dependency tax offset
From 1 July 2012, eight existing dependency offsets will be consolidated into a single offset available to taxpayers maintaining a dependant who is unable to work due to disability or carer responsibilities. This offset will leave taxpayers with dependants who are genuinely unable to work no worse off and, in many cases, better off… but will provide savings of $66.9 million over the forward estimates.
And the ugly
Company tax cut — Not to proceed
The Government will not proceed with the measure to lower the company tax rate, from the 2013/14 income year, nor implement an early start to the company tax rate cut for small business entities in a corporate form from the 2012/13 income year. The budget papers say this is due to the fact they doubted they could get it through the Parliament and not to add $4,755.8 million over the forward estimates period.
Fringe benefits tax — further reform of living away from home allowances and benefits
The Government will further limit the tax concession for living away from home allowances by:
- Limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
- Providing the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.
This 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 and will provide savings of $1,001.3 million over the forward estimates period.
International tax — removal of the capital gains tax discount for non‑residents
The Government will remove the 50 per cent capital gains tax (CGT) discount for non‑residents on capital gains accrued after 7.30 pm (AEST) on 8 May 2012. The CGT discount will remain available for capital gains accrued prior to this time where non‑residents choose to obtain a market valuation of assets as at 8 May 2012. This measure is estimated to have a $55.0 million gain to revenue over the forward estimates period.
Personal income tax — do not proceed with standard deduction
The Government will not proceed with standard deduction for work‑related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013 providing savings of $2,094.4 million over the forward estimates period.
Personal income tax — do not proceed with 50 per cent tax discount for interest income
The Government will not proceed with the 50 per cent discount for interest income, which was due to commence on 1 July 2013. Again the government claims they are doing this due to complexity, not to save $923.5 million over the forward estimates period.
Summary
Of course the budget papers and media releases are littered with previous announced changes, like the $6,500 immediate write off of assets for small businesses from 1 July 2012 and the substantial changes to the tax free threshold from 1 July 2012 – all introduced as a result of both the carbon tax and the mining tax.
But if what you are looking for is any new tax measures in this budget, then unless you are a company that is going to make losses, the newly announced tax measures in this budget are either bad or ugly.
Part 2 – Superannuation, Social Security, Aged Care etc. – Commentary by Peter Kelly
Superannuation – concessional contribution cap
The current transitional concessional contribution cap of $50,000 for people aged 50 and over will cease on 30 June 2012. In the 2010 Budget, the Government announced that a permanent indexed cap of $50,000 will continue to be available to people aged 50 and over where the person has less than $500,000 in superannuation. This was to apply from 1 July 2012.
The 2012 Budget contains measures to defer the originally announced increase in the concessional contribution cap for people aged 50 and over with less than $500,000 until 1 July 2014.
Therefore, effective from 1 July 2012, the concessional contribution cap will be $25,000 per annum, irrespective of the age of the member, and the amount held in superannuation.
Superannuation – contributions tax for high income earners
As recently announced, measures are to be introduced effective from 1 July 2012 that will see the rate of contributions tax for people with an income of $300,000 or more increase to 30% (from 15%). For the purposes of this change, income will include the value of concessional contributions. Where the inclusion of concessional contributions in income results in a person’s income exceeding $300,000, the 30% contributions tax will only apply to that portion of the contribution that results in the income exceeding $300,000.
Where an excess concessional contribution has arisen, the excess concessional contribution will be subject to 15% contributions tax and the excess will be taxed at 31.5%, as is currently the case.
Treasury will consult with industry on the design and implementation details.
Self-Managed Superannuation Funds – auditor registration
As originally announced in the Cooper Review, ASIC has been provided with funding to develop and maintain an on-line registration system for auditors of self-managed superannuation funds.
In addition, ASIC will also be developing a competency exam for SMSF auditors.
Auditors will be able to commence registering with ASIC from 31 January 2013.
Taxation agent’s services regime
The current exemption for financial advisers from compliance with the Tax Agents Services Act 2009 will be extended until 30 June 2013 (from 2012).
Social security measures – liquid assets waiting period
With effect from 1 July 2013, the amount of liquid assets a person may retain before becoming eligible to receive certain Centrelink benefits will increase.
For singles, the “reserve amount” will increase to $5,000, and for a member of a couple, $10,000. This will allow applicants for NewStart Allowance, Youth Allowance, Sickness Allowance, and Austudy payments to retain more savings.
Social security measures – Parenting Payment
As recently announced, existing recipients covered by the grandfathering arrangements for the Parenting Payment (i.e. on payment prior to 1 July 2006) will be aligned with all other Parenting Payment recipients.
Effective from 1 July 2013, the grandfathered recipients of the Parenting Payment will cease to be paid once the youngest child turns 6 (for partnered recipients) and 8 (for single recipients). Parenting Payment recipients will then transition to the NewStart Allowance unless moving into employment.
Those transitioning to NewStart Allowance will have access to a more generous income test taper (40 cents in the dollar, rather than the normal 50 cents in the dollar, for every dollar of income above the income-free area – currently $62 per fortnight).
Social security measures – new income support supplement
For income support recipients receiving the NewStart Allowance, Sickness Allowance, Youth Allowance, Austudy, Special Benefit, Parenting Payment etc, an income support supplement of $210 per annum for singles, and $175 per annum, for each member of an eligible couple will be paid in half yearly instalments each March and September, commencing in March 2013.
Social security measures – portability of Australian Government Payments
With effect from 1 January 2013, the period of time that a person can travel overseas and continue to receive Government payments will reduce from the current 13 weeks, to 6 weeks. This will apply to recipients of most income support and family payments.
Age pensioners are excluded as they can be paid for an unlimited period whilst overseas, once certain criteria are met.
Family Tax Benefit – Part A
Eligibility for Family Tax Benefit – Part A is to be limited to young people under 18 years of age, or if remaining in secondary school, until the end of the calendar year in which they turn 19. They may then transition to the Youth Allowance subject to meeting normal eligibility.
This measure will apply from 1 January 2013.
National Disability Insurance Scheme
Funds have been allocated to the National Disability Insurance Scheme which is being established to deliver personalised care and support for up to 10,000 people with significant and permanent disability, from 2013/14. The Scheme is to be expanded to 20,000 people from 2014/15.
Education Tax Refund
The present Education Tax Refund scheme is to be discontinued and replaced with a Schoolkids Bonus. Under the new scheme, a lump sum payment of $410 per annum for each primary school student, and $820 per annum for each high school student will be paid. There will be no requirement to maintain receipt for education related expenses.
Payments will be made in two instalments (January and July each year) from 2013. An initial payment will be made in June 2012.
Receipt of Family Tax Benefit – Part A, or other qualifying income support payments or allowances under a prescribed educational scheme that precludes the family from receiving FBT A, will determine eligibility for payment of the Schoolkids Bonus.
Aged care measures – home and community care
Additional funding has been made available to provide home and community care services for people aged 65 and over (50 and over from Indigenous Australians) to enable them to live in their own home and community.
Aged care measures – workforce issues
In order to provide improved workers’ terms and conditions of employment in the aged care sector, $1.2bn (over five years from 2012/13) has been allocated. Funds will be used to address workforce pressures particularly directed towards attracting and retaining staff through higher wages, improved career structures, enhanced training and education opportunities, improved career development and workforce planning, and better work practices.
Aged care measures – means testing
Means testing arrangements for people in residential and home care is to be strengthened to ensure that recipients contribute to the costs of their care (and accommodation for those in residential care), according to their means.
A new income test for Home care packages is to be introduced from 1 July 2014. Full pensioners will pay no income tested fee, part pensioners will contribute up to $5,000 per annum, and self-funded retirees, up to $10,000 per annum.
Income and assets testing is to be combined from 1 July 2014 for residential care. An annual cap of $25,000 will apply to care contributions in residential care. Care recipients will continue to pay a basic fee, currently 84% of the basic age pension. An indexed lifetime cap of $60,000 will be applied to both home care and residential care contributions.
Summary
For most Australians, superannuation got off relatively lightly – it could have been a lot worse. However the key focus has been on families, the aged care sector, and lots of tinkering around income tax; some good, some bad, and some just plain ugly. However, the devil will be in the detail, and the successful passage of legislation to implement the budget announcements.
Kind regards,
Ken Mansell & Peter Kelly Peter Kelly
National Manager – Technical Services
T: 07 55 740 244
E:PeterK@profinvest.com.au.
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