2012-13 Australia Federal Budget review

The Treasurer Wayne Swan on Tuesday evening announced Labours fifth budget. The government have forecasted a $1.5 billion surplus for 2012-2013.

The government have provided for $5.0bn of generated income from the resources boom being allocated towards welfare incentives for low and middle income earners. This will be paid through increased support payments for the Aged Care, Students and the unemployed. Families will receive increased Family Tax benefit A and there is the introduction of the new school kid bonuses to be paid before 30 June 2012.

The Surplus being a return from a deficit of $44bn in 2012, is intended to demonstrate the Australian economy recovery from the Global Financial Crisis. The budget aims to provide some support to struggling domestic industries and also provide for infrastructure projects and medical industry based incentives to support Australian regional centres.

The Government have emphasised the surplus will enable Reserve Bank of Australia to continue to cut interest rates which is considered positive for Australian Families.

There are no changes to marginal tax rates for Australian Residents although some changes to levies will be in effect from 1 July 2012:

1. Flood tax levy will end on 30 June 2012, creating a 1% tax saving
2. New introduction of an income threshold test for access to private health insurance rebates
3. Increased Medicare levy threshold to $19,404 for individuals and $32,743 for families.
4. Introduction of Income test threshold rates for annual Medicare levy charges

The tax changes more significantly impact Wealthy/High Income Earners, Non residents, Tourists and Foreign Workers coming to Australia. The government announced the following changes effective from 1 July 2012:

1. Tightening of tax offset for certain Employment Termination payments (ETP) whereby persons annual income exceeds $180,000. The amounts exceeding the ETP cap will be taxed at top marginal rates. This is an increase from 30% for pre-preservation age and 15% post preservation age. Some existing arrangements for certain ETP relating to genuine redundancy, invalidity, compensation for employment dispute or death will remain unchanged.
2. Concessional superannuation Cap will be limited to $25,000 including the over 50’s bracket. Scrapped the previous proposal to allow Members aged 50 and over with a superannuation balance of less than $500,000 to continue concessional contribution of up to $50,000. This program has been deferred to 2014-15. There are indexation measures for over 50’s with proposed concessional contributions cap to increase to $30,000 by 2014-15.
3. Time limitation to Living Away From Home Allowance (LAFHA) concessions are reduced to 12 months for employees who maintain a home for their own use in Australia, but are away from home for work purposes. These changes do not impact fly-in and fly-out arrangements or travel allowances.
4. Non resident tax rates will change combining marginal rates into 3 tax rates. 32.5% will apply for income up to $80,000, 37.0% will apply for income up to $180,000 and 45% will apply to income above $180,001.
5. Non-residents will not be able to claim 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.
6. For high income earners receiving more than $300,000 p.a. there will be increased tax rates from 15% to 30% on superannuation contributions up to threshold cap of $25,000.
7. The excess contributions tax will still apply for contributions made above $25,000.
8. The medical expense offset will be means tested from 1 July 2012.  For singles with income over $84,000, and families over $168,000, the medical expense threshold will be increased to $5,000, and the rate of offset will be reduced to 10% for eligible expenses incurred. People with income below the thresholds will be unaffected (ie, 20% offset for expenses over $2,000)

For the small to medium business sector the budget delivers very little. 

1. The government has scrapped the 1% reduction in the Corporate tax (from 30% to 29%) previously proposed
2. There is the introduction of the new loss carry-back tax break provisions for companies, limited partnerships and public trusts with turnover less than $2.0m. This allows a company to offset 2012-13 tax losses against tax paid in the previous 2011-12 financial year.  In order to obtain a substantial benefit the business must be operating under a company structure (include Public trading trusts ad limited partnerships) and would have had to have large tax losses of up to $1.0m in order to obtain a maximum tax benefit of $300,000. The refund will also be impacted by company’s franking account. This is intended to help stimulate the poorer performing sectors in the market such as retail, construction and property related industries.
3. Changes being made to limit deductions for related party Bad Debts for consolidated groups
4. The government is increasing the Super Guarantee Charges from 9% to 12% to boost retirement savings over next 7 years
5. From the 1 July 2012 small business can write off capital assets purchased if less than $6,500 which is an increase from $1,000 threshold.  This includes the immediate $5,000 write off motor vehicles acquired after 1 July
6. Changes to the pooling of assets rules for small business depreciation deductions. Consolidation of long life and general asset pools into a single pool. The pooled assets can now be depreciated as 15% in the first year and 30% in each year thereafter regardless of the effective life of the asset.
7. Abolishment of Entrepreneur’s tax offset for sole traders (turnover is less than $75,000).

 In respect to businesses and high income earning families it is important to assess what impacts this budget may have in respect to tax planning strategies in place. For further advice please speak with one of our Azure taxation advisors.