Tax update: 2011-12 Federal Budget - “$45.7bn deficit”

Treasurer Mr Swan handed down his fourth Budget on 10 May 2011, for the 2011-12 financial year.  Despite the positive economic outlook, the budget deficit remains large and a surplus is not expected until 2012-13, inherently due to the GFC creating a plunge in revenue.

There were a large number of tax changes announced covering areas such as superannuation (eg measures announced to overcome the excess contributions tax problem), income tax, CGT, GST, FBT and charities. An outline of the major announcements effecting small/medium business is given below.

Personal Income Taxation

Temporary Flood and cyclone construction Levy

The recent natural disasters, which prompted emergency relief payments in 2010 financial year, the Treasurer announced the floods and Cyclone Yasi will cost the economy $9bn in lost output and reduce real GDP growth by 1/2 of a percentage point in 2010-11.

In response, the Government has introduced for the 2011-12 year only an additional 0.5% - 1.0% taxation levy. The 0.5% levy will imposed at taxpayers earning more than $50,000 up to $100,000. The 1.0% levy will be imposed on taxpayers earning more than $100,000.

Changes to existing benefits and levies

1. In effect from 1 July 2011, 70% of the low income offset would be paid throughout the year to individuals entitled to this rebate
2. In effect from 1 July 2010, Medicare levy exemption for low income thresholds would slightly increase for individuals to $18,839 and couples to $31,789
3. In effect from 1 July 2011, removal of low income offset thresholds of $3,300 for minors under 18 years. This will effect family trust distributions
4. In effect from 1 July 2011, changes to the dependent spouse tax offset for spouses under 40 years old to encourage those able to join the workforce
5. In effect from 1 July 2011, removal of deductions against government assistance payments
6. Changes to dependant age rules under Family Tax Benefit A and also indexation will be frozen until 1 July 2014 on Family Tax Benefit supplements and upper limits and thresholds
7. Reductions by half on discounts for HECs/HELP payments from 1 January 2012. Discount on upfront payments will be reduced down from 20% to 10% and on voluntary payments of $500 or more on HELP debt will be cut down from 10% to 5%.

Small Business Tax Relief

In the Henry review it was proposed to increase the turnover threshold test from $2.0m to $5.0m, the Government is yet to respond to this recommendation. The targeted small business tax measures are not proposed to be introduced until the 2013 financial year. In order to qualify for these benefits a business must meet the small business tests).

1. Immediate tax write-off of $5,000 of the cost base on purchase of a business motor vehicle, creating a tax benefit of $1,275
2. Increase of immediate value of write-off of assets purchased where the value of asset is less than $5,000 (increase from current value of $1,000)
3. Reduction in company tax rates to 29%
4. Changes to the PAYG instalments  statutory increase rate to 4% on previous year business taxable income, this will assist in lowering the PAYG quarterly instalments
5. Changes to CGT small business concession for small business participation test, which will have a positive impact on discretionary family trusts which hold active assets
6. Amendments to ensure trust beneficiaries can continue to use the primary production averaging and farm management deposit provisions in a loss year.

Indirect taxes

Fringe Benefits Tax

The Government announced a new flat statutory fraction of 20% for new car contracts entered into on or after 10 May 2011.  This will likely impact those employees who previously salary packaged a car with a statutory fraction below 20% (i.e. k/m travelled was more than 25,000 p.a.).

The Government also, released further information in respect to FBT exemptions in respect to Australian tax residents working in remote areas overseas under fly-in fly-out arrangements.

Goods & Services Tax

Minor reforms were announced in respect to new residential premises, GST free health insurance claims and mortgagee possessions.

Superannuation

There were a number of small announcements in regards to superannuation, just a few include:

1. In effect from 1 July 2011, individuals who have breached the Excess Contributions limit may request a refund of those excess amounts if the cap has been exceed by up to $10,000 and it is the first time the breach has occurred
2. Phase out the reduction to age based minimum pension draw down percentages and return to normal in 2012-2013
3. SMSF reforms in respect to new illegal early release penalties and criminal and civil sanctions to apply to promoters of such schemes and various other measures to reduce risks of benefits being illegally released from the fund, registration of SMSF auditors and monitoring independent audit standards
4. Increase in SMSF lodgement levy to $180 (up from $150) for the 2010/11 year.

For more information on how any of these changes may affect you, please contact our expert tax consultants