Interaction

While The Budget has be heralded as a WIN for low to middle income earners it has been a loss for Business with the planned tax cut dropped. In a Budget that was very much geared towards the 2013 election, the revenue gained from the mining tax has been allocated to the low income families in a bid to ease the effect of the carbon tax on Australian families. The Budget scratched more provisions that were announced in the 2011 and 2010 Budget then announcing new spending cuts. Those new cuts were directed at Defence and Foreign Aid. Below is a summary of what changes I think may impact you.

Business

• Reduction in company tax to 29% proposed for 1 July 2012 - SCRATCHED 
• Small Business to be able to carry-back losses from July 1, 2012 
• LAFHA crack-down 
• Deduction not allowed for bad debt between related parties 
• Tax concessions for Green Building - SCRATCHED 
• GST compliance program extended for two years 
• Green building tax offset- SCRATCHED

Individuals and Families

• Tax-free threshold tripled to $18,200 so that the effective tax-free threshold once you have included the low-income tax offset is $20,542 
• Non-residents tax rates adjusted to remove first first tier 
• Tax rates will remain as legislated for the 2012/2013 financial year 
• 50% discount on interest income - SCRATCHED 
• Standard Deduction for work-related expenses - SCRATCHED 
• Education Tax Offset replaces Schoolkids bonus for families eligible for FTB part A from 1 January 2012. $410 for primary school and $ 820 for secondary school 
• Means testing for Net Medical Expenses Tax Offset 
• Removal of 50% CGT discount for Non Residents For individuals earning over $300,000, super contribution will be taxed at 30% from 1 July 2012 
• Superannuation concessional cap will be limited to $25,000 regardless of the person’s age

Small Business carry-back provision

From 1 July 2012 small businesses with a turnover of less than $2 million will be able to offset previous year’s profit (revenue only) against current losses of up to $1 million per year. This will provide a tax refund up to $300,000 per year but the refund is limited to the company’s franking account balance. So if a company has made a profit but paid it out a fully franked dividend no carry-back loss will be available.

Living Away from Home Allowance

New reforms from 1 July 2012 will limit access to employees who maintain a home for their own use in Australia, while they are living away from home for work for a maximum period of 1 year in any particular work location. The reforms will not affect ‘fly-in fly-out’ arrangements or the tax treatment of travel and meal allowances.

Last night Treasurer Swann handed down his budget highlighting the expected financial results of the Australian Economy for the 2011 financial year and to present the governments proposed changes to it's projects and revenue streams for the 2012 financial year. 

Mr Swann has proposed to deliver the Australian Economy out of deficit by the 2013 financial year. Delivering the following results: 

• 2011- a deficit in 2011 of $50bn
• 2012 - a deficit $22.6bn 
• 2013 - surplus $3.5bn

So what effect does that have on me? Well, the Australian government funds the majority of its operations through direct tax collection from businesses and individuals just like you. Now, for the full Government release, please click the following link:

The Official 2011 Budget Documents

Alternatively, we've provided a simple list of the changes that we think effect our clients in the SME & Investment entity category and associated individual tax payers. So without further ado, please see below:

• Family Trusts and the distribution of passive income
• Review of Rebates, (Child Care Rebate in particular)
• Review of Negative Gearing on rental properties
• Review of company cards and FBT to try and reduce Australia's carbon footprint
• Government spending cuts & their tax implications
• Superannuation - Contributions, Pension Payments & Excess Contributions

Interactive’s selected budget updates

Family Trusts and the distribution of passive income

There was no clarification of the expected taxation of trust and linked entities (eg. Company beneficiaries). However, the government has made the change to the Low Income Tax Offset for minors to effectively reduce the eligible tax free amount of distribution to a minor to $416 in each Financial year from July 1, 2011.  

Review of Tax Offsets (“rebates in the old language”)

• Removal of the Low Income Tax Offset for minors who earn passive income > $416 from July 1, 2011.
• Removal of the spouse rebate when your spouse is <40, is not working, without children and without disability.

Review of Negative Gearing

After much hype, there were no changes to negative gearing regime imposed by the government.

Review of FBT to reduce Australia’s carbon footprint

The government will phase in a flat rate for statutory method of FBT of 20% over the next 4 years on new contracts from 7.30pm 10^th May, 2011. This has been reduced to discourage unnecessarily travelling more kilometres to achieve a tax benefit available with the current regime and provide a greener solution.

SME specific items

• The Entrepreneurs Tax Offset has been removed from 1.7.11
• The Depreciation on a new car in first year is increased by $5,000 in the first year accelerating the deduction. This additional benefit of $1,300 ($5k x ~30%) will not be realised until lodgement of your 2012 tax return.
• Super Guarantee Charge (9% standard super) will from 1 July 2011 will now present a personal liability for Directors of companies where the employees super contributions are not paid within 3 months of the due date (28 days after the quarter end) with no grace period provided at this time for payment.  
• New rules for payslips – from 1 July 2012 employers will need to provide the total cash payments made to super on employee payslips.
• Company Tax Rate 29% - from 1 July 2012 for eligible small business entities (dependent on the country's financial results)

Superannuation

Superannuation Contribution thresholds for the 2012 financial year

• Concessional Super Contributions thresholds will remain at $25,000 for those taxpayers <50 years of age.
• Taxpayers >50 years of age will be able to contribute up to $50,000 in Concessional Super Contribution providing their member account balance (per member of Superfund) is under $500,000.
• The additional $25,000 for >50 will not be indexed, only the base for all taxpayers of $25,000 will be indexed at intervals of $5,000. At present, there has been no indexation of this amount.

Pension payment rules for 1 July, 2011 and outlook for FY13

Please read the points below in conjunction with the ATOs guidelines on minimum pension payments.

• There has been a increase in the minimum pension amount payable from 50% of the “normal” minimum pension payment to 75% of the “normal” minimum pension payment amount. This applies for the Financial Year commencing 1 July, 2011.
• For the Financial year commencing 1 July, 2012, the minimum pension payment amount will revert to the “normal” rates.

Excess Contributions Penalties – A “minor” relief

A new option will be provided to avoid excess concessional contributions tax, for an excess of up to $10,000, on a once-only basis from 1 July, 2011. <Concessional contribution caps<

Conclusion

After much media hype, there’s been a reasonably conservative budget delivered.

The major point of interest will be whether or not the government blows out proposed expenditure items with natural disasters (let’s hope we don’t have any more!) and whether or not we are able to ride the commodity boom to a surplus in 2013…….?