Interaction

Ever wonder what happens after the Government announces Tax Reforms in the May Budget? 

The Government releases Discussion Papers to allow the opinions of members of the public and its stakeholders to be considered.Once the discussion period is complete a Bill will be introduced into Parliament to be voted on. If the bill is passed it receives Royal Assent and becomes law.  In the last few weeks a number of Discussion Papers have been released. Here's the ones that we think are likely to impact you and should be considered as part of your future tax planning.

Business

• Reduction of the company tax rate to 29 per cent from the 2013-14-income year, with small companies starting from the 2012-13-income year.
• Replacement of the Entrepreneurs’ tax offset with a depreciation scheme allowing small businesses to immediately write-off assets valued at under $6,500 and the first $5,000 of a motor vehicle. 
• Fringe Benefits Tax Introduction of one statutory rate (20 per cent) regardless of the number of kilometers travelled by a car.

Individuals

• Increasing the tax-free threshold from $6,000 to $18,200 in 2012-13.
  
• A standard personal tax deduction for work-related expenses of $500 for 2012-13, increasing to $1,000 for 2013-14 onwards. 
• Introducing a 50 per cent tax discount on up to $500 of net interest income from 1 July 2012, increasing to $1,000 from 1 July 2013.

Superannuation

• The $50,000 concessional superannuation contributions cap to remain post-1 July 2012 for over 50s with balances below $500,000.
• Superannuation Guarantee will be increased to 12 per cent by 1 July 2019
• A $500 government contribution to super will be introduced for low-income earners

   

Following on from announcements made in the May Budget on changes to tax legislation a number of bills are at various stages on the path to becoming the law. We will keep you updated on the amendments that we think will impact you.

What's New?

Definition of "reportable employer superannuation contributions" will be revised to exclude employer contributions exceeding the compulsory 9% that the employee does not have any influence over because their employer is required under mandates to pay a higher percentage.  This amendment will have affect from 1 July 2009. If you think that this may affect you please contact us here.

The government is proposing a reporting regime for payments made to contractors in the building and construction industry. Businesses in the industry would be required to report payments for labour undertaken by contractors using an ABN annually to the ATO. It will be like the Annual Payment Summary you do for wages paid to employees. We think this legislation will be put in place to catch out tradies who do not declare the full amount of income they earn in their tax return. We will let you know from what date this will take affect.

Another proposal issued is for a tax offset to be provided to superfunds up to $500 on taxable contributions received for individuals who have an adjustable taxable income of less than $37,000. Basically if you a low incomer earner your superfund will not pay tax on contribution made by your employer. Proposed date of affect is 1 July 2012. Great news for those who need $ the most!!!

From 1 July 2011, the fuel tax credit rate for heavy road vehicles travelling on public roads is 15.043 cents per litre.

SMSF

The ATO is going tighten the rules on trustees of a SMSF investing in collectables and personal use assets like artwork, coins, jewelry, stamps and recreational boats. If your SMSF holds these types of assets – click here to read more on how this will affect you. 

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…….?