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Client Alert – Special Budget 2012 Edition

Posted on May 15, 2012

Welcome to the Davenports Client Alert Special Edition – Budget 2012

PERSONAL TAXATION

Personal Tax Rates – Residents

The Government did not make any changes to the currently legislated tax rates for residents that are to apply from 1 July 2012:

  • from 1 July 2012, the tax-free threshold will be increased to $18,200 and the first two marginal tax rates will be increased from 15% to 19% and from 30% to 32.5%, respectively; and
  • from 1 July 2015, the tax-free threshold will be $19,400 and the second marginal tax rate will be increased from 32.5% to 33%.

The personal income tax rates and thresholds are summarised for resident taxpayers in the tables below:

2011–2012 personal tax rates and thresholds
ThresholdRate
1st rate $6,001 15.0%
2nd rate $37,001 30.0%
3rd rate $80,001 37.0%
4th rate $180,001 45.0%

 

2012–2013 personal tax rates and thresholds
Threshold Rate
1st rate $18,201 19.0%
2nd rate $37,001 32.5%
3rd rate $80,001 37.0%
4th rate $180,001 45.0%

 

2015–2016 personal tax rates and thresholds
Threshold Rate
1st rate $19,401 19.0%
2nd rate $37,001 33%
3rd rate $80,001 37.0%
4th rate $180,001 45.0%

Work-related Expenses Standard Deduction Dropped

The Government announced that it will not proceed with the 2010–2011 Budget announcement to allow a standard tax deduction for work-related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013. The Government is pursuing other simplification measures such as tripling the tax-free threshold to $18,200 from 1 July 2012.

Interest Income Discount Not to Proceed

The Government announced that it will not proceed with the 2010–2011 Budget announcement for a 50% discount for interest income which was due to commence on 1 July 2013.

The Government said its public consultation process involving key sector groups, industry participants and consumer groups “revealed concerns with the complexity involved in calculating the discount and its overall effectiveness”.

Schoolkids Bonus

In the lead-up to the Budget, the Prime Minister announced that the Government will make a new, no-strings cash payment, called the Schoolkids Bonus, to certain families with children at school. It will replace the current Education Tax Refund and will apply from 1 January 2013. Each year, families will receive the Schoolkids Bonus worth:

  • $410 for each child in primary school; and
  • $820 for each child in high school.

The Government said the payment will be “automatic and upfront”, which means eligible parents will not need to keep receipts.

Flood Levy – Further Exemptions

The Treasurer confirmed in the Budget that people who suffered flood damage in 2012 will also be made exempt from the flood and cyclone levy that applies for the 2011¬–2012 financial year only. He said that earlier this year, more flooding devastated parts of western Queensland and northern New South Wales.

BUSINESS TAXATION

Company Tax Cut Proposal Shelved

The Treasurer announced that the proposed reduction in the company tax rate to 29% will not proceed. The reason given by the Treasurer was that it had become clear that the proposed tax rate cut would not be approved by Parliament.

The Treasurer added that the savings from not proceeding with the company tax cut will be used to fund other measures, including the loss carry-back arrangement for companies.

Tax Loss Carry-back Regime Confirmed

The Treasurer confirmed the Government will allow businesses to carry-back losses. Mr Swan said the proposed changes would “allow businesses to ‘carry back’ their losses, to offset past profits and get a refund of tax previously paid on that profit”. The carry-back will be available to companies and entities that are taxed like companies.

As part of the loss carry-back, from 1 July 2012 companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1m worth of losses against tax paid up to two years earlier.

According to the Government, in its first four years the regime “is estimated to provide much-needed assistance to nearly 110,000 companies”.

SUPERANNUATION

Super Contributions Tax Changes

From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012.

Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates. The Minister for Financial Services and Superannuation, Bill Shorten, said a small number of people on high incomes are getting a better tax deal out of super than millions on average incomes.

The proposed reduction in the higher tax concession that is currently available for very high income earners on their concessional contributions will align it more closely with the concession received by average income earners, Mr Shorten said. However, there will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners.

Contributions Cap for over 50s

The proposed higher concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014. Accordingly, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012–2013 and 2013–2014 income years.

In 2014–2015, the general cap is expected to increase to $30,000 through indexation, and the higher cap would then commence at $55,000 for eligible taxpayers aged 50 and over.

TAX ADMINISTRATION

Funding to Target Tax Debts

The Government announced that it will provide $106 million over four years to the ATO to improve the management of outstanding taxation debts and superannuation guarantee charge. The Government said the funding is designed “to allow the ATO to support a greater range of taxpayers in meeting their reporting and payment obligations through contacting them earlier and by providing more targeted assistance”.

GST Compliance Program

The Government is to provide $193.3 million to the ATO in 2014–2015 and 2015–2016 to continue to promote voluntary GST compliance. This extends a 2010–2011 Budget measure by two years. The funding will be directed at detecting fraudulent GST refunds, systematic under-reporting of GST liabilities, failure to lodge GST returns and outstanding GST debts.

Posted in Client Alert

Client Alert May 2012

Posted on May 1, 2012

Welcome to the Davenports Client Alert for May 2012

Tax planning

Simply put, tax planning is the arrangement of a taxpayer’s affairs so as to comply with the tax law at the lowest possible cost. This involves objectively assessing and actively managing tax risk. Common tax planning techniques include deferring the derivation of assessable income and applying techniques to bring forward deductions.

Deferring income

  • Income received in advance of services to be provided will generally not be assessable until the services are provided.
  • Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.
  • A taxpayer is required to calculate the balancing adjustment amount resulting from the disposal of a depreciating asset. If the disposal of an asset will result in assessable income, a taxpayer may want to consider postponing the disposal to the following income year.

Maximising deductions

Business taxpayers

  • Debtors should be reviewed prior to 30 June so that any bad debts can be identified and written-off.
  • A deduction may be available on the disposal of a depreciating asset if a taxpayer stops using it and expects never to use it again. Therefore, asset registers may need to be reviewed for any assets that fit this category.
  • Review trading stock for obsolete stock for which a deduction is available.

Non-business taxpayers

  • Outgoings incurred for managed investment schemes may be deductible.
  • Assets costing $300 or less may qualify for an immediate deduction, subject to certain conditions.
  • A deduction for personal superannuation contributions is available where the 10% rule is satisfied.

Capital gains tax

  • A taxpayer may consider crystallising any unrealised capital gains and losses in order to improve his or her overall tax position for an income year.

Small business entities

  • From 2012–13, the small business instant asset write-off threshold will be increased from $1,000 to $6,500.
  • Consider whether the requirements to be classified as a small business entity are satisfied to access various tax concessions, such as the simpler depreciation rules and the simpler trading stock rules.
  • Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.

Companies

  • Companies should ensure that all dividends paid to shareholders during the relevant franking period (generally the income year) are franked to the same extent to avoid breaching the benchmark rule.
  • Loans, payments and debt forgiveness by private companies to their shareholders and associates should be repaid by the earlier of the due date for lodgment of the company’s return for the year or the actual lodgment date. Alternatively, appropriate loan agreements should be in place.
  • Companies may want to consider consolidating for tax purposes prior to year end to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.
  • Companies should carefully consider whether any deductions are available for any carry forward tax losses, including analysing the continuity of ownership and same business tests.

Trusts

  • Taxpayers should review trust deeds to determine how trust income is defined. This may have an impact on the trustee’s tax planning.
  • Avoid retaining income in a trust because the income may be taxed at 46.5%.
  • If a trust has an unpaid present entitlement to a corporate beneficiary, consideration should be given to paying out the entitlement by the earlier of the due date for the lodgment of the trust’s income tax return for the year or the actual lodgment date to avoid possible tax implications.
  • Trustees should consider whether a family trust election (FTE) is required to ensure any losses or bad debts incurred by the company will be deductible and to ensure that franking credits will be available to beneficiaries.

Personal services income

  • Individuals operating personal services businesses should ensure that they satisfy the relevant test to be excluded from the Personal Services Income regime or seek a determination from the Commissioner.

FBT – car fringe benefits

  • The four rates used in the statutory formula method for determining the taxable value of car fringe benefits are being replaced with a single statutory rate of 20% for fringe benefits provided after 10 May 2011. Taxpayers should review contracts for changes to a “pre-existing commitment”.

Superannuation

  • The ATO has reminded taxpayers to consider the superannuation contributions caps when planning tax affairs to avoid excess contributions tax.
  • The Government has proposed that eligible individuals who breach the concessional contributions cap by up to $10,000 will be allowed a once-only option for the excess contributions to be refunded without penalty.
  • The Government has proposed to temporarily “pause” the indexation of the superannuation concessional contributions cap so that it will remain fixed at $25,000 up to and including the 2013–14 financial year.
  • For eligible individuals, a government low-income superannuation contribution of up to $500 may be available from 1 July 2012.
  • A member of an accumulation fund (or a member whose benefits include an accumulation interest in a defined benefit fund) may be able to split superannuation contributions with his or her spouse.

Individuals

  • Individual taxpayers with a taxable income exceeding $50,000 in 2011–12 will have to pay an additional levy known as the temporary flood and cyclone reconstruction levy, unless they fall within an exempt class of individuals.
  • The Government is phasing out the dependent spouse tax offset. For 2011–12, the offset will only be available to those born on or before 1 July 1971.
  • The Government has proposed that from 1 July 2012, living-away-from-home allowances will be taxed to the recipient as assessable income rather than to the employer under the FBT rules.
  • The Government has introduced legislation to extend the Paid Parental Leave scheme by introducing a two-week “dad and partner pay”.
Posted in Client Alert