MB+M Inner Circle Newsletter
Federal and State Budget May 2011

In this issue:

Federal Budget

• Key points on Superannuation
  
  
  • Refunds of excess concessional contributions
  • Pension draw down relief extended into 2011/12
• No indexation to superannuation co-contribution
  
  
• $50,000 concessional contributions cap for those over 50
  
  
• Stronger Super
• Key points on taxation
  
  
  • No change to personal income tax rates and thresholds
    
    
  • Temporary Flood and Cyclone Reconstruction Levy
    
    
  • Increase in the Medicare levy low income thresholds
    

  • Low Income Tax Offset (LITO) changes
    
    
  • Dependent Spouse Rebate changes
    
    
  • Fringe Benefit Tax – cars
    
    
  • Small Business instant write-off
    
    
  • Disallow deductions against government assistance payments
    
  
  
• Key points on Social Security
  
  
  • Family Tax Benefit
    
    
  • Extension of Transitional Income Support for farmers
    
    

Victorian StateBudget

• No Change to Payroll Tax
  
  
• Stamp Duty Concessions
  

Federal Budget 2011

As in previous years, there were many leaks and pre-announcements indicating what would be in the 2011 Federal Budget. Not all of these were correct. It was no surprise that the Treasurer confirmed the Government’s intention to return the budget to surplus in 2012-13. But some of the many measures designed to increase the pool of skilled labour in the country were new.

The Government has announced that it will reach this target but is doing so by making a large number of relatively small changes to the tax, superannuation and welfare system. There is potential for further budget initiatives to be announced when the carbon tax structure is finalised.

In this report, MB+M focuses on the key new announcements that may affect you. Of course, feel free to call your MB+M adviser on 5821 9177 if you would like more information.

Key points of Superannuation

Refunds of excess concessional contributions

The Government has announced a one-off opportunity for those who breach their concessional contributions cap by less than $10,000 to have their excess contributions refunded from their superannuation fund and taxed as income at their marginal rate as opposed to 46.5%.

The $10,000 threshold will not be indexed and is available for breaches in respect of contributions made in the 2011-12 financial year or later years. The refund is only available in the first year an individual breaches their cap by less than $10,000 from the 2011/12 financial year.

The introduction of the measure is intended to reduce the number of individuals who breach the cap and to avoid penalising less significant and inadvertent breaches.

Effective date: 1 July 2011

Pension draw down relief extended into 2011/12

The Government initially provided pension draw down relief in the 2008-09 financial year to assist account based pension holders to recoup capital losses experience as a result of the global financial crisis. This measure was extended for the 2009-10 and 2010-11 financial years. The Government proposes to phase out this drawdown relief by reducing the minimum pension payment by 25% for the 2011-12 financial year.

The below table illustrates the minimum pension factors for this, and the next two financial years.

Effective date: 1 July 2011

No indexation to superannuation co-contribution

The Government has determined that the lower co-contribution threshold will remain frozen at the current level of $31,920 for another (or third) financial year.

In the last Federal Budget, the Government determined to permanently retain the maximum Government co-contribution at $1,000 with the 100% matching rate. In addition, they determined to freeze the indexation of the lower co-contribution threshold for two years meaning the threshold was to remain at the current level of $31,920 for 2010/11 and 2011/12. With this announcement, the freeze will be extended to 2012/13.

Effective date: 1 July 2012

$50,000 concessional contributions cap for those over 50

Currently there is a transitional concessional contributions cap of $50,000, for those aged 50 or over, which ends on 30 June 2012.

The Government has reconfirmed their intention to replace this from 1 July 2012, with a concessional contributions cap of $50,000, provided the individual is aged 50 or over and has less than $500,000 in superannuation. Unlike the current transitional cap which is fixed at $50,000, the new cap will increase over time remaining $25,000 higher than the standard concessional contributions cap for those under 50 years of age.

The Government has not released any further details on how the $500,000 balance is to be calculated and whether or not it will count back withdrawals and/or pension payments.

Effective date: 1 July 2012

Stronger Super

The following Stronger Super measures were reconfirmed in the Budget and funding has been allocated where required.

• The Government will provide funding to the ATO and ASIC to implement the Stronger Super self managed superannuation fund reforms including the introduction of a new administrative penalty framework, improved data collection and an improved SMSF registration process. The cost of these changes will be funded by an increase in the self managed superannuation fund levy. The levy will increase from $150 to $180 with effect from the 2010/11 financial year.
  
• From 1 July 2011 superannuation funds will be able to use tax file numbers to locate member accounts and to facilitate the consolidation of multiple member accounts. This measure will also assist superannuation funds to carry out more efficient consolidation of multiple member accounts, with effect from 1 January 2012 (if the regulations do not proclaim earlier).
  
• From 1 July 2012 employers will be required to report on employee’s payslips the amount of superannuation actually paid into the employee’s superannuation account. Superannuation funds will also be required from 1 July 2012 to provide quarterly notification to employers and employees if regular superannuation contributions cease.
  
• Government funding will be provided to APRA and ASIC to introduce MySuper (a simple, low cost default superannuation product).
  
• The Government will provide funding to the ATO to implement a mechanism for members to view their super accounts that have been reported to the ATO and to begin to undertake detailed design of ATO IT systems to support SuperStream (a package of measures designed to improve the efficiency of superannuation administration processes).

Effective date: Various dates from 1 July 2010

Key points on Taxation

No change to personal income tax rates and thresholds

Current income tax rates and thresholds for residents and non-residents will continue to apply for 2011/12. The rates applying to resident taxpayers are shown in the table below.

*These rates do not include the Medicare Levy of 1.5% or the Flood and Cyclone Reconstruction Levy.

Unchanged Tax Offsets:

• Low Income Tax Offset will remain at $1,500 for 2011/12.
• There will also be no change to the amount of income that a Senior Australian Tax Offset (SATO) recipient can receive without paying tax. In 2011/12 a single pensioner can receive up to $30,684 tax free and a couple can receive up to $53,360 (combined).

Effective date: 1 July 2011

Temporary Flood and Cyclone Reconstruction Levy

The government has confirmed implementation of the temporary Flood and Cyclone Reconstruction Levy (Flood Levy). This levy will apply to taxable income included in both a resident and non resident individual’s tax return for the 2011/12 financial year only.

The table below outlines the income thresholds and rate of levy applicable.

Certain individuals will be exempt from paying the Flood Levy. These are:

• Persons who have a taxable income of $50,000 or less for the 2011/12 financial year or;
• Those who are in receipt of an Australian Government Disaster Recovery Payment from Centrelink for a declared natural disaster that occurred during 2010/11.

Effective date: 1 July 2011

Increase in the Medicare levy low income thresholds

The Government has announced new Medicare levy thresholds that are applicable for the current financial year (ending 30 June 2011).

These are $18,839 for individuals (previously $18,488) and $31,789 for families (previously $31,196).

The increase on these thresholds for each dependent child or student will be $2,919.

The low income threshold for single pensioners below age pension age has been increased to $30,439 (previously $27,697) for the year ending 30 June 2010.

Effective date: 1 July 2010

Low Income Tax Offset (LITO) changes

From 1 July 2011, those under the age of 18 will no longer be eligible to access the LITO, currently worth a maximum benefit of $1,500, to reduce tax payable on their unearned income (ie effectively income from non employment sources).

The most significant impact will be in relation to distributions to minors from family trusts – a widely used strategy to reduce the overall level of tax paid on distributions from these trusts. Currently a minor could receive a distribution of $3,333 from family trusts and pay no tax on that distribution. If the same amount was distributed to a minor in income years commencing 1 July 2011 or later, that distribution would result in a tax liability of $1,500.

Effective date: 1 July 2011

Dependent Spouse Rebate changes

The Government has announced that the dependent spouse rebate will be will be removed for taxpayers who have a dependant spouse born on or after 1 July 1971.

The offset will remain available where the taxpayer:

• has a spouse who is age 40 or over on 1 July 2011,
• has a spouse who is an invalid or permanently disabled,
• is supporting a carer, or is eligible for the zone, overseas forces and overseas civilian tax offsets.

Effective date: 1 July 2011

Fringe Benefit Tax – cars

The Government is set to replace the four current statutory rates (7% to 26%) with a single flat rate of 20%, which will apply regardless of the distance driven in a year.

The 20% statutory rate will only be effective for new lease contracts entered into after 7.30pm on 10 May 2011. For those travelling more than 25,000km per FBT year, there will be a phasing in of the new statutory rate over the period to 1 April 2014.

Effective date: 10 May 2011

Small Business instant write-off

Small businesses that purchase a vehicle on or after 1 July 2012 will be able to immediately write off up to $5,000 of the purchase price in the first year.

The remainder of the purchase price can then be depreciated within the general small business depreciation pool, at 15% in the first year and 30% in later years.

This write off will be available to all small business, regardless of the operating entity, and replaces the Entrepreneurs Tax Offset.

Effective date: 1 July 2012

Disallow deductions against government assistance payments

The Government will amend the tax law to prevent deductions being claimed against all government assistance payments. This has come about due to the High Court decision handed down in 2010 in relation to a student claiming deductions against Youth Allowance payments.

Given the effective date, individuals who receive Youth Allowance will be able to claim a deduction for expenses incurred in gaining their payment for the 2010-11 year. This is to ensure individuals who have maintained records of their expenditure following the High Court decision are not precluded from claiming a deduction.

Effective date: 1 July 2011

Key points on Social Security

Family Tax Benefit

From 1 January 2012, FTB Part A paid in relation to a child in fulltime secondary between the ages of 16 and 19, will increase.

• 16 and 17 year olds - $4,208 per year
• 18 and 19 year olds - $3,741 per year

Effective date: 1 January 2012

Extension of Transitional Income Support for farmers

There will be $14.5 million made available to extend the transitional income support program to continue providing farm families experiencing hardship with up to 12 months of payments.

Victorian Budget announced minor reforms

No Change to Payroll Tax

Current Victorian Payroll Tax rate and threshold will continue to apply for 2011/12, being $550,000 threshold and a 4.9% rate.

Stamp Duty Concessions

The state government announced additional concessions in relation to stamp duty for first home buyers, pensioners and first farm buyers.

First home buyers will be eligible for concessions on stamp duty for the following rates as long as the purchase will be considered their principal place of residence.

Stamp duty concessions will continue to apply for pensioners however the concessional threshold has now been extended. A full exemption from stamp duty is applicable for homes with a value of under $330,000 with a partial exemption available for homes up to the value of $750,000 (previously $440,000)

A new stamp duty concession has also been introduced for first farm buyers. This will be applicable for formers who satisfy the following criteria:

• Aged under 35
• Purchasing their first farm land property

A full exemption will apply for properties valued under $300,000 with a partial exemption available up to the value of $400,000.

Effective date: 1 July 2011