The government has delivered a somewhat lacklustre 2011-12 federal budget yet boldly confirmed a return to surplus in the 2012-13 year, describing the move to surplus as 'the fastest fiscal consolidation in at least 40 years ... we have delivered $22 billion worth of savings and restrained government spending to help achieve this task.'
What does this mean for the average Australian, in particular the small business proprietor?
The treasurer has emphasised help for small business, however the only immediate benefit might be a cash flow advantage arising from a reduction in the indexation of PAYG instalments for the 2011-12 year.
On the debit side, businesses will have to deal with:
The loss of the Low Income Tax Offset from July 2011 for taxpayers under 18 years of age in receipt of non-work income, a change which will come at a significant tax cost to small businesses utilising trust structures who typically distribute to minor family beneficiaries but retain the funds as working capital the amendments to the fringe benefits tax regime as it applies to the valuation of car benefits, with a move to a standard statutory fraction of 20% which is estimated to raise tax collections by $954 million over four years.
Measures announced which will affect individual taxpayers include the removal of the dependent spouse tax offset for persons under 40 years of age, the non-indexation of family tax benefits and increases in the Medicare levy thresholds.
It is pleasing to note that the government has proposed relief for taxpayers who inadvertently make excess superannuation contributions. The proposal is that excess contributions of up to $10,000 will be able to be withdrawn from the fund and taxed at the marginal rate of the individual taxpayer. The relief is only available for breaches which occur from the 2011-12 year and will only apply the first time a cap is breached. Whilst the move is welcome the $10,000 limit appears arbitrary.
Tax highlights and other measures contained in this year's federal budget can be viewed below.
Small Business Measures
Abolition of the Entrepreneur's Tax Offset for 2012-13
The Entrepreneur's Tax Offset (ETO) currently allows eligible small business a tax offset equal to 25% of their tax liability.
Following recommendations made in the Henry Review, the government will abolish the ETO effective from 2012-13 to be replaced with an immediate write-off for certain motor vehicle acquisition costs (refer below).
Immediate write-off for purchase of motor vehicle from 2012-13
Small businesses will be able to claim up to $5,000 as an immediate deduction for the purchase of motor vehicles for vehicles acquired from 2012-13.
This measure follows other small business reforms (previously announced by the government) which apply from 2012-13, including:
- An immediate deduction of all depreciating assets acquired with a cost under $5,000 (currently $1,000),
- Use of a single general business pool at a rate of 30% (currently, small business entities are able to allocate to a general pool with a 30% rate and a long-life pool with 5% rate).
The remainder of the value of any vehicle purchased to which the $5,000 immediate deduction applies would be included in a general business pool (depreciated at 15% in the first year then 30% thereafter).
Adjustments to PAYG instalments for 2011-12 to provide cash flow
The government will reduce income tax instalments paid under the Pay As You Go (PAYG) system by using the gross domestic product method (GDP) adjustment method for one year.
For small businesses, individual investors and small superannuation funds, PAYG instalments in 2011-12 will be set at 4% above the small business's taxable income for the previous year, half the statutory rate which would otherwise have applied.
This is a one year benefit and the statutory rate will apply as normal from 2012-13.
This method bases instalment amounts on the previous income year's taxable income, uplifted by a GDP adjustment factor. This adjustment factor reflects nominal GDP growth over the previous two calendar years and is intended to calculate tax instalments payable based on expected profit growth.
In accordance with existing law, taxpayers may still be able to vary their quarterly instalments if they consider their income is expected to be lower or higher than the amount determined by the Commissioner of Taxation using the 4% adjustment factor.
This reduction does not apply to taxpayers who calculate their instalments based on an instalment rate issued by the Tax Office. Their payments will automatically adjust when they apply the given rate to their actual income for the quarter.
Fringe Benefits Tax (FBT)
Reform of the Car Fringe Benefit Rules
The statutory formula method for valuing car fringe benefits will be reformed by replacing existing statutory rates with a single 20 per cent rate that will apply regardless of the distance that the vehicle has travelled. The measure will thus remove the unintended tax incentive for people to drive more to access higher concessions.
This reform will apply to new contracts entered into after 7:30pm (AEST) on 10 May 2011 and will be phased in as follows:
|
Distance travelled during FBT year
|
From May 10, 2011
|
From April 1, 2012
|
From April 1, 2013
|
From April 1, 2014
|
| 0 - 14,999km |
20%
|
20%
|
20%
|
20%
|
| 15,000 - 24,999km |
20%
|
20%
|
20%
|
20%
|
| 25,000 - 39,999km |
14%
|
17%
|
20%
|
20%
|
| More than 40,000km |
10%
|
13%
|
17%
|
20%
|
Individuals and Family Tax Measures
Personal income Tax rates remain unchanged
Individual income tax rates will remain unchanged for the 2011-12 income year.
Dependant Spouse tax offset phase-out
In order to encourage more Australians into paid employment, the Government has announced that it will progressively remove the tax concession for taxpayers with a non-working spouse and no children, by cutting the Dependent Spouse Tax Offset (DSTO).
Taxpayers with a dependent spouse aged less than 40 years will no longer be eligible for the dependent spouse tax offset (DSTO) from 1 July 2011.
Taxpayers with an invalid or permanently disabled spouse, supporting a carer, or people who are eligible for the zone, overseas forces and overseas civilian tax offsets will not be affected by this change.
Low Income Tax Offset bring forward
The amount of the low income tax offset (LITO) that is delivered to low and middle income earners through their regular pay during the year will be increased from 50% to 70% of their total entitlements from 1 July 2011. The remaining 30% of their LITO benefit will still be paid as a lump sum on assessment following lodgement of an income tax return.
Disallow deductions against government assistance payment
In response to the decision in FC of T v Anstis [2010] HCA 40, with effect from 1 July 2011, the Government will amend the tax law to prevent self education deductions from being claimed against all government assistance payments.
For the 2010-11 income year, eligible taxpayers who receive Youth Allowance payments are still able to claim a deduction for self education expenses provided that they have maintained records of their expenditure.
For each of the years 2006-07 to 2009-10, the Commissioner has determined that he will administer the law to allow eligible taxpayers to receive an automatic deduction of $550 or alternatively make potentially higher claims if expenses can be substantiated.
Increasing Medicare Levy low-income thresholds
The Medicare low-income thresholds will be increased to $18,839 for individuals and $31,789 for families, with effect from 1 July 2010. The additional amount of the threshold for each dependent child or student will also increase to $2,919.
The Medicare levy threshold for single pensioners below Age Pension age will also be increased to $30,439. This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy where they do not have an income tax liability.
Removing minors' eligibility for low income tax offset on unearned income
In order to discourage income splitting, with effect from 1 July 2011, the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their unearned income, such as dividends, interest, rent, royalties and other income from property will be removed.
Income earned by minors from employment will still be eligible for the full benefit of the LITO. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors will not be affected by this measure.
Reduction in HECS discounts
The Government will, from 1 January 2012, reduce the following discounts applying to payments made under the Higher Education Contribution Scheme (HECS):
- the discount available to students electing to pay their student contribution up-front will be reduced from 20% to 10% ; and
- the bonus on voluntary payments to the Tax Office of $500 or more will be reduced from 10% to 5%.
Families
Education Tax Refund to include school uniforms
Currently, the Education Tax Refund (ETR) assists parents and carers with expenses such as computers, stationery and textbooks. To help families meeting cost of living pressures, the Government announced that it will extend the ETR to cover school uniform expenses at an estimated cost of $460 million over the new four years.
From 1 July 2011 the extended ETR will also cover expenditure on uniforms which are required or otherwise approved by a school, including optional school uniforms, and sports or physical education uniforms.
Increasing family Tax Benefit Part A for families with teenagers
The Government will match the annual rate of Family Tax Benefit (FTB) Part A for families with dependants aged 16 to 19 years who are enrolled in full time secondary school study to the rates for 13 to 15 years old dependants. This will help families meet the extra costs of raising teenagers and support families in keeping their children at school.
Specifically, this measure will increase the level of support provided by the FTB by up to $4,208 a year for 16 and 17 year olds, and up to $3,741 a year for 18 and 19 year olds.
More flexible access to family payments
Families in receipt of FTB Part A will be provided with more flexible access to their entitlement, to assist them meet these unexpected expenses as they arise.
From 1 July 2011, families will be eligible for an advance payment of up to 7.5 per cent, up to a maximum of $1,000, of their annual FTB Part A entitlement, at any time throughout the year. Advances will be repaid over six months by direct deductions from future FTB payments.
NOTE: Families will also continue to be able to apply to receive an advance of around $160, paid every six months from a date of the recipient's choosing and repaid by reductions in their FTB Part A payments through the rest of the six month period.
More flexible child care rebate payments
The Government is giving parents greater choice about when and how they receive their Child Care Rebate payments to assist in managing household budgets.
From 1 July 2011, families will be able to choose to have their Child Care Rebate paid at the time they incur their child care costs, usually fortnightly or weekly.
Families will also have the option of choosing to have their Child Care Rebate paid directly to their child care provider as an immediate reduction on their bills.
Aligning Family Tax Benefit Part A eligibility with Youth Allowance age of independence
From 1 January 2012, the eligibility for FTB Part A will be limited to children up to the age of 21 years, as young people aged 22 and over are considered independent. The child turning 22 may still be eligible to receive Youth Allowance subject to usual means testing and academic progress rules.
Pause indexation of family payments
The Government will pause indexation of the Family Tax Benefit (FTB) Part A and B supplements for three years. The FTB supplements will be fixed at the current 2010-11 levels of $726.35 per annum per child for FTB Part A and $354.05 per annum for FTB Part B until 1 July 2014.
Moreover, the Government will pause indexation of family payment higher income thresholds and limits at their current level until 1 July 2014 as follows:
- FTB Part B primary earner income limit will remain at $150,000
- the income limit for receiving the dependency tax offsets will remain at $150,000
- the Baby Bonus eligibility limit will remain at $75,000 of family income in the six months following the birth or adoption of a child, equivalent to $150,000 a year
- the Paid Parental Leave primary carer income limit will remain at $150,000 in the financial year before the birth or adoption of a child, and
- the higher income-free threshold of FTB Part A will remain at $94,316 of family income, with an additional $3,796 provided for each child after the first.
2011 income tax rates
From 1 July 2010, the income thresholds and tax rates for residents are:
|
Income Thresholds
|
Rate
|
2010-11 Tax Payable*
|
| $0 - $6,000 |
0%
|
Nil |
| $6,001 - $37,000 |
15%
|
Nil + 15% of excess over $6,000 |
| $37,001 - $80,000 |
30%
|
$4,650 + 30% of excess over $37,000 |
| $80,001 - $180,000 |
37%
|
$17,550 + 37% of excess over $80,000 |
| $180,001 + |
45%
|
$54,550 + 45% of excess over $180,000 |
(* excludes the 1.5% Medicare levy)
|
Income Thresholds
|
Rate
|
2010-11 Tax Payable*
|
| $0 - $6,000 |
0%
|
Nil |
| $6,001 - $37,000 |
15%
|
Nil + 15% of excess over $6,000 |
| $37,001 - $50,000 |
30%
|
$4,650 + 30% of excess over $37,000 |
| $50,001 - $80,000 |
37.5%
|
$8,550 + 30.5% of excess over $50,000 |
| $80,001 - $100,000 |
37.5%
|
$17,700 + 37.5% of excess over $80,000 |
| $100,001 - $180,000 |
28%
|
$25,200 + 38% of excess over $100,000 |
| $180,001 + |
46%
|
$55,600 + 46% of excess over $180,000 |
(* excludes the 1.5% Medicare levy but includes the flood and cyclone levy)
Superannuation - refund of excess concessional contributions
The Government will provide eligible individuals with the option to have excess concessional contributions withdrawn from of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax.
The measure will apply where an individual has made excess concessional contributions of up to $10,000 (not indexed) in a particular year and is only available for breaches in respect of 2011-12 or later years, and only for the first year in which a breach occurs.
Excess contributions tax is incurred where an individual exceeds their concessional contributions cap. Concessional contributions include compulsory superannuation guarantee payments, salary sacrifice contributions, and other deductible contributions. Excess concessional contributions are taxed at 31.5 per cent, in addition to 15 per cent tax when contributions are made to the fund.
This measure makes the super system fairer by allowing those who have breached the cap for the first time, by up to $10,000, the option to have these contributions refunded and taxed at their potentially lower marginal tax rate rather than the 46.5 per cent effective excess contributions tax rate.
Superannuation contribution caps - operation of the higher cap for over 50s
The Government will set a higher concessional superannuation contributions cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000 at $25,000 above the general concessional cap. This measure will apply from 1 July 2012.
This clarifies the operation of the higher cap for the over 50s which was introduced in the 2010-11 Budget.
The general concessional contribution cap is currently set at $25,000.
Reduction of 25% in the minimum payment amounts for account-based pensions in 2011-12
The Government will phase out the pension drawdown relief that has been provided over the last three years. Minimum payment amounts for account-based, allocated and market linked (term allocated) pensions will be reduced by 25 per cent for 2011-12 and will return to normal in 2012-13.
Superannuation co-contribution - extending the pause to the indexation of the income threshold
The Government will continue the freeze, for an additional year to 2012-13, of the indexation applied on the income threshold above which the maximum superannuation co-contribution begins to phase down.
Under the superannuation co-contribution scheme, the Government provides a matching contribution for contributions made into superannuation out of after-tax income. The matching contribution is up to $1,000 for people with incomes of up to $31,920 in 2010-11 (with the amount available phasing down for incomes up to $61,920). This measure will continue to freeze these thresholds at $31,920 and $61,920 respectively.
Tax compliance - countering fraudulent phoenix activities by company directors
The Government will strengthen the tax law to counter fraudulent ‘phoenix' activity, which involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt. The business is then continued as another corporate entity, controlled by the same person or group and free of their previous debts and liabilities.
As part of these strengthening measures, from 1 July 2011, the director penalty regime will be extended to superannuation guarantee amounts, making directors personally liable for their company's failure to pay employee superannuation.
This download has been provided by Taxpayers Australia
