As predicted by almost every significant media outlet, the treasurer has announced a federal budget surplus of $1.5 billion for the 2012-13 year. A budget surplus is viewed by many in the community, perhaps a majority, as a good thing and therefore it is curious that the budget, at first glance, has a 'flat' feel to it. Could this be because the budget both gives and takes away with equal gusto?
Families will inevitably benefit from the 'schoolkids' bonus of either $820 or $410 (although this is arguably merely a boost for those most vulnerable to the carbon tax) but the gain is at the expense of the education tax refund which will be removed. Further, the Family Tax Benefit Part A will increase by $300 for families with one eligible child and $600 for two or more children however the benefit will be limited to children under 18 years of age.
Business taxpayers are confronted with a similar scenario. The loss carry back initiative will assist some companies with their cash flows however this is offset by a scrapping of the announced reduction in the company tax rate to 29% and significant limitations will be placed on access to LAFHA benefits which will increase the cost of the temporary relocation of employees.
We have listed out below what we view as the main changes announced in the 2012 Federal Budget.
1. Company tax cut not proceeding
The company tax rate will not be lowered from 30% to 29% as originally promised.
2. Company tax loss carry-back scheme
The Government will allow companies (and entities taxed like companies) to carry-back tax losses to offset previous profits so as to provide a refund of tax previously paid.
A one year loss carry-back will apply in 2012-13, where tax losses incurred in that year can be carried back and offset against tax paid in 2011-12.
For 2013-14 and later income years, tax losses can be carried back and offset against tax paid up to two years earlier.
Losses of up to $1 million can be carried back for each year, providing a cash benefit of up to $300,000.
The measure will apply to revenue losses only, will be subject to integrity rules and will be limited to a company's franking account balance.
3. Immediate write off for Small Business Entities
From 1 July 2012, small business entities (with a turnover of less than $2 million) will be able to:
- instantly write-off the first $5,000 of a new or used motor vehicle
- immediately write off each eligible business asset they buy costing less than $6,500 per asset
This confirms initiatives previously announced by the Government.
4. Bad debts -Related Party Financing Arrangements
This measure will deny a tax deduction for a bad debt written off, where the debtor is a related party who is not in the same tax consolidated group. The corresponding gain to the debtor will also not be taxed.
5. Removal of capital gains tax discount for non‐residents
The 50 per cent capital gains tax (CGT) discount will be removed for non‐residents on capital gains accrued after 7.30 pm (AEST) on 8 May 2012. The CGT discount will remain available for capital gains accrued prior to this time where non‐residents choose to obtain a market valuation of assets as at 8 May 2012.
6. Changes to tax rates for non‐residents
From 1 July 2012, the tax rate on the first $80,000 of a non‐resident’s taxable income will be 32.5% (increasing to 33% from 1 July 2015).
7. Changes to the net medical expenses tax offset
From 1 July 2012, the net medical expenses tax offset (NMETO) will be means tested. For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012‐13), the threshold above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10 per cent for eligible out of pocket expenses incurred. People with income below the surcharge thresholds will be unaffected.
8. 50 per cent discount for interest income not proceeding
The 50% discount for interest income is not proceeding.
9. Standard deduction not proceeding
The standard deduction for work‐related deductions and the cost of managing tax affairs is not proceeding.
10. Education Tax Refund
The Schoolkids Bonus will replace the Education Tax Refund (ETR), which is currently available as a refundable tax offset. The Schoolkids Bonus will be made in two equal instalments in January and July each year commencing January 2013. As a transitional arrangement, the ETR in 2011‐12 will be replaced by a one‐off lump sum payment to eligible families in June 2012.
From January 2013, every family with a child at school will be guaranteed $410 per annum for each primary school student and $820 per annum for each secondary school student. All eligible families will receive the full rate of payment and will no longer need to keep receipts as proof of expense, or wait until tax time.
Eligibility for the payment will remain open to families with children enrolled and attending school who are in receipt of Family Tax Benefit Part A (FTB A) or other qualifying income support payments or allowances under a prescribed educational scheme that precludes the family from receiving FTB A.
1. Deferral of higher concessional contributions cap
The start date for having a higher concessional contributions cap (CCC) for individuals over age 50 with total superannuation balances less than $500,000 will be deferred until 1 July 2014. This means that for 2012/13 and 2013/14, all individuals will have a concessional contributions cap of $25,000. People taking advantage of the transitional CCC (e.g., people implementing transition to retirement/concessional contribution strategies) may
need to reassess their arrangements to avoid breaching their CCC for 2012/13 (which will be half their transitional CCC for 2011/12).
2. Reduction of higher tax concession for contributions of very higher income earners
Currently, there is a flat tax of 15 per cent on concessional contributions. This provides high income earners with a tax concession of 30 per cent. From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30 per cent to 15 per cent (excluding the Medicare levy).
The definition of 'income' for the purpose of this measure includes concessional superannuation contributions. If an individual's income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that is in excess of the threshold. 'Concessional contributions' for the purpose of the measure includes notional employer contributions for members of defined benefit funds.
The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to 'excess contributions tax'. These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.
This measure will encourage very high income earners to reconsider other investment structures (e.g. companies and trusts).
This information is general information provided by CMA Accounting & Taxation and is only intended for the use of professional advisers. It does not take into account the objectives, financial situation or needs of any person. To the extent permissible by law, CMA Accounting & Taxation, related entities, employees and directors (CMA and associates) make no express warranties and excludes all implied warranties, in relation to the information contained in this document. CMA and associates excludes all liability for any loss or damage whether direct, indirect or consequential, suffered by any person acting (or failing to act) in reliance on this information.