Federal Treasurer Wayne Swan handed down his fifth Budget last night promising to deliver a surplus of $1.5 billion in 2012-13. This is to be achieved via spending cuts worth $33.6 billion and ditching the planned 1% cut in the company tax rate.
However there are some cash payments and tax breaks for families and low income earners and supplements for students, the unemployed and parents with young children. These benefits will be funded from taxes on the mining industry.
The Government has decided to defer the $50,000 concessional cap for individuals age 50 and over with account balances under $500,000. The concessional cap will be $25,000 for everyone in 2012-13 and 2013-14.
While this will undoubtedly save the Government money, the reduction in concessional caps could lead to a spike in cap breaches, as was seen in 2009-10 when all caps were halved. Workers aged over 50 who have salary sacrifice arrangements in place will therefore need to revise their contribution levels to remain under the new limits. Needless to say, the lower concessional caps will reduce the tax-effectiveness of these super contribution strategies.
The changes will also have a big impact on clients implementing transition-to-retirement (TTR) strategies, particularly those aged 60 or over whose ability to swap tax-free pension income for concessionally taxed super contributions will be limited. While TTR remains an effective strategy, its benefits will be less than they were in prior years.
Another superannuation surprise was the decision to increase the tax on contributions for individuals with income greater than $300,000 from 15% to 30%. This will increase the tax burden by up to $3,750 (i.e. 15% of $25,000) on concessional contributions made by very high income earners.
Apart from some minor changes to capital gains tax on compensation payments received via a trust, the only significant tax change is for non-residents.
From 1 July 2012, the first two marginal tax rate thresholds will be merged into a single threshold aligned with the second marginal tax rate threshold. This means that a tax rate of 32.5% will apply to all non-residents’ taxable income under $80,000. This 32.5% marginal tax rate will increase to 33% from 1 July 2015.
The Government has also announced the removal of the 50% CGT discount for non-residents on capital gains accrued after 7.30 pm (AEST) on 8 May 2012. The CGT discount remains available for capital gains accrued prior to this time where non-residents elect to obtain a market valuation of assets as at 8 May 2012.
Mature age worker tax offset
The mature age worker tax offset will be phased out from 1 July 2012 for workers born on or after 1 July 1957. Access to the offset will be maintained for taxpayers who are aged 55 or older in 2011-12.
Living away from home allowance
Eligibility for the living away from home allowance will be tightened to better target people who are legitimately maintaining a second home in addition to their actual home for an initial period. The changes will stop employers from being able to give the tax concession to employees who aren’t maintaining a second home, or are maintaining two homes indefinitely.
The Government has confirmed that these changes will not impact the tax concession for ‘fly-in fly-out’ arrangements, or the tax treatment of travel and meal allowances, which are provided to employees who have to travel away from their usual place of work for short periods.
For arrangements entered into after 7.30pm (AEST) on 8 May 2012, the changes will apply from 1 July 2012. For arrangements entered into prior to this date the changes will apply from 1 July 2014.
The Government will replace the Education Tax Refund (ETR) with a new Schoolkids Bonus. Eligibility for the payment will remain open to families with children enrolled and attending school who are in receipt of Family Tax Benefit A or other qualifying income support payments or allowances under a prescribed educational scheme that precludes the family from receiving Family Tax Benefit A.
The Schoolkids Bonus will be made in two equal instalments in January and July each year commencing January 2013.
Treasurer Wayne Swan also confirmed that the Government will not implement three measures it announced in the 2010 Budget. These are:
- the reduction of the corporate tax rate to 28% – the corporate tax rate will remain at 30%;
- the standard tax deduction of $1,000 for work-related expenses and the cost of managing tax affairs; and
- the proposed 50% discount for the first $1,000 of interest income.