May 11, 2011 by admin

Last night, Treasurer Wayne Swan handed down the federal budget for the 2011-12 financial year. The Budget includes a number of changes to taxation, superannuation and social security benefits.

The main focus of the Budget is on increasing workforce participation, development of regional areas, and improving mental health services while returning the Budget back to surplus by 2012-13. To bring the Budget back into surplus by 2012-13 the Government has signalled spending cuts of $22 billion.

Budget at a Glance

Taxation

1.   Changes to Education Tax Offset

The education tax refund entitles eligible parents, carers, legal guardians and independent students to a tax refund upon incurring certain expenditure. Currently this expenditure includes computers, educational software, and textbooks and other items.  School uniforms will be added from 1 July 2011.

2.   Low Income Tax Offset

Taxpayers who receive the maximum amount of Low Income Tax Offset of $1,500 will see an additional $300 pa ($11.54 per fortnight) being paid throughout the financial year instead of waiting for the completion of their annual income tax return.

3.   Removal of Low Income Tax Offset for Children Under 18 receiving income from Family Trusts

Children under the age of 18, will not be eligible for the Low Income Tax Offset (LITO) where income is investment income including dividend, interest, rent, royalties, property income and trust distributions.
This takes away the income splitting advantages of using a family trust to reduce tax.
LITO is still available to children under the age of 18 who earn salary and wages income.

4.   Dependent Spouse Tax Rebate

This offset will be removed for dependant spouses under the age of 40 (i.e born on or before 1 July 1971). This will not affect those people whose dependant spouses are carers, taxpayers with children eligible for

FTB Part B, people who are permanently unable to work and taxpayers eligible for the zone, overseas forces or overseas civilian tax offsets.

5.   Increase in Medicare Levy low income threshold from 1 July 2010

Medicare Levy low income threshold will be increased to $18,839 for individuals and $31,789  for families.

6.   Reduction in Higher Education Contribution Scheme (HECS) discounts

From 1 July 2012 discount for upfront payments will reduce from 20 per cent to 10 per cent. Bonus on voluntary payments of $500.00 or more will reduce from 10 per cent to 5 per cent.

7.   Medicare Levy Surcharge Thresholds

From 1 July 2011:
$80,000 single surcharge threshold
$160,000 family surcharge threshold (increasing by $1500 for each dependent child after the first)

Small Business Support

1.   Cut to company tax rate

From 1 July 2012, company tax rate to fall to 28%

2.   Fringe benefits tax – changes to statutory formula method

Currently under the statutory formula method there are four different rates (all based on kilometres travelled) that may be used to work out the grossed-up taxable value of a car fringe benefit. Under these rules, the more kilometers driven, the lower the car fringe benefit and hence the fringe benefits tax (FBT) payable decreases and the tax concessions increase.

The Government intends to change the current rules by applying a single rate of 20 per cent regardless of the distance travelled. This change will apply to new contracts entered into on or after 7.30pm (AEST) on 10 May 2011 and will be phased in over four years. Operating method is still available for use.

3.   Immediate tax write – off for assets purchased under $5000

4.   Instant tax write off for small business motor vehicles

Effective from 1 July 2012, Small businesses will be able to instantly write-off the first $5,000 for any motor vehicle purchased from 1 July 2012. These reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies. Entrepreneurs Tax Offset will be abolished from 1 July 2012

Superannuation

1.   Once  – Off Tax relief for taxpayers – who go over the superannuation contribution limits from 1 July 2011

Once only opportunity to withdraw the excess contributions made during the 2011/12 or later financial years. This measure should assist tax payers who unintentionally breach their concessional contributions cap. (including superannuation guarantee, salary sacrifice, employer contributions and personal contributions where a tax deduction is being claimed) once in future financial years
Generally excess contributions are subject to excess contributions tax of 31.5% plus contributions tax of 15%, this relief will result in the excess contributions being assessed at the taxpayer’s individual level at their marginal tax rate

2.   Reduction in the minimum payment amounts for pensions in 2011/12

Minimum payment amounts for allocated pensions (income stream) will be reduced by 25 per cent for 2011-12. So, at the moment you are only required to take half of the minimum annual payment so after 1 July 2011 you will be required to take 75% of the minimum.

3.   The government required to notify employees of superannuation contributions

From 1 July 2012, employers will be required to advise employees of superannuation contributions for both compulsory SG payments and salary sacrifice contributions on their payslips.
4.   Self-Managed Superannuation Fund (SMSF) Levy – to increase from $150.00 to $180.00 from 1 July 2010.

Social Security

1.    Age Pension – Work Bonus Measure

From 1 July 2011, age pensioners who work will be able to earn $250.00 per fortnight above the relevant income free limit before their pension is affected.

2.   Family Tax Benefit (FTB) Part A & Part B

Increase in maximum rate of FTB part A for children aged between 16 to 19
Eligibility for FTB Part A limited to children aged up to 21 years (previously 24 years) aligning the age with the Youth Allowance age of independence

3.   Disability Support Pension – increase in allowable work hours

Current 15 work hours per week allowable is increasing to 30 hours per week without payments being cancelled or suspended

4.   Youth Allowance

Age eligibility extended from 20 to 21 years of age effective 1 July 2012
Tax deduction for education expenses no longer available for recipients of Youth Allowance that are studying full or part time with no other eligible income , effective I July 2011

5.   New Start Allowance

Age eligibility extended to 22 years of age (currently 21) effective 1 July 2012
Changes to income tests to encourage participation in work force