09 May Federal Budget Update 2012
8 May 2012
The 2012 Federal Budget only contained a few surprises as many of the measures had already been legislated or pre-announced.
The main winners were lower income earners, families and the elderly.
Summary
The key new announcements include:
- tax may increase on certain employment termination payments
- the reduction in the company tax rate isn’t going ahead
- the increase in the concessional contribution cap for people aged 50 or over with less than $500,000 in super will be postponed until 1 July 2014
- the tax payable on concessional super contributions by people earning $300,000 pa or more will increase from 15% to 30%, and
- a ‘SchoolKids Bonus’ of $820 a year for each child at high school and $410 for every child in primary school will automatically be paid to parents who are eligible for Family Tax Benefit Part A, replacing the Education Tax Refund.
The Government has also confirmed that:
- people earning under $80,000 pa will receive modest tax cuts
- the minimum income payments for a superannuation pension/income stream won’t increase until 1 July 2013, and
- funding will go ahead for the landmark changes to Australia’s Aged Care System announced recently.
Superannuation
Concessional Contribution cap reduction confirmed
Date of effect: 1 July 2012 and 1 July 2014
The uncertainty around the concessional contribution (CC) cap for people aged 50 and over has been resolved in the short term. On 1 July 2012, the cap will halve from $50,000 to $25,000 for all super fund members aged 50 or over, regardless of their account balance.
The plan to allow those aged 50 or over to contribute up to $50,000 pa if they have less than $500,000 in super will be delayed until 1 July 2014. This is to give the Government time to work out the details regarding how they are going to monitor account balances and implement this measure.
Implications:
Super fund members aged 50 or over should:
- consider taking full advantage of the current cap by making concessional contributions of up to $50,000 before 30 June this year
- review their concessional contributions, especially from 1 July, to make sure they don’t exceed the reduced cap
- consider making non-concessional contributions if impacted by the cap reduction, and
- review their contributions and income payments if using the ‘transition to retirement’ strategy.
30% contributions tax for higher earners
Date of effect: 1 July 2012
As reported in the media before Budget night, the Government plans to increase the tax on concessional super contributions from 15% to 30% from 1 July 2012 for high-earners on more than $300,000 per annum.
While this has made employer super contributions (including salary sacrifice) less attractive for individuals who are required to pay 30% contributions tax, it’s still 15% less than the marginal tax rate of 45% they would pay on their salary.
Personal tax changes
Marginal tax rate and LITO changes
Date of effect: 1 July 2012 and 1 July 2015
The personal taxation changes legislated as part of the Clean Energy (Carbon Tax Relief) Package will take effect on 1 July 2012 and on 1 July 2015, including:
- changes to the marginal tax rates and thresholds for lower income levels, and
- a progressive reduction in the Low Income Tax Offset (LITO).
These changes will mean modest tax savings for people earning under $80,000
Illustrative tax savings
| In 2011/12 | From 2012/13 | From 2015/16 | |
| Income | $20,000 | $20,000 | $20,000 |
| Tax | $2,100 | $342 | $114 |
| LITO | $1,500 | $445[1] | $3002 |
| Net income[2] | $19,400 | $20,000 | $20,000 |
| Tax savings (from 2011/12) | $600 | $600 | |
| Income | $60,000 | $60,000 | $60,000 |
| Tax | $11,550 | $11,046 | $10,933 |
| LITO | $300 | $100 | $70 |
| Net income3 | $48,750 | $49,054 | $49,137 |
| Tax savings (from 2011/12) | $304 | $387 | |
| Income | $80,000+ | $80,000+ | $80,000+ |
| Tax | $17,550 | $17,546 | $17,533 |
| LITO | Nil | Nil | Nil |
| Net income3 | $62,450 | $62,454 | $62,467 |
| Tax savings (from 2011/12) | $4 | $17 |
[1] Because LITO is a non-refundable tax offset, it can only be used to offset tax payable (ie any surplus offset will not be refunded).
[2] Net income for this purpose is taxable income less tax at marginal rates plus LITO.
Flood levy to finish
Date of effect: 1 July 2012
As originally intended, the Flood levy will cease on 30 June 2012. This means people earning over $50,000 pa will have more available money for the 2012/13 financial year and beyond.
Further restrictions on ETP tax concessions
Date of effect: 1 July 2012
Tax may increase on certain employment termination payments (ETP) such as golden handshakes.
People who know they are going to receive an ETP soon, may want to negotiate for the payment to be made before 30 June 2012.
Standard deductions and 50% interest discount not proceeding
The plan to allow taxpayers to claim a standard deduction for work-related expenses when completing their tax returns has been dropped, as has the proposed 50% discount for the first $500 of interest income.
Other taxation changes
Company tax reduction not going ahead
Date of effect: 1 July 2012
The planned reduction in the company tax rate, from 1 July 2012 for small business and 1 July 2013 for other businesses, isn’t going ahead. This is a permanent measure and will be of particular concern to small business owners.
Retirement incomes
Drawdown relief for super pensions extended
Date of effect: 1 July 2012
The Government confirmed that the 2011/12 minimum pension drawdown levels will continue for another 12 months before increasing to the ‘normal’ levels from 1 July 2013.
| Age at start of pension (and 1 July each year) | In 2011/12 & 2012/13 | From 1 July 2013 |
| Under 65 | 3% | 4% |
| 65-74 | 3.75% | 5% |
| 75-79 | 4.5% | 6% |
| 80-84 | 5.25% | 7% |
| 85-89 | 6.75% | 9% |
| 90-94 | 8.25% | 11% |
| 95+ | 10.5% | 14% |
Implications
For pensioners who receive enough of a pension this is good news, as they won’t be required to draw more income than they need. As a result, they can keep more money in their pension account, and not be taxed on investment earnings. Also, they won’t be forced to sell investments that may have recently fallen in value to fund the additional income payments, and could keep more money invested to participate in any market recovery.
Tax-free super pension incomes to increase
People aged 55 to 59 will be able to receive more tax-free income from a superannuation income stream/pension than they can in 2011/12. These increases result from the marginal tax rate, income threshold and LITO changes legislated as part of the Clean Energy Legislative Package (see Personal tax section).
| In 2011/12 | From 2012/13 | From 2015/16 | |
| Tax-free incomes(per person aged 55 to 59 from income stream[2]) |
$48,158 | $49,753 | $50,189 |
| Increase on 2011/12 | $1,595 | $2,031 |
[1] Ignores Medicare Levy, but includes LITO and SATO/SAPTO, where applicable.
[2] Assumes no income from other sources is received.
Social security changes
SchoolKids bonus to replace Education Tax Refund
Date of effect: June 2012 and January 2012
A ‘SchoolKids Bonus’ of $820 a year for each child at high school and $410 for every child in primary school will automatically be paid to parents who are eligible for Family Tax Benefit Part A. This is to replace the Education Tax Refund which many eligible parents weren’t taking advantage of as they had to keep records of approved expenses and lodge a claim. The first payment is expected in June 2012.
Family Tax Benefit Part A – rate increases
Date of effect: 1 July 2013
The rate of Family Tax Benefit Part A will increase by $300 pa for families with one child, and $600 pa for families with two or more children. The base rate of Family Tax Benefit Part A will increase by $100 pa for families with one child, and $200 pa for families with two or more children.
Aged care changes
Date of effect: Various
The Government confirmed its commitment to the landmark aged care changes announced on 20 April 2012.
Under the ‘Living Longer Living Better‘ plan, the Government will:
- overhaul the means-testing so care recipients with greater financial means make a greater contribution
- make it easier for older Australians to stay in their home while they receive care
- ensure more people will get to keep their family home and avoid the need for fire sales, and
- establish a simplified gateway for accessing aged care information.
Reuben Zelwer B.Acc, FFin,CFP
Director
Adapt Wealth Management Pty Ltd
Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.
Adapt Wealth Management Pty Ltd ABN 76 821 231 362, registered office Suite 3 164 Waverley Road Malvern East 3145, is a Corporate Authorised Representative of CHPW Financial (AFSL 280201). From time to time Adapt Wealth Management, members of CHPW, associated employees or agents may have an interest in or receive pecuniary and non pecuniary benefits from the financial products and services mentioned herein.
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About Reuben Zelwer
Reuben Zelwer established Adapt Wealth Management in 2011 to help time poor clients achieve financial freedom. For over 15 years, Reuben has helped professionals, executives, business owner and those approaching retirement make the most of their circumstances by making good financial decisions. Reuben’s professional practice is complemented by substantial voluntary work, which has included setting up financial literacy and savings programs in the local community. |