From 1 July 2012 until 30 June 2014, all taxpayers, regardless of their age, will be subject to a concessional contributions cap of $25,000. From 1 July 2014, this will increase to $30,000 through indexation. For those over 50, a higher cap of $55,000 will be applicable.
The proposed higher concessional contributions cap for individuals aged 50 or more with superannuation balances below $500,000 will be deferred until 1 July 2014.
contributions tax to double for high income earners
From 1 July 2012, the superannuation contributions tax will double to 30% for people with incomes above $300,000.
However if a person’s income (excluding concessional contributions) is less than $300,000, the additional 15% contributions tax will only apply to those contributions that exceed the threshold. For example, someone with an income of $290,000 plus $25,000 of concessional contributions will only pay an additional $2,250 contributions tax (ie ($315,000 – $300,000) x 15%).
A taxpayer earning over $300,000 (including their concessional contributions) who currently makes full use of the $25,000 concessional cap will pay an additional $3,750 in contributions tax.
From 1 July 2012, the tax effectiveness of superannuation contributions for people with income above $300,000 will be 16.5%. This will be lower than for taxpayers on incomes of between $37,000 and $80,000 who will receive a 19% tax benefit (ie 34% – 15%) and people on incomes of between $80,000 and $180,000 who receive 23.5% tax benefit.
Superannuation remains the most tax effective for people with income in the $180,000 to $300,000 range who continue to receive a 31.5% tax benefit.
Contributions that exceed the $25,000 concessional contributions cap are not impacted by this measure.
The Government has legislated several changes to marginal tax rates (‘MTR’) and income thresholds as part of the ‘Clean Energy Future’ package, more commonly known as the ‘Carbon Tax’.
The changes to the income thresholds and Low Income Tax Offset (‘LITO’) go some way towards previous recommendations to simplify the personal income tax system. By raising the effective tax-free threshold, the Government has estimated that up to 1 million people will no longer have to lodge a tax return.
From 1 July 2012, small businesses will be able to immediately write-off the purchase of any new business assets costing less than $6,500. Assets costing more than this will be depreciated in a single pool, with an allowance of 15% in the first year and 30% in subsequent years.
Small businesses will also benefit from an additional instant $5,000 write-off against the purchase of a new or used vehicle used for business purposes.
tax offset limit for ‘golden handshakes’
The Government has announced that it is removing a large tax concession for employment termination payments (‘ETP’) otherwise known as ‘golden handshakes’.
‘Golden handshakes’ are generous executive salary packages given at the conclusion of employment. Only those who have a total taxable income of up to $180,000 will now receive the tax offset. Amounts above this income cap will be taxed at the MTR (ie 46.5%).
Please note that this measure does not apply to ETP’s arising from existing genuine redundancy arrangements (including to those aged 65 and over).
Net medical expenses tax offset (‘NMETO’)
From 1 July 2012, a means test will apply to the NMETO that helps individuals with their out-of-pocket medical expenses.
Currently, the NMETO applies when expenses exceed $2,000 and is set at 20% of the excess amount.
Expenses are assessed on either a single or family basis as applicable. The means test will only affect those with Adjusted Taxable Income (‘ATI’) in excess of the Medicare Levy Surcharge thresholds which are $84,000 for a single and $168,000 for couples or families in 2012-13. For those above the threshold, NMETO will be reduced to 10% of eligible medical expenses in excess of $5,000.
mature age worker tax offset (‘MAWTO’) phase out
From 1 July 2012, the MAWTO will not be available to workers born on or after 1 July 1957. Workers aged 55 or more in 2011-12 will maintain eligibility to MAWTO which also has a maximum tax offset of $500. It is assessed on a worker’s ‘net income from working’ (ie excludes investment and pension income) and is available on income between $10,000 and $53,000, at which point it reduces and is not available on income exceeding $63,000.
Savings from the MAWTO phase out will be directed towards Job Seeker Assistance and other programs to assist older Australians in the workforce.
The supplement will
This measure is designedbenefits more quickly and retain more of their savings.
A new ‘Schoolkids Bonus’ has been introduced to assist Australian families with out-of-pocket school expenses such as uniforms, excursions, music lessons and computer costs.
The new reform, applicable from January 2013 replaces the existing Education Tax Refund (‘ETR’) and will provide eligible families with $410 per year for each primary school child and $820 per year for each child in secondary education.
carbon tax compensation
Income support recipients such as those on Age Pension or Carers Payment will receive 1.7% per year of the maximum pension rate and receive fortnightly payments from March 2013.
As part of its ‘Clean Energy Future’ package, the Government announced a range of increased payments and supplements to assist income support recipients. These payments will commence from May 2012.
Firstly, there is the Clean Energy Supplement (‘CES’) which will be similar to the pension supplement paid since September 2009. This will be at the rate of 1.7% per year of the maximum pension rate and commence with fortnightly payments from March 2013.
In addition, there will be a Clean Energy Advance which will be a lump sum payment commencing from May 2012. This will be at the rate of $250 for a single person and $380 for couples (combined) payable to pensioners and also Commonwealth Seniors Health Card (‘CSHC’) holders. CSHC holders who are not pensioners will also be eligible for a CES payable quarterly from March 2013.
Families receiving Family Tax Benefits Allowance (‘FTBA’) will receive an additional 1.7% per year through the CES which will be up to $110 per child per year.
Those receiving FTB Part B (‘FTBB’) will also get an additional payment of up to $69 per year.
There will also be a Low Income Supplement and Single Income Family Supplement of $300. The Single Income Family Supplement recognises that those families may not get the intended relief through the tax system due to the tax cuts effectively ceasing at income levels above $80,000 per year.
Finally, there will also be additional payments to those with higher home energy costs due to use of essential medical equipment at home and the basic daily care fee in aged care facilities will also rise 1% to 85% of the single basic Age
Pension rate to recognise increased costs by aged care facilities.
aged care reforms
The Government has announced a range of measures to improve care of the elderly, whether remaining in their own home or in institutional care.
The reforms, applicable from 1 July 2014 feature a new method of means testing to ensure that those who use aged care services pay an amount according to their financial circumstances.
Recipients of aged care will pay a basic fee of up to 17.5% of the basic age pension. Part-pensioners will be liable to contribute up to $5,000 per year and self-funded retirees will pay up to $10,000 per year. Full time pensioners however will be exempt.
what does the budget mean for you?
We encourage you to discuss these changes with your financial adviser and explore ways to benefit from new opportunities or changes arising from the Federal Budget.
In addition to these financial planning highlights, we also produce a comprehensive technical analysis report offering even further detailed coverage of the 2012/13 Federal Budget. Visit www.ipac.com.au/federalbudget