Financial Year End Pre and Post Changes
As the new financial year proceeds you need to review the changes that are being made to taxation, superannuation and entitlements that effect both you and your employees.
It must also be noted that most measures will still need legislation to be introduced, so the final version of the changes may differ to the announcements made in the budget and election promises.
Changes to personal tax rates: From 1 July 2010, personal income tax changes will come into effect. These changes were announced in 2008 and no further adjustments have been made.
As a result of these changes, from 1 July 2010 if your taxable income doesn’t exceed $16,000 you will have no tax to pay. If your taxable income is up to $30,000, you will effectively receive the first $16,000 tax free and only pay 16.5% tax on the balance.
Increase in the Medicare levy: Effective date: 1 July 2009. The government has announced new Medicare levy thresholds that are applicable for the current financial year (ending 30 June 2010). These are $18,488 for individuals (previously $17,794) and $31,196 for families (previously $30,025). The increase on these thresholds for each dependent child or student will be $2,865. If your taxable income is below these levels, you will not have to pay the 1.5% Medicare levy.
Increase in the net medical expense tax offset claim threshold: Effective date: 1 July 2010
The government has announced an increase in the threshold above which you can claim the 20% net medical expense tax offset. From 1 July 2010 the threshold will rise from $1500 to $2000. In addition, this threshold will be indexed annually to the consumer price index.
Standard rate of tax deductions to simplify tax returns: Effective date: From 1 July 2012
From 1 July 2012, individual taxpayers will have the option of receiving a standard deduction of $500 for work related expenses and the cost of managing tax affairs. From 1 July 2013, the government will increase this standard deduction to $1000. If your deductible expenses are greater than the standard deduction amount, you will be able to claim the higher expenses when lodging your tax return under the existing rules but will need to substantiate the higher claim.
Discounted assessability on first $1000 of interest income: Effective date: 1 July 2011
From 1 July, 2011 the government will provide individuals a 50% tax discount on up to $1000 of interest earned from a range of savings products. The savings products attracting the concessions include bonds, debentures or annuity products as well as deposits held with a bank, building society or credit union.
Changes to company tax: Effective date: From 1 July 2012 for small business companies, otherwise from 1 July 2013
As detailed in its response to the Henry Tax Review, the government has announced that the company tax rate will be gradually reduced from its current 30% level to 29% in accordance with the following timeline:
For investors, the reduction in company tax rates will have an impact on the tax effectiveness of franked dividends, meaning they will either have to pay additional tax on franked distributions or suffer a reduction in any excess imputation credits that would otherwise have been refunded.
It should be noted the company tax rate is dependant on Mineral Resource Rent Tax legislation expected to be enacted in 2012. However, the reduction in company tax may mean these companies could pay a higher level of dividend in future years.
Small business tax relief: Effective date: 1 July 2012 .Currently small businesses (those with annual turnover of under $2 million or net assets less than $6 million) can immediately write-off expenses for assets worth up to $1000 in value.
From 1 July 2012, small businesses will be able to immediately write-off assets that have a value of less than $5000.
Superannuation: Restatement of measures announced in response to Henry Tax Review. Effective date: 1 July 2012 or later
The budget contained a restatement of four main changes to superannuation announced on 2 May 2010 as part of the government’s response to the Henry Tax Review, being:
• An increase in the superannuation guarantee rate from 9% to 12% by 2019/20.
The superannuation guarantee rate will be increased from 9% to 12% over a seven year period, commencing from 1 July 2013, with the increased rate of 12% applicable from 1 July 2019, as per the following table:
A low income earner government super contribution of up to $500.
From 1 July 2012, low income earners will be entitled to an additional government contribution into their superannuation fund of up to $500. This is in addition to any government co-contribution payment you may be entitled to. The payment is available if your adjusted taxable income is $37,000 or less, with the amount of the contribution being equal to the contributions tax that would be payable on your compulsory SG contributions.
• A permanent extension of the current transitional concessional contributions cap of $50,000 for those aged 50 and over if their superannuation balance is below $500,000.
The transitional concessional contributions cap of $50,000 for those aged 50 and over will no longer cease on 30 June 2012 but instead will become a permanent measure. However, this will only be available from 1 July 2012 if your total superannuation balance is below $500,000. The concessional contributions cap applies to contributions for which a tax deduction is available, such as SG payments, salary sacrificed amounts and personal deducted contributions to super.
Changes to government co-contribution: Effective date: 1 July 2010. In last year’s budget the government announced a temporary reduction in the matching rate for the government superannuation co-contribution measure. This reduction has now been made permanent, such that co-contributions will now only be available on a 1:1 matching basis to a maximum co-contribution level of $1000.
Additional ATO discretion on excess superannuation contribution tax assessments: Effective date: intended to apply from 1 July 2010
The government announced that the commissioner of taxation will be allowed to exercise discretion for the purpose of excess contribution tax before an assessment is issued.
The current arrangements provide very little discretion for the commissioner to exercise discretion in relation to excess contribution tax amounts even where you have made a genuine mistake and unintentionally breached the superannuation contribution caps.
Paid parental leave: Effective date: 1 January 2011. The Paid Parental Leave scheme was announced in the May 2009 budget. The scheme will provide a new parent of a child born or adopted from 1 January 2011 a payment equivalent to the national minimum wage for 18 weeks. The payments (current rate is $569.90 pw) will be made through the parent’s employer.
Tony Croese
BAMR-CWS
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