While the Budget has been received as relatively restrained, some new measures were outlined which may impact how you manage your finances today as well as plan for your retirement.
The good news for families was that 'means testing' of the Child Care Rebate was not a feature of this year's budget.
The bad news was that the indexation of the income income thresholds for family benefits - including Family Tax Benefit A and B, the Baby Bonus, and Paid Parental Leave will be frozen for three years instead of raising them in line with inflation.
We have provided below a summary of the key issues from last night's budget that may affect you.
- Paid Paternity Leave deferred implementation
- Increase in family tax benefit part A for certain children
- Advance payment of family tax benefit part A
- Operation of higher super concessional cap for those over 50
- Reduction in the minimum payment amounts for account-based pensions
- Government co-contribution income threshold indexation frozen
- Super contribution information disclosure
- Minors ineligible for tax offset on unearned income
- Valuing cars for FBT purposes
- Instant tax write-off for small business motor vehicles
- Reduction in Higher Education Contribution Scheme (HECS) discounts
Key Family Assistance Office Changes
Paid Paternity Leave deferred implementation start date to 1 January 2013
The Government will defer the implementation of Paid Paternity Leave by six months from 1 July 2012 until 1 January 2013.This scheme will provide two weeks paternity leave paid at a rate equivalent to the national minimum wage to eligible working fathers, and other partners who are providing full-time care or sharing the child's care, for children born on or after 1 January 2013.
Increase in family tax benefit part A for certain children aged 16-19 and cap eligibility to child under 22
The Government will increase the maximum rate of family tax benefit part A paid in respect of a child aged 16 to 19 who attends full-time school or vocational study to the same rate paid for 13 to 15 year olds.This will increase the FTB part A by up to $4,208 a year for 16 and 17 year olds, and up to $3,741 a year for 18 and 19 year olds.
The eligibility for FTB part A will be limited to children up to age of 21 years irrespective of whether they are a dependent full time student or not.
The above changes are proposed to take effect from 1 January 2012.
Advance payment of family tax benefit part A from 1 July 2011
The Government will allow families to take:- One-off advance payment of up to 7.5% (subject to a maximum of $1,000) of annual FTB part A entitlement at any point throughout the year; and/or
- A continuous advance payment of at least $160 every six months.
These advance payments will be subject to an assessment of a family’s ability to repay the advance without falling into financial hardship.
The advances will be repaid over six months by reducing future fortnightly FTB payments.
Key Superannuation Changes
Operation of higher concessional cap for those over 50 from 1 July 2012
The Government has amended its previous announcement regarding a permanently higher concessional cap for those aged 50 or over with a total super balance of less than $500,000.The Government has now proposed that the higher concessional cap for eligible clients will be $25,000 higher than the standard concessional cap.
This replaces the Government’s existing proposal (in a discussion paper released on 28 February 2011) that a non-indexed cap of $50,000 would apply.
Reduction in the minimum payment amounts for account-based pensions in 2011/12
The Government has announced that minimum payment amounts for account based, allocated and market linked (term allocated) pensions will be set at 75% of legislated minimums for 2011/12 and will then return to normal in 2012/13.This will assist those persons who are looking to draw a pension at the minimum rate to reduce income.
Government co-contribution income threshold indexation frozen until 2012/13
The Government has announced that it will extend the freeze on indexation of the co-contribution income thresholds to 2012/13.Therefore, the lower and upper co-contribution income thresholds will remain at $31,920 and $61,920 respectively until 30 June 2013.
Super contribution information disclosure from 1 July 2012
The Government has reconfirmed its election commitment to ensure employees receive information through their pay slips on the amount of super contributions paid into their super account.
In addition, the Government plans to require super funds to notify employees and employers on a quarterly basis if regular contributions cease.
Key Taxation Changes
Minors ineligible for LITO on unearned income from 1 July 2011
The Government intends to remove access to the low income tax offset (LITO) for minors (i.e. children under 18 years of age) in respect of unearned income, including dividends, rent, royalties and other property income.The purpose of this measure is to discourage income splitting between adults and children, including through family trusts.
Minors who are exempt from the unearned income rules (e.g. disabled minors) will retain access to LITO.
In addition, minors receiving income that is exempt from the unearned income rules (e.g. income from work, compensation payments and inheritances) will be eligible for LITO on this income.
Back to summary
Valuing cars for FBT purposes - change to flat 20% statutory percentage
The Government will change the statutory method of calculating the taxable value of cars for fringe benefits tax (FBT).
The statutory percentage used to calculate the taxable value of a car for new contracts entered into from 10 May 2011 time will be phased in over time to a flat 20% regardless of kilometres travelled.
This is good news for those travelling less than 15,000 km per FBT year and using the statutory method, as they will see the packaged value of their car decrease. In contrast, clients travelling 25,000 km per FBT year or more will see an increase in their car’s packaged value.
Importantly, there is still the option of instead using the operating cost or (‘log book’) method, which calculates the taxable value based on the total operating costs during each FBT year.
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Instant tax write-off for small business motor vehicles from 1 July 2012
The remaining purchase price can be depreciated in the general depreciation pool at a rate of 15% in the first year and 30% in future years (the current method for the whole vehicle value).
This measure will apply to all types of small businesses structures, including sole traders, companies, partnerships and trusts, and all types of motor vehicles used in the business.
Key Education Changes
Reduction in Higher Education Contribution Scheme (HECS) discounts from 1 January 2012
Discounts applying to payments made under the Higher Education Contributions Scheme will reduce as follows:- the discount for up-front payments will reduce from 20% to 10%, and
- the bonus on voluntary payments to the ATO of $500 or more will reduce from 10% to 5%.
Please note that unlike previous years, this Budget was delivered by a minority Government that may find it more difficult than usual to get some of these measures through both Houses of Parliament.
For more information please contact Ryan Love on 1300 856 338 or via e-mail to ryan.love@apexpartners.com.au.