Federal Budget Review – May, 2013

With the dust starting to settle on this year’s Federal Budget, Kerry and I thought you might appreciate a more impartial view of what it means for you (rather than the grandstanding that’s been going on in the media for the last week).

Despite some early scare-mongering that it would be a hard budget, the actual budget has largely been a bit of a non-starter, overshadowed by other political goings on.

Clearly, the Treasurer’s focus was on creating a surplus, albeit a very slim one, which meant some difficult choices had to be made on government spending. Almost $5.5 billion of this year’s budget cuts came from winding back or scrapping measures previously promised to tax payers, which shows the folly of relying on government announcements.

There are some significant changes that will affect you, your family and/or your business in some way, shape or form. We’ve split our review into three sections;

  • Small business
  • Families
  • Superannuation

So, by all means skip to the section that you’re most interested in. If you’re really keen to read the finer details, you might be interested in reading the

Institute of Chartered Accountants review

(33 pages) http://www.charteredaccountants.com.au/Industry-Topics/Tax/Current-issues/Federal-Budget-2012-13

We think Amanda Gome of Smartcompany.com delivered the best advice last week when she stated “of course the budget that matters most is yours”. If we can help you with that, or you want to discuss the implications of this budget for your business, family or super, please feel free to give Kerry or I a call on 6023 1700.

Regards,

Greg.

Small Business

Disappointingly, the previously promised 1% reduction in the company tax rate which was to start July 1, 2012 will no longer proceed.

The government confirmed it would proceed with the small business loss-carry back. This means that if you operate your business through a company you can carry losses of up to $1 million back and claim a refund against tax you’ve paid on profits up to two years prior. Unfortunately this does not apply to businesses that are unincorporated or trusts and partnerships. This will come into force in the 2012-13 tax year. However for the first year, it will only extend back one year prior. The finer details of how this will work for you in practice will be released by the government in coming months. Watch this space.  We hope you won’t be making losses in the future, so expect this new law will be of little value to you.

For immediate asset deductions, the threshold has been raised from $1,000 up to $6,500 – due to come into effect on July 1, 2012.

On 1 July, 2012 the immediate deduction of $5,000 on purchases of motor vehicles announced last budget comes into force.

If you own a travel or hospitality business that accesses free or significantly discounted airline travel for staff, the calculation of your FBT has changed and you will need to seek advice on ensuring your FBT liability is correct.

Announced previously, but coming into effect on July 1, 2012 – the government will provide a jobs bonus of $1000-10,000 directly to employers who recruit and retain workers 50yrs+ for more than three months. This change will be offset by the phasing out of the mature age worker tax offset for taxpayers born after 1 July 1957.

Families

From 1 July 2012 the tax-free threshold now triples to $18,200 (from $6,000) which sounds like a huge win, but it’s not really because the low income rebate has been significantly reduced. For those earning between $50-80K, you’ll likely see an increase of around $300 a year in your pocket.

The flood levy applied in the 2011-12 year, which added an extra 0.5-1% tax for those earning in excess of $50,000, ends on June 30, 2012.

The education tax rebate will be replaced by the School Kids Bonus – beginning now for the 2011-12 year. This is a lump sum of $820/$410 per high/primary school child – but only if you qualify for family tax benefit part A.

From July 1, 2013 Family Tax Benefit Part A will increase by a maximum of $300 per child annually.

As of July 1, 2012 the government will reduce the net medical expenses tax offset for those taxpayers earning more than $84,000 (single) and $168,000 (families)  to be only available for out-of-pocket medical costs in excess of $5,000 each year (and you’ll only be able to claim back 10% of your out of pocket expenses).  For those earning under these thresholds there will be no change to being able to claim 20% of your net medical expenses in excess of $2,060.

The Treasurer withdrew the previously announced measure of a standard tax deduction (without receipts) for individuals covering work related expenses and the management of tax affairs. So the current rules for work related expenses will remain unchanged so that you will still need receipts to claim deductions over $300 in total.

The Treasurer also withdrew the previously announced measure in relation to the 50% tax discount for interest income.
Although not part of this budget, as of July 1, 2012 the private health insurance rebate will be means-tested for singles earning more than $84,000 and families on more than $168,000.

Superannuation

One of the biggest nasties in this budget was around superannuation.

It was announced in the last two budgets that from July 1, 2012, if you were over 50 years old with a balance of less than $500,000 in super, you were allowed to contribute an extra $25,000 to your fund on top of the regular capped contribution of $25,000. That’s now been put on hold until July 1, 2014 – but we’d suggest you don’t hold your breath on this one. For now, tax deductible contributions to super have been limited to $25,000 across the board from July 1, 2012.  This makes it very difficult for small business people to quickly build up their Super toward the end of their working life and is very disappointing.

Further, if your ‘income’ is over $300,000, your deductible superannuation contributions will now be subjected to 30% tax (previously only 15%) as of July 1, 2012. Your ‘income’ includes salary, super, fringe-benefits, pensions, net investment loss, etc – not just salary.

Self managed super funds will also have their fund levy increased (currently $180) to assist with funding the government’s SMSF compliance activities including registration of all SMSF auditors. However specifics around this have not been announced yet. Watch this space

Other 
Significant funding has been allocated to the ATO for GST compliance activity and a broadening of the powers of the Tax Commissioner in administering the tax system (which includes withholding refunds on outstanding debts). This suggests to us there will be even greater scrutiny on compliance matters. So, really, if you have a business, there’s never been a better time to have a solid working relationship with your accountant.

Disclaimer

This information is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Please ensure you seek professional advice before making any decisions based on this information.

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