The Australian Federal Budget 2012 – Summary

On the 8th of May 2012 the Treasurer, Mr Wayne Swan handed down the 2012-13 Federal Budget; the fifth for the Labor Government.

The cash budget surplus is estimated to be a very modest $1.5 billion for the 2012-13 financial year, equating to 0.2% of GDP. Surpluses for the next three years are also predicted, $2 billion for 2013-14 rising to $7.5 billion for 2015-16.  It was notable that the amount of the surplus was not mentioned at all in Mr Swan’s budget speech.

More importantly perhaps was the revised budget deficit for the current (2011-12) financial year; up to $44.4 billion from the anticipated $22.6 billion last May.  This was attributed in part to reduced revenue collections of $6 billion for the current year due to the continued weakness in the global economy and the effect of the natural disasters in early 2011.

Real GDP growth is predicted to be 3.25% in 2012-13 and then retreating to 3% in 2013-14, with the unemployment rate forecast to remain at 5.25%, a relatively low level in comparison to Europe and the US.

Mr Swan described the Budget as one delivering a stronger economy, with the benefits of the mining boom being shared fairly with all Australians. A budget surplus may well give the RBA further ‘room to move’ should Australian conditions deteriorate.  The details however show that funds of some $33.6 billion have been redirected from certain sectors, notably non-residents, high income earners and companies to “battling” Australian low income families.

We have summarised the key areas below.

 

01 – Personal Income Tax Measures

Income Tax Rates – Residents

No further changes were announced to the already legislated tax rates applying from 1 July 2012 which were enacted as part of the Carbon Tax Bills.  The tax rates are as follows:

Current From 1 July 2012
$ Rate $ Rate
6,001 15% 18,201 19%
37,001 30% 37,001 32.5%
80,001 37% 80,001 37%
180,001 45% 180,001 45%

 

Medicare Levy

The low income Medicare levy threshold will increase to $19,404 (up from $18,839) for individuals and $32,743 (up from $31,789) for couples.

Low Income Tax Offset

From 1 July 2012 the maximum Low Income Tax Offset (LITO) will reduce to $450 from $1,500 applicable for the 2011-12 year. The LITO phases out from $37,000 of taxable income until $66,667 where no LITO is available.  The effect of the LITO and the increased tax free threshold of $18,200 is that individuals pay no tax on taxable incomes below $20,979.

50% discount on interest income & standard tax deductions

The announcements in the May 2011 Budget to reduce tax on interest income and introduce a standard tax deduction have been scrapped.

Net Medical Expenses Offset

The net medical expenses offset will be means tested from 1 July 2012 such that singles earning over $84,000 and couples earning over $168,000 will have an increased threshold of $5,000 of out of pocket costs before a tax offset of 10% applies.  Individuals with incomes below these amounts will calculate their entitlement to the offset under the existing rules, namely 20% of the out of pocket costs over the current threshold of $2,060.

Schoolkids Bonus cash payment

From 1 January 2013 the under-utilised Education Tax Refund (ETR) will be replaced with a Schoolkids Bonus cash payment for all families receiving Family Tax Benefit Part A.  The payment will be $410 for each primary school student and $820 for each high school student. As part of the transition from the ETR in 2011-12 these amounts will also be paid out to eligible families in June 2012.

Employment Termination Payment Offset

The availability of the Employment Termination Payment (ETP) tax offset will be reduced in certain circumstances. Currently those under the preservation age can receive an ETP with a maximum tax rate of 30% whilst those above the preservation age have their tax limited to 15%.

From 1 July 2012 where certain ETPs are received and the recipient’s income exceeds $180,000, tax will be paid at full marginal rates on the excess above $180,000.

‘Consolidation’ of various tax offsets

From 1 July 2012 pensioner tax offset will be merged with the Senior Australians Tax Offset to create the new Seniors and Pensioners Tax Offset (SAPTO).  Also eight dependency tax offsets will be combined into a single streamlined and non-refundable offset that is only available to individuals who maintain a dependant who is genuinely unable to work due to carer obligation or disability.

Income Tax Rates – Non-residents

Income tax rates and thresholds applicable to a non-resident’s Australian sourced income will be adjusted from 1 July 2012 and then again from 1 July 2014 as follows

Current From 1 July 2012 From 1 July 2014
$ Rate $ Rate $ Rate
1 29% 1 32.5% 1 33%
37,001 30% 80,001 37% 80,001 37%
80,001 37% 180,001 45% 180,001 45%
180,001 45%

 

Removal of CGT discount for Non-residents

Non-residents will no longer receive a 50% CGT discount on capital gains that accrue after 8 May 2012. Non-residents that choose to apply the 50% CGT discount to a capital gain that has accrued before this time must obtain a market valuation of the asset as at 8 May 2012.

 

02 – Superannuation Measures

Reduction of tax concessions for very high income earners

For contributions from 1 July 2012, individuals with incomes greater than $300,000 will have a doubling of contributions tax, from 15% to 30%, thereby reducing the tax concession on the contributions.  “Income” will include taxable income, concessional (deductible) superannuation contributions, adjusted fringe benefits, total net investment losses, target foreign income, and tax-free government pensions and benefits.  Where a person’s income excluding concessional contributions is below the threshold only that part of their contributions that is over the threshold will be subject to the higher tax.

Deferral of higher concession contributions caps

The start date for the higher concessional contributions cap measure for individuals aged 50 and over with super balances below $500,000 will be deferred two years from 1 July 2012 to 1 July 2014.  Accordingly all individuals will have a concessional contributions cap of $25,000 for the 2012-13 and 2013-14 years, which for individuals aged 50 and over is currently $50,000.

 

03 – Business Taxpayers

Scrapping of proposed company tax cut

The proposed reduction in the company tax rate to 29% will not proceed due to a lack of support from the Parliament.  The company tax rate will remain at 30% for all companies (including small businesses).  The Treasurer advised that the resulting savings will be redirected to fund other measures, such as the already legislated tax breaks for small businesses and the loss carry back provisions for companies (as mentioned below).

Company Loss Carry-back

Companies will be allowed to carry back tax losses to offset against past profits, effectively allowing tax previously paid to be refunded.  The rules will allow companies to carry back losses made in the 2012-13 year up to a maximum of $1 million against tax paid in the 2011-12 year. From 1 July 2013, companies will be allowed to carry back up to $1 million of losses made after that date against tax paid in the previous two years.  Importantly these rules do not allow for the carry back of any losses incurred before 1 July 2012.

Living Away From Home Allowances

Further changes to the tax concession for Living Away From Home Allowances (LAFHA) have been announced.  The changes will limit the LAFHA to:

  • Employees who maintain a home for their own use in Australia and are required to live away from that home to work; and
  • For a maximum period of 12 months

The changes will apply from 1 July 2012 for arrangements entered in to after 7:30pm AEST on 8 May 2012, and from 1 July 2014 for arrangements entered into before that time.  The requirement to “maintain a home for use in Australia” will generally exclude overseas employees from being eligible to access the LAFHA concession.

A domestic secondment where a home is maintained in Australia can utilise the concession but only for a 12 month period.  This could considerably increase employment costs for those businesses that are required to attract specialist employees. Fly in fly out arrangements remain unaffected.

These changes are in addition to those announced last year.  Further details on the LAFHA changes are expected to be released by Treasury shortly.

 

04 – Other Measures

As well as a range of technical tax changes, other items announced as part of the Budget included:

  • A two year extension to the GST compliance (audit) program including investigations into fraudulent GST refunds, systematic under-reporting of GST liabilities and the failure to lodge GST returns
  • Deferral and potential changes to the previously announced review of the GST laws as they apply to cross-border transaction.  These measures will now apply from date of royal assent, not 1 July 2012.
  • The release of a ‘Tax Reform Road Map’ outlining the anticipated direction tax reform will take place over the next 10 years

05 – Contact Us

If you have any questions about the issues contained in this summary, please contact your William Buck advisor.