In his fourth attempt, Wayne Swan delivered another tame, yet solid, Federal Budget for the nation this week. The $22.6 billion deficit is scary and is actually $12.3 billion more than what was expected due to lower tax revenue. But the Treasurer is predicting a return to surplus in two years' time. Good news.
Hardly any goodies were given this year after the handouts we got a few years ago in the stimulus packages and the need to reign in some of the Government spending. Here is what you can expect.
$5,000 immediate write-off for small business
As announced in last year's budget, small business wins with an immediate write-off for assets, up to $5,000 in the 2012/13 financial year. This now includes car and van purchases. This is merely a timing difference, not an extra deduction. Beware of Fringe Benefits Tax if you intend on purchasing a car via a company structure.
Dependent Spouse Rebate
Taxpayers with a dependent spouse aged less than 40 years (born after 1 July 1971) will no longer be eligible for the dependent spouse tax offset from 1 July 2011. The change will not affect taxpayers whose dependent spouse is a carer, who is an invalid, or permanently unable to work; and taxpayers with children (eligible for Family Tax Benefit B), or eligible for the zone, overseas forces or overseas civilian tax offsets. Dependent spouses with children will continue to receive Family Tax Benefit B rather than the Dependent Spouse Tax Offset.
Entrepreneur tax offset
As recommended in last year's Henry Tax Review, this will be abolished after the 2012/13 tax year.
Freezing of thresholds
For the next few years, the Government is freezing the thresholds (that is, not indexing for inflation) for some of the benefits being provided including Family Tax Benefit Part A & B and the Super Co-contribution.
Fringe Benefits Tax
Cars that are provided as a fringe benefit to employees and/or their associates after 7.30pm on 10 May 2011, will have a flat FBT rate of 20% gradually phased in over the next four years. There is no change for existing cars acquired before the 2011 Federal Budget.
HECS early repayments
From 1 January 20012, the discount available to students electing to pay their HECS student contribution up-front will be reduced from 20% to 10% whilst the bonus on voluntary payments to the ATO of $500 or more will be reduced from 10 per cent to 5 per cent. No greater incentive to try and pay down as much of your HELP debt by the end of this year! Better interest than what you get in the bank!
Income tax cuts
Boo!! For the first time in years, there were no tax cuts handed out in the Federal Budget. If anything, some taxpayers will need to pay more due to the Flood Levy being introduced for one year from 1 July 2011. There won't be an election for a few more years so why waste tax cuts now?
Low-Income Tax Offset
In 2011/12, the Low Income Tax Offset of $1,500 will no longer be available for children under age 18 to offset against unearned income, such as interest, dividends and family trust distributions. A huge blow for income splitting in families and expected to save the Government up to $740 million. It is still available for their excepted income, such as wages from part-time jobs.
The Government will also increase the proportion of the LITO to be delivered via weekly pay packets from 50% to 70%. This is purely a timing issue and means an extra $6 per week now instead of $312 at the end of the year. Be careful if you have a second job or investment income otherwise you will need to pay this back.
Lower company tax
As announced in the 2010 Federal Budget the company tax rate will reduce by 1% to 29% in 2013/14 with small businesses getting access to the cut a year earlier.
The minimum payment amounts for certain pensions and annuities were halved as a result of super fund balances getting hammered during the global financial crisis but the pension drawdown relief will be phased out over the next few years and return to normal levels in 2012/13.
Medicare levy threshold
Singles earning less than $18,839 and couples with a combined income under $31,789 will be exempt from paying the Medicare Levy in the 2010/11 year.
PAYG instalments will be calculated in the 2011/12 income year by uplifting the previous year's taxable income by 4% (instead of the usual 8%). It is for one year early and again merely a timing issue as you will need to pay the balance the books when you finally lodge your income tax return.
Private health insurance rebates and Medicare Levy Surcharge
The Government intend on re-introducing measures in last year's Federal Budget that didn't get passed in the Senate which the private health insurance rebate and Medicare Levy surcharge is affected by your level of income, your marital status, the number of children that you have as well as your age.
Self-education expenses for Youth Allowance recipients
The Government will propose a law that will not allow self-education expenses to be claimable for Youth Allowance recipients from 1 July 2011. This follows a High Court decision in November 2010 which ruled in favour of the taxpayer and the ATO are currently amending tax returns between 2006 and 2010 for those affected with a $550 standard deduction.
Virtually no changes to the superannuation rules which is a blow to most accountants around Australia who have benefitted from extra work around laws introduced in previous years. There will be a refund of excess concessional superannuation contributions of up to $10,000 for first time breaches from 1 July 2011. As announced in last year's Federal Budget, workers over 50 who have less than $500,000 in super will be able to contribute up to $50,000 a year from 2012.