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2011 Federal Budget Summary
Written on the 17 May 2010
Personal income tax cuts
The Government announced that they were not making any changes to the current personal income tax rates other than to add the previously announced flood levy for one year commencing 1 July 2011. This flood levy will apply to taxpayers with a taxable income of $50,000 and above.
$6,001 - $37,000
%37,001 - $80,000
$80,001 - $180,000
In another measure announced prior to the release of the budget, the Government will remove the ability of children under the age of 18 to access the low income tax offset (“LITO”). This offset has previously reduced the tax payable by minors on their unearned income such as dividends, interest, rent, etc. This measure is specifically targeted at discouraging distributions of income to children from discretionary trusts.
In the 2010-11 year minors have been able to receive up to $3,333 of income without being subject to income tax due to the operation of the LITO. With the introduction of this measure minors will only be able to receive $416 of unearned income before they commence paying tax.
Flood Levy for 2011-2012 period
This levy will apply for the 2011 – 2012 year as follows:
Individuals with a taxable income between $50,000 and $100,000 will pay a 0.5% levy on that part of taxable income above $50,000;
Those with a taxable income $100,000 or more will pay a 0.5% levy on that part of their income between $50,001 and $100,000, and a 1% levy on that part above $100,000.
Individuals who were affected by a natural disaster during the 2010-2011 year and received an Australian Government Disaster Recovery Payment are exempt from the flood levy.
Medicare levy threshold increases
The Medicare levy low-income thresholds will be increased for singles to $18,839, and to $31,789 for members of families. These were $18,488 and $31,196 respectively in the previous year.
The threshold increases for each dependent child or student to $2,919. This was $2,865 in the prior year.
The Medicare levy low-income threshold for pensioners below Age Pension age will be increased to $30,439. This was $27,697 in the prior year.
Superannuation Contributions Limit - There are no changes to the contribution amounts.
There has been considerable angst at the changes made in 2009 to reduce the annual concessional contributions to $25,000. While there is a higher interim level until 30th June 2012 of $50,000 for those who have attained age 50, many have argued that these limits are too low – particularly for those who need to “catch up” contributions later in their career. Members over age 50 will now be able to make deductible contributions up to $50,000 a year as long as their account balance is lower than $500,000. It is not presently clear whether the $500K test applies at the time of making the contribution, or on the first day of the financial year in which the contribution is made, or whether the balance needs to be $500K or less once the contribution is made. This will be introduced from July 2012 as the current interim measure expires.
This measure will assist those who have not made adequate contributions in the past to “catch up”. It would however be helpful if the limit on the account balance was increased to $1M for the combined superannuation of a couple. This reflects that one partner may not be working and unable to increase their own superannuation under current rules.
Whilst not recommended by the Henry Report, mandatory super will increase from 9% to 12%. Nothing will change for 3 years – in fact, we only get a 0.5% increase in the next 5 financial years. The delay for three years will allow employers to factor the increase into their wage negotiations, which recognises that employees indirectly pay for the SG themselves.
Super Guarantee rate (%)
Current SG rate (ie until 30 June 2013)
1 July 2013
1 July 2014
1 July 2015
1 July 2016
1 July 2017
1 July 2018
1 July 2019 and there after
Superannuation – Refund of excess concessional super contributions
Eligible individuals will be provided with a one off option to have excess concessional contributions refunded from their super fund and assessed as income at marginal rates instead of incurring excess contributions tax (which is applied at an effective flat rate of 46.5%).
The one off refund option will be available if an individual has made excess concessional contributions of no more than $10,000 in a year commencing from 1 July 2011.
The measure will help fix small one off inadvertent errors where excess contributions tax would currently apply but does nothing to address the longer term design flaws in the current system. This is particularly disappointing given the strong and consistent message from industry that excess contributions tax was the number one priority for the Government to address in super.
Employees will receive information on their payslips about the amount of superannuation actually paid into their account. Employees and employers will also receive quarterly notification from their superannuation fund if regular payments cease.
Greater Use of Tax File Numbers
The Government will allow superannuation fund trustees and retirement savings account (RSA) providers to make greater use of tax file numbers (TFNs) to locate member accounts and to facilitate the consolidation of multiple member accounts.
This measure will improve superannuation industry administration by removing the existing requirement for fund trustees and RSA providers to use other methods of identification to locate accounts before TFNs can be used. It will also assist fund trustees and RSA providers to carry out more efficient consolidation of multiple member accounts, with effect from 1 January 2012, if not proclaimed earlier.
Super Funds – Limiting the trading stock exception
A small number of complying superannuation entities are seeking to treat shares as trading stock, so as to deduct their share losses against income other than capital gains. The Government will remove the trading stock exception for complying superannuation entities for certain assets (primarily shares, units in a trust and land).
Gains or losses on those assets will therefore be subject to Capital Gains Tax (CGT) which is consistent with CGT being the primary code for taxing gains and losses of complying superannuation entities.
However, transitional rules will apply to ensure that assets held or accounted for as trading stock before the time of announcement are unaffected.
Minimum pension drawdown relief
The minimum pension drawdown relief for superannuation pensions for the 2011 -2012 year will be reduced by 25%. This was 50% in the previous year. It is expected that this drawdown relief be completely phased out by the 2012 -2013 year as it has been provided since 2008 -2009.
Minor super amendments - 2010 changes
The Government will make a number of minor amendments to superannuation legislation, with intended effect from the 2010-11 income year. The amendments will include:
The Government will retain the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions at $1,000. The rate was due to increase from 2012-13.
Increasing the time-limit for deductible employer contributions made for former employees.
Allowing the Commissioner of Taxation to exercise discretion for the purposes of excess contributions tax before an assessment is issued.
Deceased estates – disposal of main residence
The Commissioner will be granted the discretion to extend the 2 year ownership period in which the trustee of a deceased estate must dispose of the deceased individual’s main residence while having access to the CGT main residence exemption.