budget 2012/13 a summary of the implications of the Federal Budget
SUMMARY 2012/13 FEDERAL BUDGET - THE SURPLUS WE HAD TO HAVE Wayne Swan has fulfilled his promise to get the Budget back into surplus. Whether this will be the best thing for the country only time will tell. There is plenty of evidence that this is not the right time in the global economic cycle for governments to produce surplus budgets. However, having a surplus for this Budget was political inevitability. Once Wayne Swan promised to get the Budget into surplus by 2012/13 he could not go back on it without suffering the resulting political fallout.
There does not appear to be an overarching vision in this Budget apart from perhaps taxing the “rich” and giving to the “poor” philosophy. There are a number of reversals of various tax concessions and benefits that are generally provided to the higher income taxpayers and increasing tax concessions and benefits to the lower income taxpayers. It appears the Treasurer has looked and found whatever tax increases or concession reductions it would take to get his budget surplus and along the way provide some sweeteners to placate the lower income taxpayers for the increased cost as a result of the carbon pricing regime.
However, the Budget could also be trying to deal with the two speed economy. The higher income taxpayers are being hit to ensure the lower income taxpayers are not unduly affected by the rising Australian dollar and loss of manufacturing jobs and other low paid employment in Australia. The surplus also gives the Reserve Bank more room to reduce interest rates, which could be a big help to struggling households and businesses, provided the banks pass on the reductions. Overall the Budget is disappointing but probably what we have to expect given the difficult political situation the Government is in and the global economic problems it has to manage.
INDIVIDUAL TAX ISSUES EMPLOYMENT TERMINATION PAYMENT TAX OFFSET The Government will limit the ability of high income earners to use the employment termination payment (ETP) offset, which reduces tax on payments included in remuneration packages, such as ‘golden handshakes’. From 1 July 2012, only that part of an affected ETP that takes a person’s total annual taxable income (including the ETP) to $180,000 or less will receive the ETP tax offset. Existing arrangements will be retained for certain ETPs relating to genuine redundancy PERSONAL INCOME TAX RATES The resident individual tax rates for 2012/13 through to 2015/16 will be as follows: Current From 1 July 2012 From 1 July 2015 Taxable Income Rate Taxable Income Rate Taxable Income Rate ($) (%) ($) (%) ($) (%) 0 - 6,000 0 0 - 18,200 0 0 - 19,400 0 6,001 - 37,000 15 18,201 - 37,000 19 19,401 - 37,000 19 37,001 - 80,000 30 37,001 - 80,000 32.5 37,001 - 80,000 33 Current From 1 July 2012 From 1 July 2015 80,001 - 180,000 37 80,001 - 180,000 37 80,001 - 180,000 37 Taxable Income Rate Taxable Income Rate Taxable Income Rate 180,001 + 45 180,001 + 45 180,001 + 45 ($) (%) ($) (%) ($) (%) 0 - 6,000 0 0 - 18,200 0 0 - 19,400 0 CHANGES TO TAX RATES15FOR NON-RESIDENTS 6,001 - 37,000 18,201 - 37,000 19 19,401 - 37,000 19 37,001 - 80,000 30 37,001 - 80,000 32.5 37,001 - 80,000 33 From 1 July 2012 the Government will adjust the personal that apply Current From 1 July income 2012 tax rates and thresholds From 1 July 2015 80,001 180,000 37 80,001 180,000 37 80,001 180,000 37 toTaxable non-residents. first twoIncome marginal tax rate will be merged intoRate a Income From 1 July Rate2012, theTaxable Ratethresholds Taxable Income 180,001 + 45 180,001 + 45 180,001 + 45 single threshold. ($) (%) ($) (%) ($) (%) 0 - 37,000 29 0 - 18,200 0 0 - 19,400 0 The current and proposed tax rates and thresholds for non-resident individuals are as follows: 10,730 + 30% excess over 37,001 - 80,000 Current From 1 July 2012 From 1 July 2015 37,000 Taxable Income Rate Taxable Income Rate Taxable Income Rate 23,630 + 37% 26,000 + 37% 26,400 + 37% ($) (%) ($) (%) ($) (%) excess over 80,001 - 180,000 80,001 - 180,000 excess over 80,001 - 180,000 excess over 0 - 37,000 29 0 - 18,200 0 0 - 19,400 0 80,000 80,000 80,000 10,730 + 30% 60,630 + 45% 63,000 + 45% 63,400 + 45% 37,001 - 80,000 excess over excess over excess over excess over 37,000 180,001 + 180,001 + 180,001 + 180,000 180,000 180,000 23,630 + 37% 26,000 + 37% 26,400 + 37% 80,001 - 180,000 excess over 80,001 - 180,000 excess over 80,001 - 180,000 excess over 80,000 80,000 80,000 63,400 + 45% 63,000 + 45% 60,630 + 45% excess over excess over excess over 180,001 + 180,001 + 180,001 + 180,000 180,000 180,000
CHANGES TO THE NET MEDICAL EXPENSES TAX OFFSET The Government will introduce a means test for the net medical expenses tax offset from 1 July 2012. For people with adjusted taxable income above the Medicare levy surcharge (MLS) thresholds ($84,000 for singles and $168,000 for couples or families in 2012-13), the threshold above which a taxpayer may claim an offset will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10% for eligible out of pocket expenses incurred. Taxpayers with income below the MLS thresholds will be unaffected. CONSOLIDATE DEPENDENCY OFFSETS INTO ONE The Government will consolidate eight dependency tax offsets into a single, streamlined and non-refundable offset that is only available to taxpayers who maintain a dependant who is genuinely unable to work due to carer obligation or disability from 1 July 2012. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), childhousekeeper, child-housekeeper (with child), invalid relative and parent/parentin-law tax offsets. From 1 July 2012, these eight offsets will be consolidated into a single offset available to taxpayers maintaining a dependant who is unable to work due to disability or carer responsibilities. The new consolidated offset will be based on the highest rate of the existing offsets it replaces. Taxpayers who are currently eligible to claim more than one offset amount in respect of multiple dependants who are genuinely unable to work will still be able to do so.
SCHOOLKIDS BONUS From 1 January 2013, the Government will replace the current Education Tax Refund with the Schoolkids Bonus. Qualifying families will receive $410 each year for primary school children and $820 for high school children, with payments made at the start of term 1 and term 3 each year. The payment will be available to those families that currently qualify for the Education Tax Refund (families that receive the Part A tax benefit) as well as those families that receive income support such as Youth Allowance or veterans assistance. In addition, as the Education Tax Refund is to be replaced, the Government will pay to families that qualify for the Education Tax Refund, their full 2012 entitlement to the refund. This payment will be made in June 2012, with families not being required to lodge their claim through their income tax returns - the payment will be made automatically. FLOOD LEVY - EXTENSION OF EXEMPTION The Government has announced an extension of the exemption from the flood levy for taxpayers who have been affected by a flood event. When the flood levy was introduced in last yearâ€™s Budget, individuals who were affected by the 2011 floods were exempted from paying the levy. Since then, Australia has experienced a second wave of flooding in Queensland and New South Wales. Individuals who were affected by those floods will be similarly exempt from paying the flood levy.
WHAT IS NOT PROCEEDING? In addition to the Government’s announcements in the Budget, the Treasurer also announced the Government will not proceed with a number of initiatives that had been announced in previous Budgets that have not yet been implemented. These measures include: •5 0% discount for interest income - the Government previously announced it would provide an incentive for increased savings by providing a 50% discount for interest income (up to $1,000), which was to take effect from 1 July 2013. This initiative will not be implemented. • Standard work deductions - the Government previously announced it would provide a standard income tax deduction for work related expenses and tax compliance expenses. Individual taxpayers were going to be entitled to a fixed deduction (irrespective of whether they had actually incurred any such expenses) as an alternative to claiming a deduction for actual amounts incurred. This initiative was to take effect from 1 July 2013, and the Government has announced it will not be implemented. •T he Government has announced that it will phase out the Mature Age Worker Tax Offset. This initiative was designed to provide tax savings to mature age workers to encourage them to re-enter or remain in the workforce. From 1 July 2012, this offset will be replaced by targeted initiatives to encourage workplace participation by mature aged workers.
COMPANIES COMPANY TAX RATE CUT NOT HAPPENING Company tax cuts - the previously announced company tax cuts, to reduce the company tax rate from 30% to 29%, which were to take effect from 1 July 2012 for small business entities and from 1 July 2013 for all other companies, will not be implemented. CARRY BACK OF LOSSES From 1 July 2012, companies will be entitled to carry back up to $1 million of losses to the previous income tax year (i.e. year ended 30 June 2012). This means that qualifying companies that pay tax in the 30 June 2012 year, and then generate losses in the 30 June 2013 year will be able to carry back the 2013 losses against the 2012 income, and receive a refund of tax paid in the 2012 year. From 1 July 2013, qualifying companies will be entitled to carry back up to $1 million of losses to the previous two income tax years. To qualify for the carry back of losses, the taxpayer must be a company or an entity that is taxed like a company (e.g. public trading trust). The initiative will apply only to income tax losses (capital losses are excluded), and be limited to the company’s franking account balance (presumably to prevent companies paying out their franking credits and then receiving a refund of the tax that generated those franking credits) to a maximum of $1 million. LIMITED RECOURSE DEBT The Government has announced it intends to clarify the operation of the limited recourse debt provisions contained in Division 243 of the 1997 Act. These provisions are designed to limit deductions available on capital expenditure incurred on assets that have been financed by limited recourse debt.
In 2009, the Federal Court found that a loan provided by BHP Billiton Finance to a special purpose subsidiary company was not limited recourse debt. In this case, the borrower was incorporated to develop projects (investments) funded by debt provided by BHP Billiton Finance secured against the project assets. The projects failed, resulting in the loss of most of the investment. As a result, the finance company’s ability to recover its debts was limited to the assets comprising the project assets. The Tax Office argued that the debt was a limited recourse debt, as the finance company’s ability to recover the debt was limited to the value of the specific assets purchased with the debts. The Court rejected this argument on the basis the debt was not contractually limited, only effectively restricted to those assets. The Budget announcement states the definition of limited recourse debt will be clarified to ensure deductions are not available where the right to recover the debt is effectively limited to the financed asset or the security provided. Presumably, this amendment is designed to overcome the decision in the BHP Finance case. BAD DEBT DEDUCTION RELATED PARTIES - NO DEDUCTION Bad debt deductions will no longer be available where the debtor and creditor are related parties. This measure is generally targeted at in-house finance entities but, depending on the details, may have wider ramifications for related party bad debt write offs. Presumably this is also in response to the court decision in BPH Billiton Finance as mentioned above. It appears this will only apply to tax write offs on revenue account and will not apply to debt forgiveness on capital account. This measure will have effect from 8 May 2012.
FRINGE BENEFITS TAX LIVING AWAY FROM HOME ALLOWANCES AND BENEFITS The Government has announced more restrictions for tax concessions for living away from allowances and benefits. Previously, the Government announced amendments, which take effect from 1 July 2012, to remove the tax concessions for living away from home allowances and benefits for temporary residents unless they are living away from an established home in Australia. The good news is that there will be transitional rules so that the 1 July 2012 start date will only apply to arrangements entered into after 8 May 2012 (Budget night). Arrangements entered into before that date will have an application date of 1 July 2014 i.e. a two year transitional period. However, the budget amendments will further restrict the availability of living away from home concessions for all taxpayers. Under the new amendments, the tax concession will only be available: â€˘ for payments made in the first year in which an individual is living away from home; and â€˘ where the individual maintains a home for their own use in Australia which they are living away from.
These amendments extend the previously announced amendments by introducing the 12 month limitation, and by requiring all recipients to be maintaining a home for their own use in Australia (under the previously announced reforms, this requirement only applied to temporary residents). These amendments will not apply to individuals who are employed under a fly in, fly out arrangement (generally those employed in the mining industry), and to individuals who receive travel allowances (generally for no more than 21 days). AIRLINE TRANSPORT FRINGE BENEFITS The Government has announced an amendment to the taxation of airline transport fringe benefits, which arises when a free or discounted airline ticket is provided (usually to employees of airlines and associated businesses). Under the law as it currently stands, the taxable value of the benefit is determined by comparing the amount paid by the traveller with the stand-by price of the ticket. The Government has identified that airlines do not generally quote stand-by fares anymore given heavy discounting and load management by airlines. The amendment will substitute the stand-by price of the ticket with the market price of the ticket.
SUPERANNUATION SUPERANNUATION – DEFERRAL OF HIGHER CONCESSIONAL CONTRIBUTIONS CAP The Government will defer the start date of the 2010-11 budget measure to increase the concessional contribution caps for individuals over 50 with low superannuation balances by two years, from 1 July 2012 to 1 July 2014. Under the higher concessional contributions cap measure, individuals who are at least 50 years of age and who have total superannuation balances of less than $500,000 would be able to make up to $50,000 in concessional contributions i.e. $25,000 more than available under the general concessional contributions cap. The two-year deferral means until 1 July 2014, all individuals will be able to make concessional contributions of up to $25,000 per year as permitted under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 through indexation, and the higher cap would then commence at $55,000.
SUPERANNUATION – HIGHER TAX FOR CONTRIBUTIONS OF VERY HIGH INCOME EARNERS The Government will increase the superannuation contributions tax paid by funds in respect of contributions for individuals with income greater than $300,000. The contributions tax will increase from 15% to 30%. The definition of “income” for the purpose of this measure includes concessional superannuation contributions. If an individual’s income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the higher tax rate will only apply to the part of the contributions in excess of the threshold. “Concessional contributions” for the purpose of the measure includes notional employer contributions for members of defined benefit funds. The higher tax rate will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to “excess contributions tax”. These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.
NOT-FOR-PROFIT EXTENDING THE START DATE FOR NOT-FORPROFIT TAX CONCESSION REFORMS The Government will extend the start date for the not-for-profit (NFP) sector reforms announced in last year’s budget from 1 July 2011 to 1 July 2012. This will provide additional time for consultation and reduce uncertainty for those in the NFP sector who have commenced commercial activities since last year’s Budget and may be affected by the measure. The extended start date of 1 July 2012 will only apply to new unrelated commercial activities that commenced after last year’s Budget. Existing unrelated commercial activities that commenced prior to that date will continue to be covered by transitional arrangements announced in last year’s Budget. In last year’s Budget, the Government announced that tax concessions for businesses run by NFP entities were to be reformed to ensure they only apply to activities that directly further the entity’s altruistic purposes. The income tax concessions will only apply to profits generated by unrelated commercial activities where the profits are directed back to an NFP entity to carry out its altruistic work. This means NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose. NFP entities will also be unable to access to the FBT exemptions or rebates, GST concessions, or deductible gift recipient support in relation to their unrelated commercial activities.
CAPITAL GAINS TAX REVENUE ASSET AND TRADING STOCK ROLL-OVERS BROADENED FOR INTERPOSING A COMPANY
•d efer indefinitely the CGT liability that would have otherwise arisen for the on-sale of the target entity by the acquiring entity.
Effective from 8 May 2012, the revenue asset and trading stock roll-overs that apply to the exchange of interests in acompany or a unit trust for shares in another company will be broadened.
The measures will also:
The revenue asset and trading stock roll-overs will be available for all interests that satisfy the conditions of each of the roll-overs. The new measures will also require the replacement shares in the interposed company to maintain the character of the original revenue asset or trading stock asset that was exchanged. STRENGTHENING THE INTEGRITY PROVISIONS FOR SCRIP FOR SCRIP ROLL-OVERS The CGT scrip for scrip roll-over provisions will be amended effective from 8 May 2012 to remove what the Government sees as significant tax minimisation opportunities. The scrip for scrip roll-overs provide relief from CGT for shareholders when they exchange their shares in a company takeover. They also provide relief for unitholders of trusts involved in takeovers. The new measures will: • e nsure taxpayers cannot escape the scrip for scrip rollover integrity provisions by holding interests to acquire ownership rights, such as convertible preference shares, rather than the underlying shares; and
• broaden the scope of the rules that apply to intra group debt to cover debts owed to group entities other than the head entity and remove the CGT exemption for repayment of such debts; and • ensure the integrity provisions apply appropriately to trusts. CGT DISCOUNT FOR NON-RESIDENTS ABOLISHED The 50% CGT discount for non-residents will be removed on capital gains accrued after 8 May 2012 on taxable Australian property such as real estate and mining assets. However, non-residents will still be entitled to the 50% discount on capital gains accrued prior to this date (after offsetting any capital losses) provided they obtain a market valuation of assets as at 8 May 2012.
MANAGED INVESTMENTS MANAGED INVESTMENT TRUST WITHHOLDING TAX RATE INCREASE Managed investment trusts that make fund payments to an address outside Australia are required to pay withholding tax to the Tax Office. The rate of withholding tax is 30%, but thisrate is reduced if the country has an exchange of information agreement with Australia, in which case the rate is currently reduced to 7.5%. This reduced rate will increase to 15% from 1 July 2012. This is the same rate that applied in the 2008/09 tax year. INVESTMENT MANAGER REGIME The Government will extend the Investment Manager Regime, which exempts foreign managed funds from tax on disposal of certain nonAustralian assets and non-portfolio conduit income. These funds will also be exempt from Australian tax on Australian sourced income and gains from certain non-portfolio financial arrangements. These changes will apply from 1 July 2012.
INDIRECT TAX GOODS AND SERVICES TAX Overall, there are no real surprises announced in the Budget in relation to GST, particularly given that the Government has made a number of announcements during the past 12 months signalling its intention to amend certain aspects of the GST law.
In addition to the measures previously announced, the Government will make a number of other changes including those proposed for the supply of goods by non-residents. Interestingly, the Government has confirmed that it will not proceed with changes relating to the non-resident agent provisions and it will seek to clarify the definition of a permanent establishment for GST purposes.
The key changes announced are as follows:
EXTENSION OF GST-FREE PROVISIONS
EXTENSION OF THE GST COMPLIANCE PROGRAM
The GST-free provisions will be broadened to cover a range of additional nicotine replacement therapies. Currently, sales of nicotine replacement therapies sold in non-pharmacy settings are subject to GST. These measures ensure all types of nicotine replacement therapies approved for sale in Australia will be GST-free.
The Government will extend the GST compliance program and provide $195 million to the Tax Office in 2014-15 and 2015-16 to continue to promote voluntary compliance and provide a level playing field for Australian businesses. This will ensure the Tax Office continues to closely examine a range of issues including fraudulent GST refunds, under reporting of GST liabilities and failure to lodge GST returns. The measure is expected to result in additional GST collections of $986 million over the two year period. DEFERRAL OF BOARD OF TAXATION RECOMMENDATIONS - GST CROSS BORDER TRANSACTIONS The Government has announced the deferral of a number of previously announced measures aimed at implementing a number of recommendations of the Board of Taxation’s review of cross border transactions. These measures were scheduled to commence from 1 July 2012 and are now scheduled to commence in the first quarterly tax period after the amending legislation receives Royal Assent.
In addition, the Government will amend the previously announced measure relating to healthcare providers ensuring that a health supply by a healthcare provider paid for by a statutory compensation scheme operator is GST-free if the underlying supply from the healthcare provider to the individual is also GST-free. LIMITING THE COMMISSIONER’S ABILITY TO BACKDATE GST REGISTRATIONS The Commissioner’s ability to backdate GST registrations will be limited to four years with effect from 1 July 2012. This is consistent with other time periods in the GST administration regime. RITC FOR CREDIT UNIONS The law will be amended to allow access to a Reduced Input Tax Credit (“RITC”) for credit unions that rebrand as ‘banks’.This measure will apply from 1 July 2011 and will reinstatethe existing concession by allowing an RITC from an entity wholly owned by credit unions or rebranded credit unions.
PROPERTY IN POSSESSION OF A MORTGAGEE SUPPLIES IN SATISFACTION OF DEBTS The Government previously announced it will amend the GST Act to clarify the operation of Division 105 (GST treatment of supplies made by a mortgagee in possession) and Division 58 (GST obligations of representatives of incapacitated entities) in circumstances where a mortgagee in possession or control disposes of the property of a corporation. This measure was scheduled to commence from 1 July 2012 and is now scheduled to commence in the first quarterly tax period after the amending legislation receives Royal Assent.
DUTY FREE ALLOWANCES
Effective 1 September 2012, the inbound duty free allowance for cigarettes and tobacco for international travellers aged 18 years and over will be reduced from 250 cigarettes or 250 grams of tobacco to 50 cigarettes or 50 grams of tobacco. This measure will provide savings of $600 million over the four year forward estimate period.
CLIMATE CHANGE CARBON PRICING/CLEAN ENERGY It is now more than 12 months since the Climate Change/Carbon Tax package was announced and several months since the legislation, which comes into force on 1 July 2012,was passed by Parliament. This initiative was re-announced in the Budget together with some minor tweaking. The essentials of the taxing side of the Clean Energy Program may be summarised as follows: • those facilities that burn enough coal or gas to emit 25,000 tons of CO2 per annum will pay tax at the rate of $23/ton; • the gas retailers and certain manufacturers who use gas will pay an equivalent tax which means that the price of natural gas will rise; and • the fuel tax credit for liquid petroleum fuels will be reduced by between 5.5 and 6 cents per litre.
These changes will affect virtually all businesses with an anticipated 0.7% rise in the CPI. The principal change announced in the Budget concerns non-transport gaseous fuels. Previously these were to be dealt with in a similar way to liquid petroleum products by way of an excise and fuel tax credit. They will now be subject to the same carbon pricing mechanism as the gas consumed in households. GREEN BUILDINGS TAX BREAK - GONE The tax break for green buildings that was previously announced by the Government will not be implemented. The tax break was designed to encourage building owners and occupiers to proceed with improvements to reduce the carbon footprint of buildings.
OFFICES For further information on any of the articles in this issue contact your local office: BILOELA Gladstone Road (PO Box 98) Biloela Queensland 4715 P 07 4995 6677 F 07 4992 1787
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MONTO 3 Newton Street (PO Box 69) Monto Queensland 4630 P 07 4166 1366 F 07 4166 1343