Federal Budget Update

On 10 May 2011, the Federal Government handed down its Budget for 2011/12. All of the pre-Budget speculation seemed to indicate that we were in for a tough Budget, however the general consensus post-Budget is that the announcements were not as tough as expected.

There were a large number of tax changes announced covering areas such as Superannuation, Income Tax, Capital Gains Tax (CGT), Goods & Services Tax (GST), Fringe Benefits Tax (FBT) and Charities. An outline of the major taxation announcements is provided below.

Key Budget Highlights:  

No changes to Personal Income Tax Rates
No changes have been announced to personal income tax rates, thresholds or tax offset amounts for future income years. Until further advised, personal income tax rates will remain at the levels applicable to the 2011 financial year. You can find the current personal income tax rates on the ATO website.

Removal of the Low Income Tax Offset (LITO) for Minors
From 1 July 2011, those under the age of 18 will no longer be eligible to access the LITO, currently worth a maximum benefit of $1,500, to reduce tax payable on their unearned income (i.e. effectively income from non employment sources). The most significant impact will be in relation to distributions to minors from family trusts, a widely used strategy to reduce the overall level of tax paid on distributions from trusts. From 1 July 2011 onwards, this strategy will no longer be tax effective.

Changes to Fringe Benefits Tax treatment of Motor Vehicles
The Government has announced they will reform the statutory formula method for determining the taxable value of car fringe benefits. Instead of determining the fringe benefit value based on the number of kilometres travelled, the Government has proposed to replace this with a single rate of 20% regardless of the distance travelled. This measure will be phased in over four years and will impact clients who enter into new salary sacrifice car arrangements as well as those who have an employer provided vehicle post 7:30pm (AEST) 10 May 2011.

Small Business instant write-off
Small businesses that purchase a vehicle on or after 1 July 2012 will be able to immediately write off up to $5,000 of the purchase price in the first year, this concession will replace the current Entrepreneurs Tax Offset. This new write-off is an addition to the Government's proposed tax reforms for small businesses to be introduced in the 2013 financial year that will allow:

• an immediate write-off of all assets valued at under $5,000 (up from $1,000 presently)
• a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30%
• a reduction in company tax rate to 29% for incorporated small businesses.

Phase out and removal of Dependent Spouse Rebate
The Government has announced that the dependent spouse rebate will be removed for taxpayers who have a dependant spouse born on or after 1 July 1971 (i.e. aged 40 or less on the commencement date). The intent is that the removal of this offset benefit will result in the spouse actively looking to rejoin the workforce.

Flood and Cyclone Reconstruction Levy
The Government reaffirmed the implementation of the temporary Flood and Cyclone Reconstruction Levy in the Federal Budget. The levy will apply to taxable income included in both resident and non-resident individuals’ tax returns for the 2012 financial year only. The levy will be charged at 0.5% for taxable income between $50,000 and $100,000 and 1% of taxable income over $100,000.

Certain individuals will be exempt from paying the Flood Levy. These are persons who have a taxable income of $50,000 or less for the 2012 financial year or those who are in receipt of an Australian Government Disaster Recovery Payment from Centrelink for a declared natural disaster that occurred during 2010/11.

Concessional Superannuation Contributions - Higher cap for those 50 and over
The Government reaffirmed the proposal to allow individuals aged 50 and over with total superannuation balances below $500,000 to continue making up to $50,000 per year in concessional contributions from 1 July 2012. This proposal was previously announced as part of the Government's response to the Henry Tax Report on 2 May 2010.

Excess Superannuation Contributions Tax - Refund option for Contributions up to $10,000
The Government will provide eligible individuals who breach the concessional contributions cap by up to $10,000 with a one-off option to request that these excess contributions be refunded to them. This new refund option will only apply to first time breaches from 1 July 2011. The changes will give individuals the option to take excess concessional contributions out of their superannuation fund and have them assessed as income at their marginal rate of tax, rather than the excess concessional contributions tax rate of 31.5% (in addition to the 15% contributions tax for the fund).


To view further details about the Federal Budget, please visit the Australian Government’s Budget website.


If you have any questions about how the Federal Budget may effect your circumstances, please contact the SBS Team by replying to this e-mail or by calling the office on (07) 3221 1100.

We look forward to speaking with you soon.

Kind regards

THE SPECIALISED BUSINESS SOLUTIONS TEAM