Key highlights
- No changes to personal income tax rates
- Removal of low income tax offset for minors on income other than employment income
- Temporary flood and cyclone reconstruction levy
- Limited ability to overcome excess concessional contributions
- Current minimum pension reduction will be phased out
On May 10 2011, the Federal Government handed down its Budget for 2011/12. According to Treasure Wayne Swan, the Budget is getting “back in the black” in 2012/13.
For the first time in eight years, there were no announced changes to the existing personal marginal tax rates or thresholds. However, minors will no longer be eligible for the low income tax offset on any unearned income. 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 these trusts. This change does not impact on income earned from inheritances or distributions from testamentary trusts.
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 2011/12 financial year only.
In superannuation, the Government has provided some relief, albeit minor, in relation to excess concessional contributions made to super. There will be a one-off opportunity for those who breach their concessional contributions cap by less than $10,000 to have their excess contributions refunded from their superannuation fund and taxed as income at their marginal rate as opposed to 46.5%. The refund is only available in the first year an individual breaches their cap by less than $10,000 from the 2011/12 financial year. The introduction of the measure is intended to reduce the number of individuals who breach the cap and to avoid penalising less significant and inadvertent breaches.
The Government also announced that the current minimum pension reduction will be phased out. The Government initially provided pension draw down relief in the 2008-2009 financial year to assist account based pension holders to recoup their capital losses experienced as a result of the global financial crisis. This measure was extended for the 2009-10 and 2010-11 financial years. The Government proposes to phase out this drawdown relief by reducing the minimum pension payment by 25% for the 2011-12 financial year. For example, a 64 year old would be required to draw 3% of the account balance as a minimum pension payment instead of the standard minimum of 4%. For the 2012/13 financial year onwards, the standard minimums will operate.
Other proposed changes include increase in the Medicare levy low income thresholds, phase out and removal of dependent spouse rebate, reform of the car fringe benefit rules, changes to income tax treatment of instalment warrants and similar arrangements, small business instant write off for purchase of vehicles, changes to government co-contribution, operation of the higher concessional contribution cap for over 50s and various changes to social security and welfare payments.
Despite largely having been announced previously, most measures will still need legislation to be introduced, so the final version of the changes may differ to the announcements made in the Budget. As with all changes, it is important that you speak with your financial adviser to determine how these announcements will impact on your personal situation.
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