The major Budget announcements were:
Dependent spouse rebate
Will be phased out for dependent spouses aged less than 40 to encourage them to go back to work. The exception is for taxpayers with an invalid or permanently disabled spouse, supporting a carer, or people who are eligible for the zone, overseas forces and overseas civilian tax offsets.
Low income tax offset for low to middle income earners
The low income tax offset that is delivered to low and middle income earners through their regular pay during the year will be increased from 50% to 70% of their total entitlements from 1 July 2011. The remaining 30% will be paid on assessment of the income tax return for the relevant year.
Low income tax offset for minors
The ability for children under 18 years of age to use the low income tax offset for certain income (namely passive income such as interest and dividends) will be limited from 1 July 2011. This would discourage distributions the minor may ordinarily receive from a family trust. Income earned by minors from paid work will continue to be eligible for the low income tax offset.
These will no longer be deductible against all government assistance payments from 1 July 2011. This change follows the recent High Court Decision in FC of T v Anstis.
The discount on up-front payments will be reduced from 20% to 10%, and the bonus on voluntary payments to the Tax Office of $500 or more will be reduced from 10% to 5% from 1 January 2012.
Family Tax Benefit and family payments adjustments
Family Tax Benefit Part A
- families will be eligible for an advance of up to 7.5%, up to a maximum of $1,000 of their annual entitlement from 1 July 2011. This will be repaid over 6 months by reducing future fortnightly Family Tax Benefit Payment.
- will be limited to children up to 21 years of age from 1 January 2012. The child should consider alternative benefits such as Youth Allowance.
Indexation of Family Tax Benefit Part A and B supplements will
be suspended for 3 years and indexation of family payment higher
income thresholds and limits will also be paused at their current
level until 1 July 2014 (rather than being CPI-indexed). This means
that income thresholds for Family Tax Benefit Part A and B,
dependency tax offsets, the Baby Bonus, Paid Parental Leave should
remain largely unchanged.
Loss recoupment tests
The continuity of ownership test will be amended to make it easier for companies to recoup losses from the 2011-12 income year. The ownership tracing rules through certain superannuation entities and for shareholders of widely held entities (mainly ASX listed companies) will be modified to simplify the requirements and to correct technical deficiencies.
Capital Gains Tax (CGT) measures
Small business CGT concessions
Will be expanded for some small businesses, but continuing the recent targeting of trust structures, will be tightened for trusts from 10 May 2011.
Renewable resources or environmental benefits
Gains or losses from renewable resource assets (e.g. solar hot water systems) or preserving environmental amenity (e.g. vegetation) will be CGT exempt, retrospectively, from the 2007-08 income year.
Scrip for scrip rollover
The scrip for scrip rollover integrity provisions that currently apply to individuals and companies will also apply to trusts, superannuation funds and life insurance companies from 10 May 2011.
- Scrip for scrip rollover relief will be amended to ensure that for the exchange of shares in one company for shares in another company there is a deferral of profit or loss where the original shares are held on revenue account at the time of the exchange. This applies from 10 May 2011.
- Rollover relief will be extended for certain disposals of assets by a trust to a company (from 10 May 2011) or to another trust (retrospectively from 1 November 2008) in certain situations.
- Amendments to ensure that gains and losses arising from life insurance policies that are generally exempt from CGT are not taxed under another tax provision, will apply retrospectively from the 2005/06 income year.
- Legislating the accepted practice of allowing a testamentary trust to distribute an asset of the deceased without a CGT event happening.
- Various concessions will apply to special disability trusts to make them more beneficial to families.
Fringe Benefits Tax (FBT) measures
Statutory formula for car fringe benefits
The statutory fractions that currently apply will be phased out
and will be replaced with a 20% flat rate for new vehicles
purchased from 10 May 2011 which will be phased in over 4
The current statutory fractions range from 7% to 26% and the rate that applies is based on the kilometres travelled. The higher the kilometers travelled, the lower the statutory rate, and the lower the FBT. The new rate will apply regardless of kilometres travelled.
Small business motor vehicle depreciation
An instant tax write-off of the first $5,000 of any motor vehicle purchased from 1 July 2012. The remainder of the purchase value can be transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years.
The Taxation of Financial Arrangement (TOFA) rules relating to hedging will be amended to ensure they operate as intended.
Will be amended to limit the application of an integrity provision that deems an interest from an arrangement that funds a return through connected entities to be an equity interest under certain circumstances.
Securities lending arrangements
The tax rules for certain securities lending arrangements will be amended to ensure that the lender under a securities lending arrangement is treated as not having disposed of the lent securities.
While there are three important announcements of changes to GST, the Budget is notable for the announcement that previously announced changes will now be deferred to unannounced start dates linked to when the relevant legislation is passed. The deferred announcements include:
- Adoption of the self assessment regime for indirect taxes
- Reforming the change of use adjustments
- The allowance of adjustments for pre-registration acquisitions
- Simplifying the grouping rules
- Changes to the indirect tax sharing agreement provisions
- The introduction of reverse charges for supplies of going concerns and farmland
- Changes to tax law partnerships
- he treatment of certain business to business supplies as taxable
The newly announced changes include proposed changes to Div 105
of the GST Act to clarify its operation to mortgage lending. The
changes will clarify that s 10 will operate to the exclusion of
other provisions and reduce compliance costs in relation to
reporting for entities in the mortgage lending sector.
With effect from 1 July 2000 certain supplies made to health insurers in settling claims for health insurance will be GST-free. This follows the decision in FC of T v Secretary to Department of Transport (Vic) where input tax credits were allowed in relation subsidies paid to taxi cab operators.
The third announcement in relation to GST will allow small businesses that are in a net refund position to access the GST instalment system. By allowing the choice taxpayers will have earlier access to refunds and will reconcile their annual position in their annual return. The measure will commence when the relevant legislation receives royal assent.
The Budget did not include any significant new international tax changes but did announce the expansion of the list of countries whose resident are eligible to access reduced withholding rates on certain distributions from Australian managed investments. Countries now included include Singapore, the Cayman Islands, the Bahamas, Monaco, San Marino and Belize as well as a number of other small jurisdictions.
Losses for designated infrastructure projects will be uplifted by the government bond rate. The losses will also be exempted from the continuity of ownership test and same business test. The changes will apply from Royal Assent. The measure will improve certainty for investors by ensuring the value of losses over the long period for some projects.
For the first year and only that year, on or after 2011-2012 an eligible individual will be able to elect to have excess concessional contributions to a superannuation fund to be refunded and taxed at their marginal rate. The treatment will only apply for the first $10,000 of excess contributions. This change will provide a benefit where their marginal rate is lower than the 46.5% (including Medicare levy) rate that would otherwise apply.
As previously announced, eligible individuals aged 50 and over with total superannuation balances of less than $500,000 will have an increased concessional contribution cap of $50,000. This will apply from 1 July 2012.
With effect from Budget night the Government will remove the trading stock CGT exception for specified assets of complying superannuation funds. The change will mean that the CGT provisions will be the primary code for taxing gains and losses of complying superannuation funds. This will prevent the offset of losses on trading stock against income and not capital gains.
With effect from 1 July 2012 employees will receive more information about their superannuation contributions (on their pay slips) and from their fund where regular contributions cease.
The concession available over the last three years to reduce minimum pension drawdown amounts by halving the minimum amount will be phased out. For the 2011-2012 year the reduction will be 25% and there will be no reduction for 2012-2013.
The current freeze on indexation applied to the income threshold above which the maximum superannuation co-contribution begins will continue for 2012-2013. The thresholds will continue at $31,920 phasing down for incomes up to $61,920.
A new independent statutory agency and a Charities and Not-for-profits Commissioner will be introduced together with a statutory definition of 'charity.' These reforms are intended to ensure that the concessions are targeted only at those activities that directly further the entities altruistic purpose. The changes will apply from 1 July 2011 but will initially only apply to new commercial activities commencing after 10 May 2011. The concessions include FBT, GST and deductible gift recipient exemptions and concessions.
For those activities being carried on at 10 May 2011 the Government will consult on the phasing out of the concessions over time. The changes will not apply where the proceeds from the unrelated activities are directed back to the entities altruistic purpose.
Amongst a number of other measures the Government has announced:
- Early access within 12 months to farm management deposits for natural disaster victims.
- The roll-out of the National Rental affordability Scheme (NRAS) will be undertaken over a longer period with priority given to flood-affected areas.
- The Commissioner will now have a discretion to extend the two year exemption period where a deceased's home can be sold CGT free.
- New reporting arrangements for those making payments to building and construction industries and consultation on reporting systems for the commercial cleaning industry.
Syd Jenkins and Davide Costanzo, Moore Stephens Perth
This summary is not intended to be a comprehensive examination of the 2011-12 Federal Budget. Please contact your Moore Stephens relationship partner for a detailed explanation of how any of these matters and other Budget measures may apply to you.
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