There have been significant measures announced, which will impact on non-residents and high income earners. In particular, the news is not great for:
- foreign workers coming to Australia;
- some Australians living away from home; and
- those who earn over $180,000 who will receive an ETP after 1 July 2012.
This will also require employers to rewrite policies and update systems to deal with these changes.
While no new changes to resident's personal income tax rates have been announced in the budget, significant changes to personal tax rates have already been legislated as part of the Government's Clean Energy Future package, including a tripling of the tax free threshold. The following tax rates will apply to resident individuals in the 2012-13 income year.
|nil to $18,200||0%|
|$18,201 to $37,000||19%|
|$37,001 to $80,000||32.5%|
|$80,001 to $180,000||37%|
|$180,001 and above||45%|
Non-resident tax rates
The Government will alter the non-resident tax rates with effect from 1 July 2012. The first two marginal tax rates will be merged into a single tax rate of 32.5% for taxable income below $80,000. This rate will increase to 33% from 1 July 2015. Coupled with other budget measures, this represents an increase in the tax burden faced by non-residents.
Further change to living away from home allowance ("LAFHA")
LAFHA concessions have been reduced even further. The concession will now be limited to employees who maintain a home for their own use in Australia, but are living away from home in order to work. Further a time limit of 12 months will apply for an individual employee for any particular work location. This amendment will not apply to fly-in-fly-out arrangements or travel allowances.
The Government has stated that it sees "this as an increasing exploitation and misuse of this tax concession by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian tax payers." It seems to ignore the fact that similar concessions are provided by most of our major trading partners, as well as the tyranny of distance and the difficulty Australian companies face attracting foreign workers to help grow Australia's economy. Without a LAFHA concession Australia's ability to attract skilled workers faces a greater challenge in the future.
This increases consistency between residents and non-residents, but it is not a good result for Australian residents.
Employment termination payment ("ETP") tax offset
From 1 July 2012 new changes will apply to limit tax offsets for employment termination payments, commonly known as golden handshakes. From that date, the offset is limited such that it only applies up to where it takes that person's total annual taxable income (including the ETP) to no more than $180,000. Amounts above this whole-of-income cap will be taxed at marginal rates. The whole-of-income cap will complement the existing ETP cap ($175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap. The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15 percent for those over preservation age and 30 percent for those under preservation age.
Existing arrangements will be retained for certain ETPs relating to genuine redundancy (including those for persons aged 65 and over), invalidity, compensation due to an employment-related dispute and death. This will generate savings of $196.4 million over four years.
Superannuation – deferral of higher concessional contributions cap
The Government will further defer the start date for the previously announced indexation of the concessional contributions caps. This measure would have allowed individuals aged 50 years and over, and with less than $500,000 in super to make higher concessional contributions. But now the existing $25,000 concessional contribution cap will remain until 2014-15, saving $1,459.5 million over the four years forward estimates.
Indexation for those individuals will now commence in 2014-15, meaning that the concessional contributions cap should increase to $30,000 in that year.
Superannuation – increase in contributions tax for contributions of higher earners
This measure was perhaps the worst kept secret leading up to the budget. Currently, individuals are effectively taxed at 15% on concessional contributions made to their superannuation funds. Whilst the tax is actually paid by their super fund, it is effectively born by the individuals.
From 1 July 2012, individuals with income exceeding $300,000 will pay 30% tax on their concessional contributions.
There are a number of complexities around what is included in a individual's 'income'. If an individual's income is under $300,000 before including their concessional super contributions, the 30% rate will only apply to the part of the contributions which pushes them over the $300,000 threshold. Of course, if an individual's ordinary income (for example, salary and wages) exceeds $300,000, then all of their super contributions will be taxed at 30%.
Concessional contributions which exceed the concessional contributions cap will not be taxed at 30%. This is because these contributions are subject to excess contributions tax, and are consequently already effectively taxed at the highest marginal rate.
While this development is likely to disappoint the superannuation industry, it is intended to better target superannuation tax concessions.
The Government has said it will consult with industry on the design and implementation of this measure. We recommend that superannuation funds consider the practical implications of this announcement, and prepare to raise any concerns with Government.
General increase in movement charges
There has been a general increase in movement charges to plug some of the budget shortfall.
- Increase in passenger movement charge from $8 to $55, resulting in an extra $610 million over 4 years.
- Increase in Visa label charges from 2012-13 to increase from $60 to $70.
- Increase in price of paper lodgements 2013-14 from $60 to $80.
- Increase in surcharge for subsequent offshore applications from $600 to $700.
Medicare levy and various offsets
From 1 July 2012:
- Medicare levy low income threshold will increase to $19,404 for individuals and $32,743 for families, costing $85 million over four years.
- Net medical expenses will be means tested for people with adjusted taxable income above the Medicare levy surcharge threshold, saving $370 million over four years.
- Dependency offsets will be streamlined, saving $66.9 million over four years.
- Mature age worker tax offset will be phased out, saving $255m over 5 years.
2010-11 Budget announcements that will not proceed
- The 50% tax discount for interest announced in the 2010-11 budget will not proceed, saving $923.5 million over four years.
- The standard work tax deduction for individuals, saving $2,094.4m over four years. It is disappointing that this standard deduction is not proceeding, as it would have removed red-tape and reduced complexity for individuals
- preparing tax returns.
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