The major Budget announcements were:
Individuals
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.
Self-education expenses
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.
HECS discount
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.
Companies
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.
Other
- 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
years.
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.
Depreciation measures
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.
Financial arrangements
Hedging
The Taxation of Financial Arrangement (TOFA) rules relating to
hedging will be amended to ensure they operate as intended.
Debt/equity rules
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.
GST Measures
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.
International Tax
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.
Infrastructure
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.
Superannuation
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.
Not-for-profit sector
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.
Other measures
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.
Authors:
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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