Last night's Federal Budget 2012/2013 was back to black. There were changes to income tax, small business tax, superannuation, and family benefits. There was also some focus on aged care, health services and education.
Budget cuts have affected top income earners in forms of reduced tax breaks for golden handshakes and superannuation contributions for those earning over $300,000, while companies will not see reduced company tax, small business has been given some boosts.
A proposed increase in concessional contribution caps for the over 50s was deferred for two years. “We would have liked to see higher concessional contribution limits for the over-50s with low super balances introduced in this Budget. At the end of the day, Australians play catch up with their super as they approach retirement and should be able to top up their super when they can,” BTFG Head of Super and Platforms, Melanie Evans said.
BTFG chief economist Chris Caton said: “For a Budget that was pre-advertised as tough, there doesn’t seem to be a lot of pain here. High income earners get slugged, and a few planes don’t get bought until later. Several measures announced in earlier Budgets but not yet implemented have been deferred or cancelled. People won’t miss too much what they hadn’t got yet.”
Tax reform
From 1 July 2012, the tax-free threshold has been tripled to from $6000 to $18,200, which will benefit low to middle income earners, netting a modest income for people earning under $80,000 a year.
Business
- Firstly, the 1% reduction in company tax as promised this year is off the table. Company tax will remain at 30%.
- Instead, small business (with an annual turnover of less than $2million a year) from 1 July 2012, will see an increase to the instant write-off threshold to $6,500. Previously it was $1,000.
- Loss carry-back is introduced to allow small business to return to profit by carrying back tax losses of up to $1 million to allow a refund against tax previously paid. From 2013-2014, companies will be able to carry back tax losses for two years, which may provide a tax benefit of up to $300,000 a year. For example, if a business pays tax of $300,000 in 2011-2012, the following year makes a loss due to depreciation it qualifies for loss carry-back and is able to get $300,000 back.
Families
- The Family Tax Benefit Part A for all eligible families will be increased from 1 July 2013. For schoolchildren aged 16-19 from the start of the year there is an annual increase of up to $4208 per child. This is estimated to benefit 1.5 million families with nearly half taking home an extra $600 a year.
- The new Schoolkids Bonus will be paid directly to eligible recipients, replacing the Education Tax Refund. This will affect up to 1.3 million families who will no longer have to wait until tax time in 2013 to claim a refund. All eligible families will receive a lump sum payment next month, then $820 for secondary students and $410 for primary students next year.
- Supporting redundant workers. Doubling of the liquid assets test thresholds for income support recipients means that redundancy payments will be paid to newly unemployed people without waiting for up to 13 weeks if they have liquid assets of up to $5000 for single people without children and $10,000 for all others.
High net worth
Golden handshakes
Tax breaks for golden handshakes will be limited when, combined with other taxable income, the payment exceeds $180,000. However, the tax break will continue to apply to that part of a payment that does not exceed the $180,000.
Superannuation
Deferral of higher contributions cap
The Government will defer the start date of the $50,000 concessional cap for individuals over 50 with a superannuation balance under $500,000. This was initially proposed to commence on 1 July 2012 but it has now been delayed by two years to 1 July 2014. The concessional cap will now remain at $25,000 for all individuals irrespective of age.
Doubling of contributions tax for those earning over $300,000
From 1 July 2012, individuals with incomes greater than $300,000 will pay 30% on their concessional contributions instead of 15%. Concessional contributions will include all employer contributions (super guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. This reform will affect around 128,000 people or 1.2 per cent of people contributing to superannuation.
Confirmation of the increase of the Super Guarantee from 9%-12%.
This will be increased incrementally until 2020, the first increase of 0.25% on 1 July 2013. According to the Treasurer, this would mean that a 30-year-old worker on average full-time earnings would retire at age 67 with an additional $118,000 in super.
Government contribution for low income earners
From 1 July 2012, workers with income up to $37,000 will receive a boost of up to $500 to their superannuation savings, to ensure they effectively pay no tax on their superannuation guarantee contributions.