Budget - Key Announcements
Individual tax issues
Medical tax offset
From 1 July 2012 the Government will use a means test for the net medical expenses tax offset. For individuals with an adjusted taxable income of $84,000 and couples/families with income of $168,000 the threshold above which a taxpayer may claim an offset will be increased to $5,000 and the reimbursement rate will be reduced to 10%.
The Education Tax Refund will be replaced with the Schoolkids bonus from 1 July 2013. Qualifying families are those who receive Family Tax Benefit Part A as well as those who receive income support such as Youth Allowance. $410 will be received for each primary school child and $820 for each high school child. Payments will be made at the start of term 1 and term 3 each year.
In addition, families that qualify for the Education Tax Refund will be paid their full 2012 entitlement to the refund in June 2012. This is an automatic payment – no documents are required to be lodged.
What is not proceeding
- 50% discount for interest income.
- Standard work related and tax compliance expenses.
Company tax rate
The previously announced company tax cut that would have reduced the rate from 30% to 29% will not be implemented.
Carry back of losses
Companies will be entitled to carry back up to $1 million of losses to the previous income tax year from 1 July 2012. This means that qualifying companies who pay tax on 2012 income and then generate a loss in the 2013 tax year will be able to carry back the 2013 losses and utilise these against 2012 income. This will result in a refund of tax paid on that income in the 2012 year.
Bad debt deduction – related parties no deduction
Where debtor and creditor are related parties, bad debt deductions will no longer be available. Presumably this is in a response to the court decision of BHP Billiton Finance but may have wider ramifications for related party bad debt write offs. This measure will have effect from 8 May 2012.
Deferral of higher concessional contributions cap
The Government will defer the start date of previously announced measure to increase the concessional contributions cap for over 50 with super balances less than $500,000. The measure would have allowed eligible individuals over the age of 50 to continue to make concessional contributions of up to $50,000. This measure has been deferred by two years. Therefore all individuals over the age of 50 have the same concessional contribution limit of $25,000 as under 50’s up until 1 July 2014.
Higher tax for contributions of very high income earners
The contributions tax rate of 15% will be increased to 30% for individuals with income of greater than $300,000. The definition of income for the purpose of this measure includes concessional superannuation contributions. E.g., if an individual had income of $260,000 and concessional super contributions of $45,000 they would be over the $300,000 limit.