The Federal Government’s Mini-Budget – Superannuation & Tax Changes Announced

On Tuesday 29^th November 2011, the Government released a ‘mini-budget’ outlining measures on their plan to get the budget back to surplus by 30 June 2013.  Although the Federal government should be applauded for keeping its fiscal house in order and applying discipline in getting the budget back to surplus by June 2013, the rush to get back to surplus is more a political need than an economic one.

At a time where advanced economies across the globe focus on sovereign debt concerns, Australia remains in an enviable position.  Australia’s government debt to the Gross Domestic Product (GDP) ratio is likely to fall from 3.4% of GDP to 2.5% of GDP by June 2012, which is well below what is projected for Euro zone economies and even the US (e.g. Greece are currently sitting at 160%).

Obviously, Australia remains well and truly ahead of its global peers and the urgency to attain a surplus needs to be questioned, especially given the recent Organisation for Econimic Co-operation & Development (OECD) global growth downgrades, a low inflation environment, and the risk of further potential surprises (such as a slower than expected recovery) to the global economy.

The new saving measures which were announcemented include:

Reduced Minimum Pension Drawdown to Continue

The current 25% reduction in the standard minimum pension drawdown rate will be extended for another year as a consequence of the unsettled investment climate.

The 2011 Budget announcement originally had the minimum pension drawdown rates returning to the standard rates by from 1^st July 2012.  Under this announcement the
drawdown rates will return to the standard rates by 1^st July 2013.

The Government will delay indexation of the $25,000 concessional contribution cap until 1^st July 2014 where it is expected to increase to $30,000.

The concessional contributions cap has been $25,000 since 1^st July 2009 when the original cap of $50,000 was halved.  Consequently there has been no indexation of the concessional contributions cap since caps were introduced in 1^st July 2007.

Whilst the Government advised in May 2011 that people with less than $500,000 in superannuation will be able to contribute $50,000 (instead of $25,000), there was no further announcement on this.

The Government will reduce the co-contribution for low income earners from $1,000 to $500 from 1^st July 2012.  The maximum co-contribution reduces for incomes over $31,920 until it ceases when income reaches $46,920.

New Low Income Superannuation Contribution

The Government will make a contribution (up to a maximum of $500) to a low income earners’ superannuation to compensate for 15% contributions tax paid on concessional contributions from 1^st July 2012.

The person must have adjusted taxable income of less than $37,000 and business / employment income of at least 10% of total income.  The Government announced this
initiative with the 2011 Budget, however it has been modified to include the 10% employment income requirement.

Super Guarantee (SG) Age Limit Removed

Originally the Government tabled amendments to lift the SG age limit from age 70 to 75, however in a late amendment the Government (sensibly) removed the age limit altogether.

This Bill has already passed through the House of Representatives and will be debated in the Senate next year with the increase to the SG to 12% and other parts of the Minerals Resources Tax package.

•  The baby bonus will be reset to $5,000 from 1^st September 2012 (it is currently $5,437) and indexation will be paused until 1^stJuly 2015.
• The increase to the standard tax deduction for work-related expenses (from $300 to $500) and the cost of managing tax affairs will be pushed out to 1^st July 2013.  It was originally supposed to commence on 1^st July 2012.
• The 50% discount on interest income for tax purposes will be pushed out to 1^st July 2013.  It was originally supposed to commence in 1^st July 2012.
• The phase out of the Dependant Spouse Tax Offset from 1^st July 2012 will be extended to taxpayers with a dependant spouse born from 1^st July 1952 (i.e. aged 59).  Originally the phase out applied where the spouse was born after 1^st July 1971 (i.e. aged 40).
• Directors will be personally responsible for their company’s failure to pay SG contributions. This was originally due to start from 1^st July 2011 but it has been put off until the Bill passes (FY13).

New Personal Marginal Tax Rates & Thresholds Passed

The Clean Energy Bill (carbon tax) passed through Parliament and will soon receive Royal Assent.  The package includes changes to the personal marginal tax rates and thresholds from 1^st July 2012.   Key changes include:

• The tax-free threshold will increase from 1^st July 2012 from $6,000 to $18,200.
• The second tier marginal tax rate will increase from 15% to 19%, and the third tier from 30% to 32.5%.
• The Low Income Tax Offset will reduce from $1,500 to $445 (as it will be largely incorporated into the new tax-free threshold).
• The Pensioner Tax Offset will be rolled into the Senior Australians’ Tax Offset (SATO) from 1^st July 2012.  The new offset will be called the Seniors and Pensioner Tax Offset (SAPTO).

The Minerals Resources Tax Bill passed through the House of Representatives after midnight on 22^nd November 2011.

This package of legislation included a section to phase in an increase to the compulsory SG from 9% to 12% commencing 1^st July 2013.  It also included changes to the age limit for SG contributions (see above).

How does this affect you?

Should you require further information on how these changes may affect you, or how you can benefit from the changes please contact our office on 03 8677 0688 or strategies@jbsfinancial.com.au.

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