2012 Budget Update

 

Wayne Swan pulled no punches in an attempt to return the national budget to surplus in the 2013 financial year, scrapping a number of initiates and cutting spending where possible.

We now examine a number of the most relevant changes and how they may apply to your situation going forward.

What were the major changes?

Taxation

  • No further changes were announced to the already legislated tax rates applying from 1 July 2012. These are part of the Carbon Tax Bills.
  • By raising the effective tax-free threshold, the Government has estimated that up to 1 million people will no longer be required to lodge a tax return. A comparison between this year and next financial year is below:
Current From 1 July 2012
$ Rate $ Rate
0 – 6,000 0 – 18,200
6,001 – 37,000 15% 18,201 – 37,000 19%
37,001 – 80,000 30% 37,001 – 80,000 32.5%
80,001 – 180,000 37% 80,001 – 180,000 37%
180,001 + 45% 180,001 + 45%

 

  • The private health insurance rebate and Medicare levy surcharge will be income tested against three new income tier thresholds. In other words, higher income earners will receive less private health insurance rebate. If they do not have the appropriate level of private patient hospital cover, the applicable Medicare levy surcharge may increase.

Superannuation

  • The higher concessional contributions cap for over 50s was deferred. All taxpayers, regardless of their age, will be subject to a concessional contributions cap of $25,000.
  • From 1 July 2014, this will increase to $30,000 through indexation. For those over 50, a higher cap of $55,000 will be applicable. The proposed higher concessional contributions cap for individuals aged 50 or more with superannuation balances below $500,000 was also deferred until 1 July 2014.
  • From 1 July 2012, the superannuation contributions tax will double to 30% for people with incomes above $300,000. This reduces the tax effectiveness of superannuation contributions for people with income above $300,000 to 16.5% (i.e. 46.5% – 30.0%).
  • If a person’s income (excluding concessional contributions) is less than $300,000, the additional 15% contributions tax will only apply to those contributions that exceed the threshold. For example, someone with an income of $290,000 plus $25,000 of concessional contributions will only pay an additional $2,250 contributions tax (i.e. ($315,000 – $300,000) x 15%).

Small Business

  • Small businesses will be able to immediately write-off the purchase of any new business assets costing less than $6,500. Assets costing more than this will depreciate in a single pool. There will be an allowance of 15% in the first year and 30% in subsequent years.
  • Small businesses will also benefit from an additional instant $5,000 write-off against the purchase of a vehicle used for business purposes.

Conclusions

  • Superannuation continues to be an attractive investment environment regardless of the budget implications. Hence contribution caps should continue to maximised where applicable.
  • Given the pending reduction in the private health insurance rebate it is important to consider paying your policy premiums for the 2013 financial year in the current financial year (should your fund allow this). By making this payment in the 2012 financial year you will still be eligible for the full 30% rebate.
  • Given the dynamic nature of the legislative environment it is of the utmost importance that you speak to your financial adviser. Ensure that you are taking full advantage of any changes which are applicable to your situation.

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Disclaimer: Information contained within this article is of a general nature. Do not be rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.