Taxwise Individual News – Jun 2010

From 1 July 2010: The Low Income Tax Offset (LITO) will increase to $1500 per annum (compared with $1350 in the previous year) giving a tax free income threshold of $16 000 for taxpayers with incomes up to $30 000 per annum in 2010–11 (compared with $15 000 in the previous year).

The LITO is no longer available once the taxpayer’sincome reaches $67 500 in 2010–11.

With effect from 1 July 2009, the Government proposes to increase the low income Medicare levy threshold to:

• $18 488 for a single person (up from $17 794 for 2008–09);
• $31 196 for a family (up from $30 025 for 2008–09); and
• $27 697 (up from $25 299 for 2008–09) for pensioners below Age Pension Age (65 but increasing to 67 over the next 13 years).

In addition to the key changes outlined above, the following changes were also announced as part of the Federal Budget.

From 1 July 2012 the Government will provide individual taxpayers with an optional standard deduction of $500 in lieu of claiming work-related expenses and the cost of managing their tax affairs. The standard deduction will be increased to $1,000 from 1 July 2013.

No taxpayers will be disadvantaged. Taxpayers with expenses above the standard deduction will be able to continue to claim those expenses when lodging their tax return under the existing rules.

From 1 July 2011, the Government will provide individuals with a tax discount equal to 50% on up to $1,000 of interest earned, including on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products.

This means that for a person earning an average pre-tax interest rate of 6%, the discount would apply up to a savings balance of just over $16,500.

This change will result in some individuals and families becoming eligible for transfer payments oreligible for a larger transfer payment, such as Family Tax Benefit, Baby Bonus, Child Care Benefit, Education Tax Refund, Commonwealth Seniors Health Card (CSHC) and the Pensioner Supplement (which is linked to eligibility for the CSHC).

The Government will make a number of minor amendments to improve the operation of the superannuation legislation, with intended effect from the 2010-11 income year.

The amendments will include:

• Permanently allowing a claim for a deduction for eligible contributions to be made to successor superannuation funds;
• Increasing the time-limit for deductible employer contributions made for former employees;
• Clarifying the due date of the shortfall interest charge for the purposes of excess contributions tax;
• Allowing the Commissioner of Taxation to exercise discretion for the purposes of excess contributions tax before an assessment is issued; and
• Providing new arrangements for public sector defined benefit schemes which fund benefits through “last minute contributions”.

The Government will freeze for 2010-11 and 2011-12 the indexation applied on the income threshold above which the maximum superannuation co-contribution begins to phase down.

Under the superannuation co-contribution scheme, the Government provides a matching contribution for contributions made into superannuation out of after-tax income. The matching contribution is up to $1,000 for people with incomes of up to $31,920 in 2009-10(with the amount available phasing down for incomesup to $61,920). This measure will freeze these thresholds at $31,920 and $61,920 for two years.

The Government will permanently retain the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions at $1,000.

The following are the highlights of the Government’s response.

• A Resource Super Profits Tax (RSPT) will be introduced on 1 July 2012 at a rate of 40% on profits made from the exploitation of Australia’s non-renewable resources;
• The States and Territories will be provided with new, ongoing infrastructure funding, with an initial total amount of $700m in 2012/13;
• A refundable resource exploration rebate will be provided to companies, set at the prevailing company tax rate, for exploration expenditure carried out in Australia from 2011/12;
• The company tax rate will be reduced to 29% from 2013/14, and to 28% from 2014/15;
• The company tax rate for “eligible small business companies” will be reduced to 28% from 2012/13;
• The immediate write-off for assets of small businesses will be extended to assets valued at less than $5,000 from 1 July 2012;
• The superannuation guarantee charge will be increased by annual increments until it reaches the plateau level of 12% by 2019/20;
• The entitlement to the SGC will be broadened by lifting the maximum age threshold from 70 to 75 years of age;
• The concessional contributions cap will be raised to $50,000 per year for workers who are 50 and over and who have superannuation balances of under $500,000; and
• A new Government superannuation contribution will be created which will pay up to $500 for workers with adjusted taxable incomes of up to $37,000.

The measures that the Government has announced that it will implement that may affect individuals are discussed in more detail below.

The Government has decided to implement four changes to superannuation.

The first two changes apply to superannuation concessional contributions. The Government will introduce a new concessional contribution thresholdfor low superannuation balance workers aged 50 and over and it will also create a new Government contribution for workers who earn less than $37,000 a year.

The second group of measures impact on the superannuation guarantee charge scheme (SGC). The SGC will be increased up to a target level of 12% and it will now apply to workers below 75 years of age.

These changes are outlined in further detail below.