Roskow Blog

The theme for last night's Federal Budget was "back in the black", but from our perspective it was more "brief and boring" but the key message for our clients is that there is very little impact on your wealth accumulation and preservation game plans which is a very good thing.

As usual, we will be in contact with all Private Clients by phone and email to explain if the changes listed below affect you in any way.  In the meantime, so that you can sound smart in the line up for coffees this week, here are the good and bad bits:

We start with some good bits:

• From 1 July 2011, if the concessional contribution cap to superannuation is exceeded, there will be the opportunity to get $10,000 back and included in your individual tax return (rather than be levied with 46.5% tax)
• In last years Budget it was proposed that pre-retirees who are over 50 could continue to salary sacrifice up to $50,000 to superannuation if your balance is less than $500,000. This has been amended slightly so that the amount you can salary sacrifice will be $25,000 more than the standard contribution cap.  This is currently $25,000, so it's still $50,000!  They do their best to make it confusing. 
  
  The point is, if they increase the standard cap to $30,000, then pre-retirees that qualify can contribute up to $55,000 (don't forget this includes SGC from your employer).  This still hasn't been made official through Parliament; it doesn't seem that there's a chance that they might change their mind, more so they're still consulting the industry on how it will operate administratively.
• Those with "account based pensions" will still have some additional flexibility to draw under the minimum payment during the 2011/2012 financial year.  For the past two years, the minimum has been halved, so for those under 65 instead of having to draw 4%, it has been 2%.  For 2011/2012, it's no longer 50% of the minimum but 75% (who dreams up this stuff!?!).  So under 65 the minimum is 3%, 65-74 is 3.75%, 75-79 is 4.5% and so on.
• If you salary sacrifice a car and drive less than 15,000kms per year, the amount of fringe benefit tax (FBT) you will pay drops from 26% to 20%.  This is also good for the environment because it means that people won't be racking up kilometers and burning fuel unnecessarily in March each year just so they can save a bit of tax! It will also push more people into using the operating cost method, rather than the statutory method, thereby increasing compliance costs.
• The Low Income Tax Offset (LITO) will be increased to $1,800 which increases the effective tax free threshold to $18,000.

Some not so good bits:

• If you have a family trust which distributes income to the kids, from 1 July 2011 instead of distributing $3,333pa to each child, it only makes sense to distribute $416pa
• The Government Co-contribution rules haven't been indexed or changed in any way.
• The annual levy SMSFs have to pay has increased by $30pa
• Those that salary sacrifice a car and drive more than 25,000 kilometers a year will pay more FBT.
• The Entrepreneurs Tax Offset will be abolished from 1 July 2012 
• The dependent spouse tax offset will be phased out for those under 40 years of age
• Discounts for paying HECS student contribution upfront and the bonus on voluntary payments above $500 will be halved (from 1 July 2012)
• The introduction of Paid Paternity Leave has been delayed by six months until 1 January 2013

Some more good bits:

• Small businesses that purchase a motor vehicle (we haven't read anywhere that it has to be 'new') get an instant write-off equal to the first $5,000 of the purchase price. The remainder of the amount above $5,000 will be put into a pool of assets and depreciated at 30%.
• The company tax rate will reduce to 29% for incorporated small businesses.
• The ATO will have the "discretion" to extend the two-year ownership period in which the trustee of a deceased estate or beneficiary must dispose of their interest in the deceased's dwelling to access a full capital gains tax main residence exemption (no start date provided).
• Medicare levy low income threshold will be increased from 1 July 2010
• Those in receipt of a Disability Support Pension can work up to 30 hrs a week for up to two years and still remain eligible for a part pension.
• There is an increase in the Family Tax Benefit A payment for some families
• The Temporary Flood and Cyclone Reconstruction Levy was reaffirmed, applicable to all residents and non-residents for the 2011/12 financial year only (some might view this as bad, but if it happened to you it would be nice to know the rest of Australia was kicking in to help you).  If your taxable income is less than $50,000 there is no levy, between $50,000 and $100,000 the levy is 0.5% and above $100,000 is $250 + 1% on the amount over $100,000.

If you need more information, please give us a call.