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Some of the highlights from the 2011 Federal Budget

Below is a summary of the May 2011 Federal Budget with some of its implications. Our Accounting & Income Tax team is available to provide more detailed advice.

Tax

  • From July 1, the final round of tax breaks will come into play, giving workers on an average wage an additional $450 per year.
  • Low-income tax offset rises to $1,500.
  • Higher tax-free threshold of $16,000 for salaries up to $30,000.
  • Simplified tax returns and a $500 standard deduction for work-related expenses, without need for receipts. This will rise to $1,000 from 2013.
  • A 50 percent tax discount on the first $1,000 worth of interest earned from deposits.
  • A new 40 per cent tax on mining profits will kick in July 1, 2012.
  • Small businesses granted instant asset write-offs under $5,000 from 2012/13 of any motor vehicles purchased from 2012-13. This replace the entrepreneurs’ tax offset.
  • An immediate write-off of all assets valued at under $5,000 (up from $1,000 presently);a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30%.
  • A reduction in company tax rate to 29% for incorporated small businesses. Company tax for small businesses will fall to 29 percent in 2013/14 and 28 percent in 2014/15.

Superannuation

  • Superannuation Guarantee will rise from 9 percent to 12 percent over the next decade.
     
  • A 50 percent tax discount on the first $1,000 worth of interest earned from deposits.
  • Government will make a $500 contribution for workers on incomes up to $37,000.
  • Set the proposed higher concessional contributions cap at $25,000 above the general concessional cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000.  Excess super contributions up to $10,000 may be refunded, effective from 1st July 2011. Minimum pension drawdowns – 25% reduction for 2011-2012, adjusted from 50%.

FBT valuation

  • Method for cars to be one rate – 20% (phased in over 4 years)
    • The changes will apply to new vehicle contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over 4 years.

Minors

  • Will no longer be entitled to low income tax offset on unearned income effective from 1st July 2011.

Medicare 

  • Increase in Medicare levy thresholds

Dependant spouse rebate

  • To be phased out for under 40s

Farm Management Deposits

  • Early access to be allowed to primary producers affected by natural disasters within 12 months of making a deposit while retaining concessional tax treatment.

Charities

  • Some significant tax changes affecting charities

Company Director Liability

  • Various measures aimed at countering fraudulent phoenix activities. Company directors will be liable for employees’ superannuation. Limitation of entitlements for PAYE withholding credits.

Flood levy

  • Generally, the flood levy will apply to individual taxpayers, both resident and non-resident, who have a taxable income over $50,000 in the 2011-12 financial year.

Deductions against Government Assistance payments

  • The Government will amend the tax law to prevent deductions being claimed against all government assistance payments, with effect from 1 July 2011, in response to the 2010 High Court decision in FCT v Anstis [2010] HCA 40.

Building Industry

  • Certain businesses will have to report annually on payments made to contractors in the building and construction industry. The reporting regime will require businesses to report information that they should already collect under existing tax arrangements.

Compensation or Damages Payments

  • Ensuring that gains and losses arising from life insurance policies that are generally exempted from CGT are not then taxed under the ordinary income tax provisions by removing the exception to the CGT primary code rule for such gains and losses. This will remove uncertainty in the application of income tax to compensation or damages payments made under life insurance policies. These changes will apply to CGT events happening in the 2005-06 income year and later income years.

Deceased Estates

  • Legislating the current Tax Office practice of allowing a testamentary trust to distribute an asset of the deceased person without a CGT taxing point occurring.
  • Provide the Commissioner with a discretion to extend the two-year ownership period in which the trustee of a deceased estate or beneficiary of such an estate must dispose of their interest in the deceased’s dwelling to access a full capital gains tax main residence exemption.
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