Numerous announcements made by the government in its May 2011 federal budget, its November 2011 ‘mini budget’ and throughout the course of 2011 will have an impact on the tax landscape of 2012.
Here we examine some of the developments taxpayers should take heed of for the year ahead.
Dependent Spouse Tax Offset
From July 1, 2011 taxpayers with a dependent spouse born on or after July 1, 1971 have no longer been eligible for the Dependent Spouse Tax Offset. This means the offset will be gradually phased out as the population ages. Dependent spouses eligible for Family Tax Benefit part B are not affected, nor are taxpayers whose dependent spouse is a carer, who is an invalid or permanently unable to work, and taxpayers eligible for the zone, overseas forces or overseas civilian tax offsets. Tax returns for the current financial year will be the first to be affected by the change.
Baby bonus cut and new child immunisation incentive
The baby bonus is to be cut from $5,400 to $5,000 from September 1, 2012 and the government will pause indexation of the bonus until July 1, 2014. Apart from that, the ‘maternity immunisation allowance’ of $258 will be terminated from July 1, 2012. The government will instead tie the Family Tax Benefit scheme eligibility criteria to a staged immunisation program.
Teenagers to benefit from FTB changes
Families with teenagers could receive a boost under changes to the Family Tax Benefit (FTB) that came into effect on January 1, 2012. The government expects about 630,000 teenagers aged 16-19 in the next five years, who are currently enrolled in school or an equivalent vocational course, to benefit from the increase to FTB part A of about $150 a fortnight over the course of five years. However, the eligibility for FTB part A will be limited to children up to the age of 21 down from the previous limit of 24 years old. A person who turned 22 prior to 1 January 2012 but is under 25 can still be an FTB child of the recipient until the earlier of completion of their current course of study or turning 25.
Flood levy to end on June 30
Implemented to aid the recovery efforts of Australian regions devastated by natural disasters, the flood levy applicability ends on June 30, 2012. It only applies to earnings above $50,000, and is 0.5% up to $100,000, and 1% above that.
HECS up-front discount and tax bonus cut
The discount available to students electing to pay their HECS student contribution up-front will be reduced from 20% to 10%, and the bonus on voluntary payments to the Tax Office of $500 or more will be reduced from 10% to 5% – both changes having taken effect from January 1, 2012.
Trust law shake-up
One of the big changes to trust law in the last calendar year was the provision of tax-effective distribution, or streaming, of capital gains and franked dividend income to beneficiaries (where they are ‘specifically entitled’). However, the trust law landscape is due for more of a shake-up in 2012 with the government aiming to ‘modernise’ the interaction of trust and tax laws. More details will be made available as they come to hand.
Vehicle deduction for small businesses and entrepreneur tax offset abolished
Small businesses will be able to claim up to $5,000 as an immediate deduction for buying a motor vehicle from July 1, 2012 onwards. The remaining value of the vehicle can be pooled in the general small business pool (depreciated at 15% in the first year, then 30%). The entrepreneur tax offset will be abolished from the same date.
Increase in immediate asset write-off threshold to $6,500
Subject to the enactment of the Minerals Resource Rent Tax legislation, small businesses which adopt the simplified depreciation rules will be able to write off the acquisition of depreciating assets costing less than $6,500.
Decrease in super co-contributions, break in concessional cap
The government announced that the superannuation co-contribution matching rate will be reduced from July 1, 2012. It also says the maximum payment level for co-contributions is to be reduced from $1,000 to $250 a year as the result of scaling back the co-contribution rate to 50% of a personal contribution – up to $500 annually. The threshold for the payments will also fall from $61,920 to $46,920.
There will also be a pause in the indexation of the superannuation concessional contributions cap for a year over 2013-14 so that it remains at $25,000. The $50,000 cap for over 50-year-olds will end on June 30, 2012 except for persons with a total superannuation account balance of less than $500,000. For all others, the cap will revert to $25,000.
In a further development, the federal government has established a new superannuation round table that will work on giving Australians more options to boost their retirement incomes. It will also study compliance cost issues and proposals to broaden options in the drawdown phase such as annuities and deferred annuities. It will gather representatives of the industry, small businesses, employees and the community as well as technical experts and academics. The round table will be chaired by Assistant Treasurer Bill Shorten and is expected to report its findings by December 2012.
Living-away-from-home allowance & benefits
The government says it will introduce reforms ‘to stop individuals from being able to exploit the tax exemption’ for the living-away-from-home allowance and benefits. From July 1, 2012, access to the tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia – which they are living away from for work purposes – such as under ‘fly-in/fly-out’ arrangements. Individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.
Change in income tax rates
The introduction of a price on carbon from July 1, 2012 heralds the onset of changes in the personal tax rate scales as well as an increase of the tax-free threshold from $6,000 to $18,200. Included in the carbon pricing package are measures intended to assist households in meeting cost increases attributed to the carbon price. See table below.