Federal Budget 2012

Federal Treasurer Wayne Swan has handed down his fifth Budget promising to deliver a surplus of $1.5 billion in 2012-13. This will be the first surplus since Labor came to power in 2007.

The fiscally conservative Budget will save $33.6 billion by reducing spending across almost every Government department and portfolio.

Superannuation

Higher tax on concessional contributions for very high income earners
From 1 July 2012, the Government proposes that individuals with income greater than $300,000 will have the tax on non-excessive concessional contributions increased from 15% to 30%. What this means is that high income earning clients will pay an increase of up to $3,750 (ie 15% of $25,000) on concessional contributions. At this stage, individuals on the highest marginal tax rate may still choose to make excessive concessional contributions (ie contribute over the concessional contribution cap) in the knowledge that the overall tax of 46.5% is the same as receiving that income as taxable income.

Individuals on the highest marginal tax rate who will not be subject to additional tax on super contributions are those on incomes between $180,000 and $299,999.

Higher concessional contributions deferred
The Government's previously announced proposal to provide a higher concessional cap for individuals aged 50 and over, with super balances below $500,000, will be deferred for a further two years. From 1 July 2012 to 1 July 2014, the general $25,000 concessional cap will continue to apply to these individuals. With this delay, it is expected that the general cap will increase to $30,000 in 2014/15 with the higher cap commencing at $55,000. Table 1 summarises the concessional caps for the current and subsequent three financial years.

Table 1 – Concessional contributions caps 1 July 2011 to 1 July 2014

* Where the individual's super balance is less than $500,000.

Lower concessional caps will reduce the tax-effectiveness of super contributions strategies in varying degrees for clients aged 50 or more. This is summarised in Table 2.

Table 2 – Effect of reduced concessional caps

Note: Assumes $50,000 of pre-tax income used either wholly for concessional contributions or contributions are reduced by $25,000 due to the reduction in the concessional cap and taxed at marginal tax rates.

Further impacts will be felt by those clients implementing transition to retirement (TTR) strategies, particularly those aged 60 or over whose ability to swap significant levels of tax-free pension income for concessionally taxed super contributions will be limited.

While TTR remains an effective strategy, its benefits are reduced, as shown in Table 3.

Table 3 – Effect of reduced concessional caps on TTR strategies

Note: Assumes client starts with $500,000 in super and implements a TTR strategy to salary sacrifice up to the relevant cap and draw a pension payment to maintain net income. Compares outcome with a $50,000 concessional cap against that with a $25,000 cap. Earnings in super of 7% pa after fees and before tax of 15% in accumulation phase. Results after two financial years.

Taxation

Means testing of net medical expenses tax offset
From 1 July 2012, people with adjusted taxable income above the Medicare levy surcharge thresholds will be means tested. This applies to singles earning over $84,000 and couples earning over $168,000 in 2012-13. People with income below the surcharge thresholds will not be affected.

The threshold above which a taxpayer may claim net medical expenses tax offset will be increased to $5,000 and indexed annually thereafter. The reimbursement rate will be reduced to 10% for eligible out of pocket expenses.

Consolidation of dependency offsets
From 1 July 2012, the Government will consolidate eight dependency tax offsets into a single, streamlined and non-refundable offset that is only available to tax payers who maintain a dependant who is generally unable to work due to carer obligation or disability.

This new consolidated offset will be based on the highest rate of the existing offsets it replaces and will result in an increased entitlement for many of those eligible.

Mature age worker tax offset
For workers born on or after 1 July 1957 (ie 55 or over), the mature age worker tax offset will be phased out from 1 July 2012. Access to this offset will be maintained for taxpayers who are aged 55 or older in the current financial year, 2011-12.

Increased Medicare levy low income thresholds
The Government will increase the Medicare levy low income threshold to $19,404 for individuals and $32,743 for families for 2011-12, back dated to 1 July 2011. The additional amount of threshold for each dependent child or student will also increase to $3,007.

The Medicare levy threshold for single pensioners below age pension age will also increase to $30,451.

Family

Schoolkids Bonus
From 1 July 2012, the Government will introduce a new Schoolkids Bonus that will replace the Education Tax Refund. The bonus payment will be made from January 2013 in two equal instalments (in January and July each year). To ensure a smooth transition, a one-off lump sum payment will be paid in June 2012 to replace the Education Tax Refund for the 2011-12 financial year. From January 2013, these payments will be automatic and every family with a child at school will be guaranteed $410 per annum for each primary school student and $820 per annum for each secondary school student.

Eligibility for the payment will remain open to families with children enrolled and attending school who are in receipt of the Family Tax Benefit A (or other qualifying income support payments or allowances under a prescribed educational scheme that precludes the family from receiving the Family Tax Benefit A).

Eligibility and increase for the Family Tax Benefit A
From January 2013, eligibility to Family Tax Benefit A will be limited to those students under 18 years of age or where a young person remains in secondary school to the end of the calendar year in which they turn 19. Families with children in school will be the primary target group for Family Tax Benefit A payments. Youth Allowance will be the primary form of assistance for those young adults 18 years and over.

The maximum rate of Family Tax Benefit A will be increased by $300 pa for families with one child and $600 pa for families with two or more children. Single child families on the base rate will receive $100 pa, those with two or more children will receive $200 pa.

Low income Family Tax Benefit and Commonwealth Seniors Health card recipients not required to lodge a tax return
From 1 July 2012, streamlined income reporting processes will be implemented within the Department of Human Services. This will allow people in the $6,000 to $18,200 income range (who will no longer be required to lodge an income tax return) to provide estimates of their income online, via telephone or in person without providing proof of income.

New income support supplement
From 20 March 2013, recipients of certain Government support payments will receive a non-taxable payment to assist with cost of living pressures. The new supplement will provide $210 pa for singles and $175 pa for each member of a couple. Eligible Government payments include Newstart Allowance, Sickness Allowance, Youth Allowance and Parenting Payment.

Social Security and aged care

Liquid Assets waiting period
From 1 July 2013, the maximum reserve amount for the liquid assets waiting periods for Newstart, Youth Allowance, Sickness Allowance and Austudy will be increased to $5,000 for singles and $10,000 for couples combined or those with dependants. The increase will provide those who have become unemployed earlier access to income support payments as it means that the full waiting period is not imposed until liquid assets are $11,500 for single and $23,000 for couples or those with dependants.

Previous proposals shelved

In this 2012 Budget, the Government has announced that it will not implement three measures it had previously announced in the 2010 Budget. These are:

	Standard tax deduction of $1,000 for work-related expenses and the cost of managing tax affairs.
	50% discount for the first $1,000 of interest income.
	Reduction of the corporate tax rate to 28%. The corporate tax rate will remain at 30%.

Speak to us for more information

Speak to your Count Financial Adviser if you would like to discuss how the Federal Budget announcement may be impacting your investments.

Important information
This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. 'Count' and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count. Count is a Professional Partner of the Financial Planning Association of Australia Limited.
Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.