2010/11 Federal Budget – how are you affected?
 |
Overview |
|
Super Changes |
|
Tax Changes |
Labor’s third budget focuses on a return to surplus as soon as possible, with a new Resource Super Profits Tax and an increase in the tax on tobacco products helping to fund new spending on health, superannuation, border protection and infrastructure.
While this budget is relatively free of the generous hand-outs and incentives seen in previous years, some important changes have been announced, including those that the Government released as part of their response to the recent Henry Review into Australia’s tax system.
A summary of the proposed changes and their potential impact is shown below.
Super Guarantee will gradually increase from 9% to 12%
by 2019
From 1 July 2013, Super Guarantee will start a gradual increase each
year until 1 July 2019 when it will reach 12%. This is excellent news
for many Australian workers, who can now look forward to a higher level
of income in retirement.
As an example, a worker aged 30 receiving a salary of $50,000 per annum could look forward to an extra $282,000 in superannuation at age 65 if receiving and extra 3% Super Guarantee (assuming their salary increases by 3% per annum and their superannuation earns an average of 8% per annum).
The maximum age for Super Guarantee will also increase from 70 to 75 on 1 July 2013.
Tip: If you are saving for retirement, it may be worth considering providing yourself with an immediate increase to 12% by entering into a salary sacrifice arrangement, which involves your employer making additional voluntary contributions into your super account.
Government super contribution for low income earners
If you are earning less than $37,000, you may find that the Super Guarantee
contributions paid to your super fund are taxed at a higher rate than
your other income. Super Guarantee contributions are taxed at a flat
rate of up to 15% when received by your fund.
Recognising this, the Government will, from 1 July 2012, contribute an additional amount your super fund each year if you earn less than $37,000. This Government contribution will be 15% of your Concessional Contributions (which include Super Guarantee, salary sacrifice and self-employed contributions), up to a maximum of $500 per financial year.
How this could benefit you: If you earn $37,000 or less, this change ensures that from 1 July 2012, Super Guarantee contributions are received by your super fund effectively tax free.
$50,000 Concessional Contribution Cap if over 50 and less
than $500,000 in super
Currently, if you are over 50, you can make Concessional Contributions
of up to $50,000 per financial year – double the level of those
under 50. However, this incentive was due to end on 30 June 2012.
The Government has now announced that this higher cap for over 50s will continue permanently from 1 July 2012, provided you have a total super balance of less than $500,000.
Tip: While there are no further details yet of how the total super balance concept (mentioned above) will work, it may be possible to optimise your superannuation balance by splitting super contributions with your spouse or making contributions to your spouse’s super fund.
Government Super Co-contribution rate to remain at 100%
into the future
The Government Co-contribution is a scheme where the Government will
contribute into your super fund to match your own after tax contributions.
The Government Co-contribution had previously been 150% of your after tax contributions up to a maximum of $1,500 for those eligible. However, last year, this rate was reduced temporarily to 100% and $1,000 respectively.
The Government has now announced that the Co-contribution rate will not be returned to 150% and will instead remain permanently at 100%.
In addition, the income thresholds that determine your eligibility for and maximum Co-contribution, which are normally indexed each year, will not be indexed for the next 2 financial years.
How this could affect you: This is certainly unwelcome news for employees and business owners who are taking advantage of the Government Co-contribution scheme to help fund their retirement. However, from 1 July 2012, many will instead be eligible for the Government super contribution for low income earners (see above) which provides a contribution each financial year of up to $500.
Personal income tax rates for 2010/11 financial year
Personal income tax rates for residents will be as follows for the 2010/11
financial year, with the 2 changes being the increase of the $35,000
tax threshold to $37,000 and the reduction of the 38% tax rate to 37%.
| Threshold | Tax Rate (ex. Medicare Levy) |
| Nil - $6,000 | Nil |
| $6,001 - $37,000 | 15% |
| $37,001 - $80,000 | 30% |
| $80,001 - $180,000 | 37% |
| Over $180,000 | 45% |
In addition, the maximum Low Income Tax Offset will increase from $1,350 to $1,500.
How this could benefit you: If your taxable income is $37,000 of above, you will save tax of at least $300 under these changes. In addition, with the increase in the Low Income Tax Offset, you will not pay income tax until your taxable income exceeds $16,000 (previously $15,000).
50% tax discount on the first $1,000 of interest earned
Currently when you invest in an interest bearing account with a bank
or similar entity, any interest earned is generally fully taxable.
From 1 July 2011, only 50% of the first $1,000 of interest earned on these accounts (combined) will be taxable. This represents a tax saving of up to $150 per year if your Marginal Tax Rate is 30%.
How this could benefit you: It is always important to have an adequate cash reserve to assist with funding any unexpected required spending. This change will allow you to hold an appropriate cash reserve in an interest bearing deposit without being fully taxed on the interest earned.
Corporate tax rate to decrease to 28%
For small business companies, the corporate tax rate will reduce from
30% to 28% on 1 July 2012.
For other companies, a delayed reduction will apply, with the corporate rate moving to 29% on 1 July 2013 and 28% on 1 July 2014.
Small business $5,000 instant asset write-off
Currently, small businesses are able to write-off assets valued under
$1,000. From 1 July 2012, small businesses will be able to immediately
write-off assets valued up to $5,000.
In addition, small businesses will be able to write off other assets in a single depreciation pool at a 30% rate, replacing the 2 current depreciation pools.
How this could benefit you: If you are a small business owner, you can now take advantage of increased immediate tax deductions when assets are purchased. In addition, these changes should simplify the often complex depreciation calculations going forward.
Standard tax deduction available for work-related expenses
when completing tax return
From 1 July 2012, when completing your tax return, you will have the
option of claiming a standard tax deduction for work related expenses
and the cost of managing your tax affairs instead of providing evidence
and claiming a deduction equal to your actual expenses.
The standard tax deduction will commence on 1 July 2012 at $500 and
increase to $1,000 on 1 July 2013.
You will, of course, still have the option of continuing to claim a
tax deduction based on your actual expenses; for example, where your
expenses are likely to exceed the $500 or $1,000 threshold.
Increase in Net Medical Expenses Tax Offset threshold
Currently, you are able to claim a tax offset for 20% of your net medical
expenses over $1,500 in each financial year. From 1 July 2010, this
threshold will increase from $1,500 to $2,000.