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The budget has provided a number of significant changes impacting on financial planning strategies.These have been outlined in this summary.The major changes include:
-Confirmation of income tax changes from July 1st 2010 increasing the effective tax free threshold from $15,000 to $16,000 for those earning $30,000 or less, the bottom of the 30% marginal tax rate threshold increasing from $35,000 to $37,000 and the current 38% marginal tax rate being reduced to 37%.
-A 50% discount commencing July 1st, 2011 on the tax payable on the first $1,000 of interest income generated by bank, credit union and building society accounts along with income from bonds, debentures and annuity products.
-A $500 standard deduction for work related expenses starting 2012-13, increasing to $1,000 for 2013-14 to simplify tax returns and lead to tax savings for many individuals.
-Superannuation guarantee contributions to rise from the current 9% to 12% by July 2019.
-A $500 superannuation tax rebate, commencing July 1st, 2012, of the contributions tax for those with incomes of up to $37,000.
-Superannuation co-contribution matching rate from the government to remain at 100% up to a maximum of $1,000 p.a.
-The superannuation guarantee age limit to rise from 70 to 75 starting July 1st 2013.
-A reduction in the company tax rate from 30% to 29% in 2013-14 and 28% in 2014-15.
-The company tax rate reductions to be brought forward for small businesses with the rate of 28% applicable from 2012-13.
-Small businesses to be able to immediately write off asset purchases of less than $5,000 compared to the current limit of $1,000.
-A permanent extension from 1st July 2012 of the eligibility for those over 50 to receive $50,000 of concessional contributions into super p.a. as long as superannuation balances do not exceed $500,000.
-The Net Medical Expenses Tax Offset to increase from $1,500 to $2,000
Summary of Major Strategy Considerations
In a nutshell these are the possible strategy modifications arising from this year’s budget:
Reconsidering the extent of cash and defensive asset classes in your overall investment portfolio and the added benefits due to the tax discount on the first $1,000 of interest income.
Assessing the impact of the standard deduction for work related expenses for the 2012-13 financial year.
Assessing the impact of the increase in SG contributions from 9 to 12% and how this will impact your ability to reach your retirement and prior to retirement goals.
Consideration of a superannuation contributions splitting strategy for those who might benefit from being able to receive extra concessional contributions into super from the age of 50 and also careful consideration of whose account to place personal contributions for couples.
For those turning 70 after the 1st of July 2013, consider the impact of the increase in the superannuation guarantee age limit from 70 to 75.
Small business owners to reconsider business structures due to the impact of the company tax rate reduction.
Small business owners to reconsider asset purchase and depreciation of assets planning.
This document has been prepared as a brief summary of the 2010 Federal Budget as it impacts on personal finances.It is a publication of A Clear Direction Financial Planning.It contains general financial information.Readers should check this information with a professional financial adviser before acting on any of the material contained in this document.