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:
- The implementation of the flood and cyclone reconstruction levy for the 2011-12 financial year.
- Phase-out of the minimum draw down relief for superannuation pension holders will occur next year with minimums being 75% of the original rules and returning to the normal rates from July 1 2012.
- Some clarification of the operation of the higher superannuation concessional contribution cap for over 50s from July 1 2012. If a person is over 50 and has a superannuation balance of less than $500,000, they will be able to contribute $25,000 per year more than the standard concessional contribution cap.
- Extending the pause on indexation of superannuation co-contribution thresholds.
- Bringing forward the payment of the Low Income Tax Offset so that 70% of the offset is paid through the year and 30% paid through the end of year tax assessment whereas the current system sees only 50% paid through the year.
- Phasing out of the Dependent Spouse Tax Offset.
- Changes to the car fringe benefit rules by replacing the current statutory rates with a single rate of 20% that applies regardless of the distance travelled.
- Increasing the Medicare Levy low-income thresholds to $18,839 for singles and $31,789 for families.
- Removing a minor’s eligibility for the low income tax offset on unearned income.
- Child Care Rebate will be able to be received directly into bank accounts on a fortnightly basis from 1 July 2011.
- Higher Education Scheme reduction in discounts from 20% to 10% on upfront student contributions and from 10% to 5% on voluntary payments of $500 or more.
- Disability Support Pension recipients will be able to work up to 30 hours per week and remain eligible for a part-pension for up to two years.
- Changes to assessment procedures for Disability Support Pension recipients.
- Increase in Family Tax Benefit Part A for families with 16 to 19 year old dependants in secondary education.
- Paid Paternity Leave implementation deferred until 1 January 2013.
- Abolishment of the Entrepreneur’s Tax Offset with affect from 2012-13.
- Small businesses to be able to write off the first $5,000 for a motor vehicle purchase on top of last year’s announcement that small businesses to be able to immediately write off asset purchases of less than $5,000 compared to the current limit of $1,000.
The following changes delivered since last year’s budget have also been confirmed
- Age Pension new work bonus
- Education Tax Refund to cover school uniforms including optional and sport uniforms
- Deferment of a 50% discount commencing 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 until the financial year commencing July 1, 2012.
Summary of Major Strategy Considerations
In a nutshell these are the possible strategy modifications arising from this year’s budget:
- Reconsidering pension payment draw downs if looking to draw only the minimum allowed.
- 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.
- Users of car leases should reconsider their lease arrangements as a result of the proposed FBT rule changes.
- Users of family trusts to reconsider the use of the trust as a result of the removal of the LITO for minors.
- Recipients of Child Care Rebates should consider the most optimal method of payment as a result of the ability to receive payments directly into bank accounts each fortnight.
- Holders of HECS and HELP debt should reconsider the advance payment of debts according to their own circumstances as a result of the reduced discounts.
- Disability Support Pension recipients to consider whether taking on some part time work is in their interests due to the relaxed conditions around the impact of income on part pension payments.
- Small business owners to consider the timing of discretionary capital purchases.
- Age Pension recipients may consider taking on some or more part time work due to the new work bonus arrangements.
The 2011 Budget - Personal Finance Summary 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 email.