In the present political climate it is easy to get caught up in the debate over whether it is the right time for the government to be moving to a fiscal surplus. Rather than focus on the politics of the Budget, we think it is best to focus onthe practical implications and look at how changes impact on individual financial planning strategies.
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:
- Deferral of higher concessional contributions cap for individuals aged 50 and over from 1 July 2012
- Higher tax on concessional contributions for very high income earners from 1 July 2012
- Mature age worker tax offset (MAWTO) to be phased out from 1 July 2012
- Increased Medicare levy low income thresholds from 1 July 2011
- Means testing of net medical expenses tax offset (NMETO) from 1 July 2012
- FTB Part A increase
- Family Tax Benefit (FTB) A eligibility from January 2013
- Supplementary Allowance
- Schoolkids Bonus
- Aged care reform from 1 July 2014
- Accelerated real estate review from 1 July 2012
- Reduced payment period of Australian Government Payments for people who are temporarily absent from Australia from 1 January 2013
- Australian residency requirements for the Age Pension from 1 January 2014
- Removal of the capital gains tax discount for non-residents
- Changes to tax rates for non-residents
- Company Loss Carry Back
- Small Business Immediate Write-Off Extension
- Previous proposals shelved
- Reduction of the corporate tax rate to 28%. The corporate tax rate will remain at 30%.
- 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.
The following changes announced since last year’s budget have also been confirmed
- Confirmation of changes to marginal income tax rates & thresholds
- The minimum draw down relief for superannuation pension holders will be extended next year with minimums being 75% of the original rules and returning to the normal rates from July 1 2013.
- Changes to co-contribution arrangements
- Superannuation guarantee rate to progressively rise from 9% to 12%
- Maximum age limit for the superannuation guarantee to be abolished
- Low income superannuation boost
- Allowances & supplements to reduce the impact of the introduction of a price on carbon
Each of the above items has been addressed in a little more detail our 2012 Budget - Personal Finance Summary.
The key strategy considerations stemming from these changes include:
- Those in the workforce who are 50 or older to reconsider salary sacrifice strategies to ensure that concessional contributions in excess of $25,000 are not made and how to be prepare to make the most of increased contribution thresholds come July 2014.
- Those earning more than $300,000 of income to consider whether superannuation contributions need to be lifted to replace the extra tax payable on concessional contributions.
- Non-residents to take extra care in the disposal of assets with realisable capital gains.
- Salary sacrifice strategies to be re-assessed under the new marginal tax threshold levels and rates.
- Personal superannuation contributions in order to access the government co-contribution need to be re-assessed in light of the changed thresholds and rate.
- Those turning 70 to consider the benefits of the continued superannuation guarantee contributions.
- Continued consideration of pension payment draw downs if looking to draw only the minimum allowed.
- Small business owners to consider the timing of discretionary capital purchases.
If you would like to discuss the implications for your personal situation please do not hesitate to be in contact.