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June 2012 News Letter

Budget 2012

Following are the main tax measures announced in last month's Federal Budget.
Measures previously announced but not going ahead or being deferred
Some of the biggest tax news from the latest Budget involved the Government deciding not to proceed with (or deferring) previously announced initiatives, including the following:
*      The Government will not proceed with the measure to lower the company tax rate from the 2013/14 year, nor implement an early start to the company tax rate cut for small businesses from the 2012/13 year;
*      The Government will not proceed with the measure to introduce a 50% discount for interest income, which was due to commence on 1 July 2013;
*      The Government will not proceed with the measure to introduce a standard deduction for work related expenses and the cost of managing tax affairs, which was due to start on 1 July 2013; and
*      The Government will defer the start date of the measure to increase, by $25,000, the concessional contributions cap for individuals over age 50 with superannuation balances below $500,000 from 1 July 2012 to 1 July 2014. 
Editor: This two-year deferral means that, for 2012/13 and 2013/14, the concessional contributions cap will be $25,000 per year for all individuals, regardless of their age.
Phasing out the Mature Age Worker tax offset
From 1 July 2012, the Government will phase out the mature age worker tax offset (‘MAWTO’) for taxpayers born on or after 1 July 1957. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in the 2011/12 year.
Instead, the Government will provide a Jobs Bonus of $1,000 to 10,000 employers who recruit and retain a worker aged 50 years or over for over three months.
Consolidating the dependency offsets into a single tax offset
From 1 July 2012, eight existing dependency tax offsets will be consolidated into a single, streamlined and non-refundable offset that is only available to taxpayers who maintain a dependant who is genuinely unable to work due to disability or carer obligations.
Converting the Education Tax Refund into a new ‘Schoolkids Bonus’
From the 2012/13 year, the Government will transform the Education Tax Refund into a ‘Schoolkids Bonus’ that will automatically be paid to eligible families through the family payments system. Eligible families will receive the new Schoolkids Bonus of $410 for each child in primary school and $820 for each child in high school. 
The bonus will be paid in two equal instalments in January and July each year, starting from January 2013 and, as a transitional measure, the full Education Tax Refund for the 2011/12 year will generally be paid to eligible taxpayers in June 2012.
Changes to the Net Medical Expenses tax offset
The Government will introduce a means test for the net medical expenses tax offset (‘NMETO’) from 1 July 2012. For taxpayers with adjusted taxable income above the Medicare levy surcharge thresholds (i.e., $84,000 for singles and $168,000 for couples or families in 2012/13):
*      the threshold above which a taxpayer may claim the NMETO will be increased to $5,000 (currently $2,000); and
*      the rate of the tax offset will be reduced to 10% (currently 20%) for eligible out of pocket expenses incurred.
 
Private health insurance and Medicare levy surcharge changes
From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income tier thresholds.
Higher income earners will receive less private health insurance rebate or, if they do not have the appropriate level of private patient hospital cover, the Medicare levy surcharge may increase.
The ATO will determine the amount of a taxpayer's private health insurance rebate entitlement when they lodge their income tax return.
The new income tier thresholds
The private health insurance rebate and Medicare levy surcharge will be income tested against the income tier thresholds set out below:
Tier 1: The rebate will be reduced to 20% for singles whose income for surcharge purposes is between $84,001 and $97,000 (inclusive) and for couples/families whose income for surcharge purposes is between $168,001 and $194,000 (inclusive) that hold a complying policy. The Medicare levy surcharge will remain at 1% for persons who fall within Tier 1 and do not hold appropriate private health insurance.
Tier 2:The rebate will be reduced to 10% for singles whose income for surcharge purposes is between $97,001 and $130,000 (inclusive) and for couples/families with income for surcharge purposes between $194,001 and $260,000 inclusive that hold a complying policy. Also, the Medicare levy surcharge will be increased to 1.25%.
Tier 3: Singles with income for surcharge purposes of $130,001 or more and couples/families with income for surcharge purposes of $260,001 or more that hold a complying policy will no longer receive the rebate after 1 July 2012. Also, the Medicare levy surcharge for them will increase to 1.5% from     1 July 2012.
For families with more than one dependent child, the relevant threshold increases by $1,500 per child.
Editor: Note that the rebate may be higher for taxpayers aged 65 or over.
 
Company loss ‘carry-back’ tax relief
The Government will provide tax relief for companies (and entities taxed like companies) by allowing them to ‘carry-back’ revenue tax losses so they receive a refund against tax previously paid, with 2012/13 being the first year that companies will be able to carry-back up to $1 million of revenue tax losses. 
The measure will be subject to integrity rules, and limited to a company’s franking account balance.
 
 
Trustee resolutions must be made no later than 30 June
Editor: The ATO has provided some important information for trustees of trusts that they need to know when distributing income to beneficiaries of the trust (e.g., most, if not all, discretionary trusts).
From the 2011/12 income tax year, all trustees who make beneficiaries entitled to trust income by way of a distribution must do so by the end of the income year (i.e., usually 30 June, although the trustee must also comply with any additional requirements in the trust deed). 
Why has the date for making distributions changed this year?
The ATO previously had a limited administrative practice in place, which provided an extension to certain trustees to make distributions after 30 June, but the relevant ruling allowing this was withdrawn in September 2011.
Note: In some circumstances, it may be possible for the trustee to resolve to distribute the trust income on or before 30 June, but record that resolution in writing after 30 June. It is important that all clients with trusts are aware of the ATO's changes in this area, and to contact us if they have any concerns.

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