The Federal Budget was handed down on Tuesday night. We’ve spent much of Wednesday analysing its ramifications and how it affects our clients and the tax and financial planning strategies you make use of. We have attached a comprehensive review and summary of the Budget provided by our dealer group Securitor, however have noted some of the key points the majority of our clients may be affected by and may need to consider:
The $50 000 superannuation contribution cap for those aged over 50 has been scrapped.
This means no matter what age you are your maximum deductible contributions cannot exceed $25 000 per annum. Those wishing to make the most of the $50 000 contribution cap need to do so this financial year if circumstances suit. Those who are receiving employer contributions and salary sacrificing in excess of this level, or are making personal deductible contributions, need to adjust their payments in the new financial year to avoid excess contributions tax.
For those earning in excess of $300 000, the effective contributions tax will be doubled from 15% to 30%.
This is still less than their marginal tax rate of 46.5% and provides an attractive incentive to contribute to super, however reduces the tax saved utilizing this strategy.
The removal or reduction (depending on income) in the private health insurance rebate will commence from 1 July 2012.
You may wish to consider pre-paying 12 months premiums before the end of the financial year, and claim the rebate under the current regime. More details are contained within.
The 50% discount on part of your cash savings interest income has been abandoned.
Personal tax rates have changed, with the tax free threshold increasing to $18 200 (up from $6000), the bracket to $37 000 taxed at 20.5% (from 16.5%), and the bracket to $80 000 taxed at 34% (up from 31.5%). This will save somebody earning $50 000 per annum around $303 per annum in tax, while those earning more than $80 000 only around $3.
Schoolkids bonus will be paid from 1 January 2013
This entitles those families receiving Family Tax Benefit Part A a payment of $410 for each primary school child, and $820 for every secondary school child.
Company tax rate will remain at 30% (not cut to 29% as proposed) however businesses now have a new Company Tax Loss Carry back.
This means if they paid tax on profit in the previous 2 years, and then make an operating loss, they will be entitled to an offset and refund of previous years tax.
Whilst for the purposes of summary we have identified these areas as affecting the majority of our clients, there are a number of other measures announced relating to superannuation, tax, small business and social security you may wish to read about in the document attached. If you have any questions relating to anything in the Budget commentary please contact us.