We summarise below the key changes to the taxation of individuals, families, businesses and superannuation. Please note that there is no certainty that all of the changes proposed will be passed by Parliament.

For Individuals & Families

Personal tax rates for 2012/2013

The Government did not make any changes to the tax rates for residents that are to apply from 1 July 2012 - these were legislated and passed in 2011 as part of the carbon tax bills package. The personal income tax rates and thresholds are summarised for resident taxpayers in the table below:

The above changes to individual tax rates are not as generous as they appear when considered together with the reduction to the Low Income Tax Offset (LITO). Please contact your Ruddicks adviser if you are unsure how the new tax rates will affect you.

Education Tax Offset replaced by Schoolkids Bonus

In the lead up to this year’s Budget the Government announced that it would be phasing out the Education Tax Offset. The offset will be replaced with the new ‘no-strings’ non-taxable cash payment called the Schoolkids Bonus which will apply from 1 January 2013.

Eligibility for the bonus will continue to be extended to those receiving Family Tax Benefit Part A, plus recipients of Youth Allowance and some other income support and veterans' payments.

The amount of the bonus will be:

• $410 for each child in primary school;
• $820 for each child in high school.

The payment will be automatic and upfront and will mean that:

• Parents don't need to keep receipts - it's a guaranteed payment.
• Parents will receive the full amount every time, so families won't miss out if they lose receipts.
  Parents don't have to pay out of their own pocket, then wait months to get paid back through the tax system - the payment will be paid upfront, twice a year (in January and July each year), before the start of Term 1 and Term 3.
• No paperwork is required.

WHAT THIS MEANS FOR YOUR 2012 CLAIM

As part of the transition to the new Schoolkids Bonus, the Education Tax Refund for 2012 will be paid out in full to all eligible families as a lump sum payment in June 2012. This means that eligible families will receive their full Education Tax Refund entitlement ahead of tax time and you won't have to worry about keeping receipts or making claims when you do your tax this year.

Means testing of the Net Medical Expenses Tax Offset (NMETO) from 1 July 2012

The Government will introduce a means test which will make it more difficult to qualify for the NMETO and will reduce the extent of the claim for unreimbursed medical expenses for high income earners from the 2012/2013 year onwards.

Current rules

For the 2010/2011 year the NMETO is 20% of the excess over $2,000 of out-of-pocket medical expenses. The threshold is indexed annually meaning that for the 2011/2012 year, the NMETO is 20% of the excess over $2,060.

New rules

Taxpayers with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012/2013), will only be able to claim a 10% offset on out-of-pocket medical expenditure above $5,000 (to be indexed annually).

Those with income below the surcharge thresholds will be unaffected by the announced change.

TIP: To the extent possible, high income earners might consider bringing forward discretionary medical expenditure, such as dental and optical, to before 1 July 2012, in certain circumstances.

Mature age worker offset (MAWTO) to be phased out from 1 July 2012

The Government will phase out the MAWTO for taxpayers born on or after 1 July 1957. Access to the offset will be maintained for taxpayers who are aged 55 years or older in 2011/2012, hence if you are currently benefiting from it, you will continue to do so.

Family Tax Benefit ('FTB') Part A changes to take effect from 1 July 2013

The Government will increase the maximum payment rate of FTB Part A by $300 per year for families with one child and $600 for families with 2 or more children. For families receiving the base rate of FTB Part A, the increase will be $100 for families with one child and $200 for families with 2 or more children.

Previously announced Private Health Insurance (PHI) measures to go ahead

The PHI rebate changes legislated in February and discussed in detail in our March 2012 newsletter, which is available on our website, will remain unchanged by the Budget and will come into effect from 1 July 2012.

To do before 1 July 2012!

If you claim your PHI rebate either through your insurer or through Medicare, you will need to estimate your income for 2012/2013 and contact either your insurer or Medicare to nominate the appropriate income tier. This will help you to avoid incurring a significant tax liability if an incorrect income tier is applied. Please contact your Ruddicks adviser for assistance and further information regarding this.

What is NOT going ahead

These previously announced and subsequently deferred measures will not proceed at all:

• The 50% discount on interest income;
• A standard deduction for work-related expenses & the costs of managing tax affairs.

You will continue to be able to claim the work-related expenses and the costs of managing tax affairs using the current substantiation rules.

If You Are a Non-Resident

Unfortunately, you will be paying more tax on Australian sourced income from 1 July 2012. The new marginal tax rates that apply to non-residents in respect of their Australian income are summarised below:

Removal of Capital Gains Tax (CGT) discount for non-residents

The Government will remove the 50% CGT discount for non-residents on capital gains accrued after 7.30pm (AEST) on 8 May 2012. The CGT discount will remain available for capital gains that accrued prior to this time where non-residents choose to obtain a market valuation of assets as at 8 May 2012.

For most non-residents, this will primarily apply to their real estate holdings in Australia. If you fall into this category, you may wish to obtain valuations of the property you own in Australia in order to understand your potential income tax exposure and plan your investment decisions accordingly. Please contact your Ruddicks adviser to discuss how these changes might affect you if you believe they may apply to you.

For Business

Company tax cut shelved

The Treasurer has announced that the proposed reduction in the company tax rate from 30% to 29% will not proceed. Whilst disappointing to businesses, the Treasurer added that the savings from abandoning the company tax cut will be used to fund other measures, including the loss carry-back arrangement for companies.

Companies to be allowed to carry-back losses

This is one of the more widely publicised changes, promoted as a measure to help out the small business sector of the economy which will however have limited application.

The Government will allow companies to carry-back tax losses to offset previous profits so as to provide a refund of tax previously paid. A one year loss carry-back will apply in 2012/13, where tax losses incurred in that year can be carried back and offset against tax paid in 2011/12. For 2013/14 and later income years, tax losses can be carried back and offset against tax paid up to two years earlier.

Losses of up to $1 million can be carried back for each year, providing a cash benefit of up to $300,000, based on the company tax rate of 30%. The measure will apply to revenue losses only (not to capital losses), will be subject to integrity rules and will be limited to a company's franking account balance.

This means that in order to take advantage of this measure in 2012/2013, a business must:

• Be in a company structure;
• Have a tax loss in 2012/2013;
• Have had a profit and have paid income tax in 2011/2012 (current year);
• Have sufficient franking credits (tax paid) in its franking account.

Businesses which operate as sole traders, partnerships or trusts will miss out on the benefits of this change.

Those companies that may be eligible for the carry-back will need to do some careful planning to ensure they can take advantage of this change, especially in relation to their franking account balance.

This measure will be subject to a discussion paper and consultation process – for which there is very little time left as the Government envisaged this change coming into effect from 1 July 2012! Only time will tell whether these new rules will be legislated in time, however there is a concern that the legislation will be rushed through without due analysis and review. Watch this space!

BEWARE! ATO to receive more funds to "manage" outstanding tax debts!

The Government announced that it will provide $106m over 4 years to the ATO to improve the management of outstanding taxation debts and superannuation guarantee charge. We can expect to see more proactive debt recovery activity from the ATO. With their increased focus on and reduced tolerance for unpaid superannuation guarantee amounts, this remains an area of attention for those who employ staff.

Apprenticeship funding changes announced

The Government announced that it would discontinue the $1,500 standard employer commencement incentive payment for existing worker Australian Apprentices in non-National Skills Need List occupations but will increase the standard completion incentive by $500 to $3,000. New employee Australian Apprentices and existing workers in National Skills Need List occupations will not be impacted by this change.

Previously announced measures to go ahead

As discussed in detail in our March 2012 newsletter, the increased immediate asset write off deduction threshold of $6,500 will be available to all small business entities (broadly, entities with turnover of less than $2 million) from 1 July 2012. Additionally, small businesses will be able to claim a deduction for the first $5,000 of the cost of a motor vehicle purchased after 1 July 2012. These measures remain unchanged and will come into effect as previously communicated.

Superannuation

Superannuation has been the arena of the most controversial changes in this Budget and one where the Government expects to make some of the most significant savings by targeting high income earners.

Superannuation contributions tax to increase from 15% to 30% for incomes above $300,000

From 1 July 2012, individuals with income greater than $300,000 will pay 30% contributions tax on their concessional superannuation contributions. Concessional contributions for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed.

WHAT IT MEANS FOR YOU

Taxpayers with income over $300,000 who are currently making full use of the $25,000 concessional cap will pay an additional $3,750 in contributions tax from 1 July 2012 under this measure.

Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates, according to the Government. The proposed change for “very high income earners” on their concessional contributions is supposed to align it more closely with the concession received by average income earners. However, there will still be an effective tax concession of 15% (i.e. the difference between the top marginal rate of 45% and the proposed 30% contributions tax rate) for these “very high income earners” up to the concessional contributions cap of $25,000.

Income test

The definition of "income" for the purpose of this measure will include:

• taxable income;
• concessional superannuation contributions (e.g. superannuation guarantee contributions and salary sacrificed contributions);
• adjusted fringe benefits;
• total net investment loss;
• target foreign income;
• tax-free government pensions and benefits;
• LESS child support paid.

If an individual's income (excluding their concessional contributions) is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold.

For example, someone with income excluding their concessional contributions of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), would have the reduced tax concession only apply to $5,000 of their contributions.

No change to taxation of super fund earnings

The 15% flat tax on earnings within superannuation and tax exemption for assets supporting pension payments will not be affected by this reform, according to the Government.

Higher concessional contributions cap for over 50s deferred until 1 July 2014

The proposed higher concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014.

WHAT IT MEANS FOR YOU

All taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012/2013 and 2013/2014 income years.

In 2014/2015, the general cap is expected to increase to $30,000 through indexation, and the higher cap would then commence at $55,000 for eligible taxpayers aged 50 and over.