INTRODUCTION
Last week's government announcements in response to the release of the Henry tax review makes this budget look like déjà vu with only a handful of new announcements that would directly impact on Financial Planning.
According to Darryl Gobbett, Chief Economist at WHK Group, the Budget relies on big increases in income taxes to reduce the deficit while increasing spending, particularly on Social Security and Welfare, when the stronger economy requires spending cuts. This Budget carries the risk of stronger inflation and higher interest rates if the world does recover as expected or sustained high deficits and increased debt if growth falters. At the same time, the Resources Super Profits Tax may well slow investment, an important element in the forecast economic growth domestically.
FREQUENTLY ASKED QUESTIONS
1. What were the government's announcements in response to the release of the Henry tax review?
The following announcements were made last week and confirmed in this year's budget:
• A 12 per cent Superannuation Guarantee (SG) - commencing with a 0.25 increase in 2013-14 and 2014-15, followed by 0.5 increments until the SG reaches 12 per cent by 2019-20.
• A low income earners government contribution - from 1 July 2012, the government will provide a contribution of up to $500 annually into your superannuation account so you will effectively not pay contributions tax on your SG contributions if you have an adjusted taxable income equal to up to $37,000.
• Helping older workers make catch-up superannuation contributions - from 1 July 2012, if you are aged 50 and over and you have a superannuation balance below $500,000, you will be able to make up to $50,000 in yearly concessional superannuation contributions.
• Raising the Superannuation Guarantee age limit from 70 to 75 with effect from 1 July 2013.
2. What are the new announcements in this budget?
The following new announcements were made in this year's budget:
• As an individual taxpayer, you will be provided with an optional standard deduction of $500 from 1 July 2012 in lieu of claiming work-related expenses and the cost of managing your tax affairs. This deduction will increase to $1,000 from 1 July 2013.
• From 1 July 2011, you will be provided with a tax discount equal to 50 per cent on up to $1,000 of interest earned, including on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products. This means that 50% of the interest would be tax free on your savings account with a balance of $16,667 and earning an interest rate of 6 per cent.
• the government co-contribution matching rate will be retained at 100 per cent permanently and the maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions will be $1,000 and the co-contribution income thresholds will also be frozen for the next two years at their present levels of $31,920 and $61,920.
• From 1 July 2010, the threshold for claiming the net medical expenses tax offset will be increased from $1,500 to $2,000. The offset will continue to allow you to receive a tax offset equal to 20% of net unreimbursed eligible medical expenses above the threshold.
• The first home savers accounts rules have been amended to allow First Home Savers Account monies to be transferred into an approved mortgage where the account holder acquires a home before the end of the four-year period.
3. I currently have more than $500 in deductible expenses. Am I going to be disadvantaged?
If your expenses are above the standard deduction, you will continue to be able to claim your expenses when lodging your tax return as is the case currently.
4. I am an employee earning only $30,000. Does this mean that I can claim both the government contribution as well as the government co-contribution?
Yes, if your adjusted taxable income is less than $37,000, the government contribution of $500 will represent a refund on the superannuation contributions tax and you will also qualify for a part government co-contribution if you make an after tax contribution to super.
5. Is it true that the age to access my super will be the same as the age pension age?
In response to the Henry Tax review last week, the government has ruled out aligning the age you are able to access your super to the age pension age. The following are some of the other recommendations that have been ruled out:
• Include the family home in means tests
• Introduce land tax on the family home - this is an issue for the states, not the commonwealth
• Reduce the CGT discount, apply a discount to negative gearing deductions, or change grandfathering arrangements for CGT
• Remove the Medicare levy
• Reduce indexation of the age pension
• Remove the benefits of dividend imputation
• Introduce a bequests tax
At WHK, our commitment to our clients is to guide them through the economic, financial and legislative maze and to assist them in protecting and growing their wealth. Go to www.whk.com.au for more information.
The information contained within this publication was compiled by Michael Adams a representative of WHK Financial Planning (WHK FP). All opinions, conclusions or forecasts are reasonably held at the time of compilation but are subject to change without notice. WHK FP assumes no obligation to update this publication after it has been issued.
This publication is for information purposes only and does not represent advice. In order for recommendations to be made that are appropriate for your needs, objectives and goals, please contact your nearest WHK office and ask to speak to an adviser.
WHK FP is the holder of AFSL No: 238244. A WHK Group firm.