The Institute of Chartered Accountants has compiled a high-level Budget summary, which has been prepared with Thomson Reuters. Click on the links below for more information:
HIGHLIGHTS OF THE BUDGET RELEVANT TO BUSINESS AND INVESTORS
THE WINNERS
Small Business receives an immediate write-off of the first $5,000 on motor vehicles purchased from 1 July 2012, and also from this date write off all assets valued at under $5000. Small Business Company Tax Rate to reduce to 29% from 1 July 2012. Note that this is a cashflow benefit only as when dividends are paid to the owners they have to pay the additional tax due to lower franking credits so no big deal. Small Business is defined as turnover under $2million, including affiliated entities.
Minimum Pension Draw Down for account based, allocated and market linked pensions will be reduced by 25% for 2011-12.
Excess Contributions Tax – A one-off option to withdraw excess contributions made to a fund and pay tax on these in your own hands where you breach the contributions cap. Note – Only allowed once and for contributions not exceeding $10,000. Effective 1 July 2011 and an administration nightmare for superfunds.
Persons aged 50 and over can continue to contribute $50,000 to super after 1 July 2012 subject to their account balance being below $500,000. At least better than the situation where this was to be reduced to $25,000 but another complex administration exercise for taxpayers. RECOMMENDED ACTION: Each year undertake 100% contribution splitting with your spouse to transfer your prior year contributions to the lower balance spouse account to keep your balance below $500,000.
THE LOSERS
Family Trusts will no longer be able to distribute $3,000 tax free to minor children from 1 July 2011.
Students will no longer be able to claim deductions against Youth Allowance from 1 July 2011. No deductions will be allowable against any Government Assistance Payments.
Although not formally announced in the budget, the Government plans to introduce legislation to reduce the 30% private health insurance rebate by means of an income test.
HECS PAYMENTS – The up-front discount to be reduced from 20% to 10% and the voluntary early payment discount to be reduced from 10% to 5% from 1 July 2012.
FBT on cars – a flat 20% private use amount to replace the scaled rates to apply to vehicles purchased on or after 10 May 2011 and to be phased in over 4 years removing the current rates of 7% to 26%. ACTION REQUIRED: Ensure Business Use Logbooks are kept for business use motor vehicles to be able to use the logbook method of calculating FBT. Note – The winners in this are those who would have previously been on the 26% option, i.e. those doing less than 15,000km pa.
DIRECTORS – Personal liability for unpaid Super to be added to the directors liability – effective 1 July 2011.
BUILDING AND CONTRUCTION INDUSTRY – To be required to report annually on payments to contractors – effective 1 July 2012.
CONCLUSION
There are more losers than winners! The budget is in deficit to the extent of $45.7bn, planned to drop to $22bn deficit next year and $3.5bn surplus in following year – all dependant on a large mining tax. The mining industry only accounts for 2% of the Australian Workforce and the benefits will not flow to the whole of Australia. Richer workers will pay more in tax and receive less benefits and spending will be cut on dozens of programs in a $22bn saving effort to pay for new spending measures.
This is overall a lacklustre budget – tax increases and some throw-away benefits to low income earners. A high Australian Dollar will dampen the profitability of the resources sector, as will the Mining Tax and Carbon Tax. The Carbon Tax will significantly increase the cost of electricity. Power Generation requires big chunky investment and has a long lead time to implement. A Carbon Tax will increase inflation and cost jobs in at least the first five years of introduction. The price of electricity will never come down as Green Energy costs more to produce. The Government has announced no new initiatives to speed up the improvement and innovation surrounding green energy.
A final comment – The budget reveals that in 3 years, WA will only receive 63.25c back of the GST it collects. If the Federal Government does not sort this out how does it expect to benefit from the mining boom and create all these mining jobs in WA. Qld is in a similar predicament.