Tax Wise Individual News (June 2012)

/in /by
  • 30 June is around the corner
  • Medicare levy low income thresholds
  • Private health insurance rebate and Medicare levy surcharge changes
  • Tax offset changes from 1 July 2012
  • Living-away-from-home allowance changes
  • Small business changes starting in the 2012-13 income year
  • Superannuation changes
  • Residential premises developments – new GST treatment
  • Taxable payments reporting – building and construction industry

30 June is around the corner

The end of the financial year is fast approaching and it’s time to start planning to prepare for your 2012 Income Tax Return. Now is a good time to start thinking about your tax affairs. Some things you could look at are:

  • Make sure you gather all your receipts to claim work-related expenses that exceed $300;
  • Consider whether any tax offsets are available to you – do you have large medical expenses you could claim an offset for? Are you entitled to the Low Income Tax Offset? Are there any other tax offsets for dependents you might be entitled to?
  • Making additional contributions to your superfund – should you top up super contributions this year?
  • Think about whether you had planned to make any donations to deductible gift recipients and making those donations (and getting a receipt for them) before the financial year ends; and
  • If you have a rental property, think about what expenses you might be able to claim against the rental income you have earned.

Talk to your tax adviser about what other things you need to think about before 30 June rolls around. Your tax adviser knows you and your tax affairs and can help you make sure you claim all deductions and tax offsets you are entitled to and get your tax return right!

The standard deduction of $500 that was set to begin on 1 July 2012 is no longer going to be introduced. So, you must continue to keep your receipts so you can claim all your relevant work-related expenses which exceed $300 in total in the 2011-12 and future income years.

Medicare levy low income thresholds

From 1 July 2011, as part of the 2012-13 Budget announcements, the following changes apply to the Medicare Levy low income thresholds:

  • The low income threshold for individuals will be increased to $19,404 (from $18,839);
  • The low income threshold for families will be increased to $32,743 (from $31,789) and the additional amount for each dependent child or student will be increased to $3,007 (from $2,919).
  • The low income threshold amount for single pensioners below Age Pension age will be increased to $30,451 (from $30,439) to ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.

Private health insurance rebate and Medicare levy surcharge changes

From 1 July 2012, access to the private health insurance rebate becomes means tested by reference to how much income an individual earns. Not all taxpayers will be entitled to the 30% rebate. Some higher income-earning taxpayers will be entitled to a lesser rebate amount and individuals and families whose income is higher than the top threshold amount will no longer be entitled to any rebate at all.

The three tier income thresholds also apply to calculate who has to pay the Medicare levy surcharge and how much they have to pay.

The table summarises how much rebate an individual can claim if they have private health insurance and how much Medicare levy surcharge an individual has to pay if they don’t have sufficient private hospital cover from a private health insurer.

 No change  Tier 1 Tier 2 Tier 3
 Singles (income)  ≤ $84,000 $84,001 – $97,000 $97,001 – $130,000 ≥ $130,001
 Families (income)  ≤ $168,000 $168,001 – $194,000 $194,001 – $260,000 ≥ $260,001
 % of insurance premium = rebate*  30% 20% 10% 0%
 Medicare levy surcharge %  0% 1% 1.25% 1.5%

*If you are an older taxpayer, the rebate amounts are higher.

The way you claim your rebate (either directly from your private health insurer, through your tax return or from Medicare) should not change. If you are a higher income earner, the cost to you personally of your private health insurance is likely to be more because of this change.

If you are concerned about how these changes might affect you in the coming income year, speak to your tax agent about the possible impact of these changes.

Tax rebate changes from 1 July 2012

From 1 July 2012, the following tax rebates are going to change:

  • Net medical expenses tax offset (NMETO) – a means test will be introduced for this tax offset. For taxpayers with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in the 2012-13 income year), the threshold above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses incurred.
  • Combining of the “dependency tax offsets” – The eight dependency tax offsets will be consolidated into a single, streamlined and non-refundable offset. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.
    The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. For taxpayers who can claim more than one offset amount in relation to multiple dependants who are genuinely unable to work will still be able to do so.
  • Mature age worker tax offset (MAWTO) – The MAWTO will be phased out for taxpayers born on or after 1 July 1957. This will not affect any person who currently receives MAWTO. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in the current income year (2011-12).

Living-away-from-home allowance changes

The previous edition of TaxWise referred to recently announced changes to the living-away-from-home allowance (LAFHA). The proposed changes are to:

  • Remove the taxation of LAFHA from the FBT space into the income tax space, meaning that employees, rather than employers, will be liable to tax on any LAFHA received that is not exempt;
  • Limit access to the tax exemption for temporary residents to individuals who maintain a residence in Australia and who are required to live away from it for work purposes;
  • Require individuals to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

These changes are due to apply from 1 July 2012.

Small business changes starting in the 2012-13 income year

Small business: instant asset write-off and simplified depreciation

An “instant write-off” amount of $6,500 (increased from $1,000) will apply to small businesses who acquire “low cost” assets from 1 July 2012. In addition, an instant write-off for the first $5,000 of the cost of a motor vehicle purchased by a small business will also be available (unless the vehicle can be written off immediately).

Other changes simplifying depreciation for small businesses include the creation of a “general small business pool” (which will be made up of depreciating assets in the “general small business pool” and the “long life small business pool”). Assets will be depreciated at a rate of 15% in the first year and at 30% in each subsequent year.

If you are currently considering some new asset purchases, your tax agent is the best person to help you decide when you should make those purchases.

Entrepreneurs’ tax offset changes

The entrepreneurs’ tax offset ceases to be available on 30 June 2012. The new small business asset instant write-offs and depreciation pool in effect replace this tax offset.

If you are planning on claiming the entrepreneurs’ tax offset this year, talk to us soon!

Superannuation changes

Previous announcements

In March 2012, certain changes to the superannuation provisions were introduced into parliament, including the following:

  • a temporary pause in indexation of the superannuation concessional contributions cap so that it will remain fixed at $25,000 for individuals under 50 years of age up to and including the 2013-14 financial year, commencing 1 July 2013;
  • From 1 July 2011, eligible individuals will be able to have refunded to them contributions to their superannuation fund that exceeded the concessional contributions cap (amounts up to $10,000 only). This amount will be treated as assessable income to the individual (and subject to tax at the individual’s applicable marginal tax rate for the year) rather than being subject to “excess contributions tax”.
  • allowing the ATO to disclose an individual’s superannuation interests and benefits to a regulated superannuation fund or public sector superannuation scheme, an approved deposit fund, retirement savings account (RSA) provider or their administrators. The purpose of this change is to assist administrators of these bodies to gain access to a member’s superannuation interests, including amounts held by the ATO, and help their members consolidate their superannuation interests; and
  • employers must include on employees’ payslips the amount of superannuation contributions they will make on behalf of an employee (as well as the date on which they expect to pay the contribution into the superannuation fund). The employer must also specify on the payslip the name and number (if applicable) of the fund to which the contribution has been or will be paid.

Budget 2012-13 announcements

The following announcements were made in the 2012-13 Budget in relation to superannuation changes:

  • Increasing concessional contributions caps (also known as pre-tax contributions) for individuals over 50 with low superannuation balances announced in the 2010-11 Budget has been deferred and will now start on 1 July 2014. This measure is intended to allow individuals aged 50 and over with superannuation balances below $500,000 to contribute up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 (the higher cap for individuals aged over 50 would then be $55,000).
  • Individuals with income greater than $300,000 (including superannuation contributions) will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy). That is, the flat superannuation contributions tax rate will increase from a rate of 15% to a rate of 30%.
  • From 1 July 2012, the tax offset that applies to Employment Termination Payments (ETP) will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

Amounts above $180,000 (known as the “whole-of-income cap”), will be taxed at marginal rates. This cap will complement the existing ETP cap (which will be $175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

Residential premises developments – new GST treatment

All developers of residential premises should take note that the GST provisions have been amended to ensure that sales of residential premises that have been constructed under certain arrangements known as “development lease arrangements” will be subject to GST (i.e. they will be treated as sales of new residential premises). Even if there has previously been a “wholesale supply” of the newly built premises to the developer, this will still be the case. This is something that developers who are building residential properties under these types of arrangements should be aware of.

There are also some changes under the GST law confirming the GST treatment of new residential premises in the case where they have been subdivided or strata-titled.

You should be aware that these changes will apply from 27 January 2011. If you are a builder who has constructed new residential premises since 27 January 2011, you should see your tax agent to see if these amendments affect the GST treatment you have applied to your project. You might need to consider amending your previously lodged Activity Statements if these amendments impact your business.

Talk to Hurley & Co if you are concerned how these new GST provisions might affect the GST treatment of a residential development you have undertaken. You might need to amend your Activity Statements as well!

Taxable payments reporting – building and construction industry

If you are in the building and construction industry and you have an Australian Business Number (ABN), you may need to report certain payments you make to contractors for certain building and construction services.

You need to report certain details in relation to the contractor to whom you make payments, including their ABN, name, address and amount you paid them (including GST). Generally, these amounts need to be reported to the ATO by 21 July, which is very soon after the financial year end.

As these rules apply from 1 July 2012, it might be a good time now to look at the kinds of records you keep in relation to payments you make to contractors and see if you need to change anything to help you comply with these new rules. Your tax agent can assist you with the types of records you might need to start keeping to help you meet this obligation. It might turn out that you don’t need to change any of your record-keeping details and you will be able to meet this obligation.

You should take the opportunity now to consider the impact of this reporting obligation and make any necessary changes now so you are ready for 21 July 2013! Contact us if you need help with this.

Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult Hurley & Co Chartered Accountant for advice on specific matters.