Budget 2012 – Hopefully Swan’s Last One

By Jason Fittler

I will not be commenting on all aspects of the budget, my comments will be limited to issues which affect your investments and/or superannuation.

  1. Superannuation Concessional Contributions – if you are over the age of 50 then your concessional contributions amounts have been reduced from $50,000 pa to $25,000pa. Concessional contributions are those made by an employer and made by salary sacrifice. As such if you are over age 50 and currently salary sacrificing into super you need to review this ASAP. Excess contributions are taxed at the highest marginal rate plus penalties. 
  2. ASIC Fees – the fees which financial planners pay to the ASIC have been increased. Anyone who is in business knows that when a fee is increased to the provider of a service such as financial planning then the clients will either pay more or receive less service. You can expect to be paying more for financial advice in the future. 
  3. Reduction of concessional tax – contributions to superannuation are tax at 15%, this has now been increased to 30% for individuals who earn over $300,000. This is a major disincentive for high income earners to contribute into superannuation. An interesting note is that politicians who earn over $300,000 such as Penny Wong do not pay this due to the way the government super is set up. Lucky them. 
  4. Self Managed Super Funds (SMSF) Audits – the ASIC will be increasing their crack down on SMSF by increasing the regulation around the auditors of SMSF. This will increase the cost of having your fund audited each year. 
  5. Eligible Termination Payments (ETPs) – these will now be taxed differently and the ETP tax offset will be wound back. The offset will apply to an income of $180,000 including the ETP, everything over this will be taxed at the top marginal rate. 

There are also a number of changes in regard to your personal and business tax return but I will leave these for your accountant to explain to you.

As you can see from the above changes if you are in your fifties and looking to save for retirement this budget has not done you any favours. It has limited the amount you can get into super tax effectively and looked to increase your costs.

For more information please contact us on 07 4771 4577. 

Super Tax

By Jason Fittler

Why are people happy to tax the mining companies more? Answer, because it is not going to affect them. Wrong.

Ignorance Intelligence – this is the latest coined phrase, it is when people rely on media and friends to educate themselves about the happenings in the world.

You do not want to be one of them so read the below information on Super Tax and see how it will affect you. There is a lot of noise around the super tax on the mining industry but today I simply want to take a look at the facts.

Facts

1. Mining companies currently pay royalities of between 5-10% depending on the state they are in. This is on top of the company tax rate of 30%. Average tax plus royalties is around 37%.
2. Super Tax will replace this royalties program and companies will pay 40% tax on profit earned above a set bench mark, plus the 30% company tax rate. On average mining companies will pay around 58% in tax from 2012.
3. The government has already spent the money which this new tax will generate to achieve their surplus. As such Rudd and Swan will not back down.
4. Exploration companies will benefit, large companies will not. Major projects will be shelved or move off shore. This is already happening.
5. This will not promote more economic activity.
6. This has created sovereign risk in Australia which will affect investment here.

Overall, the financial industry and the mining sector are outraged that such an idea would be considered in these times, the assumptions used to model the expected outcomes which the government is selling this tax on have not yet been released. I suspect that the assumptions are not in line with current practices.

Further concerns centre around Wayne Swans lack of understanding around business practices and internal rates or returns which normal business use to decide if a project is viable. It is also clear that this tax may be extended to other large Australian companies such as the banks.

There is still a long way to go before this tax becomes law, but this is certainly a case of killing the goose who lays the golden egg, the strategy needs a re-think. 

This government has lost Australians billions of dollars from their super balances due to their treatment of Telstra, BHP and RIO alone. The effect of this new tax will filter through the whole economy as business which rely on the mining giants lose work. The mining sector was digging Australia out of the Global Financial Crisis, who will dig us out now? 

For more information give us a call on 07 4771 4577.

Budget 2010 – Changes and Comments

By Jason Fittler

The key proposals announced in the Federal Budget include:

1. Individuals will only need to include 50% of interest income of up to $1,000 from certain investments in their tax return
2. Taxpayers will have the option to claim a standard deduction of $500 in 2012/13, increasing to $1,000 in 2013/14
3. The benchmark interest rate for capital protected products will retrospectively be the indicator rate plus 100 basis points
4. The maximum co-contribution matching rate and payment amount will remain at 100% and $1,000 respectively
5. Super funds will be eligible to claim a deduction when paying terminal medical condition benefits
6. The Commissioner will be able to exercise discretion in relation to excess contributions tax before an assessment is issued, and
7. Changes will be made to improve the accessibility of Special Disability Trusts.

Let’s take a closer look.

Taxation

1. 50% saving on declaring interest income up to $500. This in simple terms means if you earn over $1000 in interest income, you can deduct $500 from the total and only declare that amount. If you earn below $1000, halve the amount and declare that.
2. Standard tax Deduction, from 01/07/2012 you will be able to claim $500 worth of deductions against you taxable income whether you have them or not. As of 01/07/2013, this amount will increase to $1000. Keep in mind that this is still 2 years away before starting. No benefit will be gained until you complete the 2012/2013 return in July 2013.
3. Increase in Medicare Levy Low Income threshold for 01/07/2009, you will benefit from this straight away once you complete your 2009/2010 tax return.
4. Amendment to the Senior Australian Tax Offset rebate from 01/07/2010, this was some bookkeeping to tidy up this rebate.
5. Medical Expenses Off Set – increased to $2000 from 01/07/2010. You may want to hold of any medical procedures until after 01/07/2010.
6. Managed Investment Trusts – again tidying up some double taxation issues.

Superannuation

1. Co – Contribution – was $1500 now $1000, also taxable income threshold frozen at current levels.
2. Excess Contributions – tidy up the legislation to allow the commissioner to exercise discretion. This makes sense as mistakes can be made.
3. Increase in time limits for employers to make super contribution to former employees. This makes a lot of sense and will reduce admin costs for employers.
4. First Home Owners Savers Accounts – now the amount can be paid into your mortgage instead of your super. Again correcting a mistake in current legislation.

Social Security

1. Family Tax benefit – soften the laws in regards to receiving this payment. You still need to lodge your return unless you fall in one of the exemption categories. One of which is a hardship clause with I expect will cover most defaulters.
2. FTB part A – making this tougher to get for children between 16-20, they must now be in full time training.
3. Child Care Rebate – for 01/07/2010 will be capped at $7500 and will no longer be indexed.
4. Extended Special Disability Trust – form 01/01/2011 it will now include people who can work up to 7 hours per week.
5. Disability Support Pension – they will be tightening up on this pension in regards to the individual’s ability to work. Expect to see more claims rejected.

Henry Report

The government also confirmed a number of recommendations made in the Henry report as detailed below.

1. Increase the super guarantee from 9% to 12% starting on the 01/07/2013.
2. Raising the super guarantee for age 70 to 75.
3. Introducing a government contribution to super of up to $500 for low income earners.
4. Maintain concessional caps to super at $25,000 unless you are over 50 years old and have less then $500,000 in super then you have a concessional cap of $50,000.
5. Reducing standard company tax rate to 29% from 01/07/2013.
6. Reducing small business company tax rate to 28% from 01/07/2012.
7. Allowing small business immediate write off on assets valued less then $5000.

Mining Super Tax

This one still need to go through parliament as such I am not looking to closely at the detail, but will say that it has already had an effect on the market and I suspect will drive our larger miners off shore. Personally, I hope common sense prevails and this tax is dropped before it costs taxpayers money.

For more information give us a call on 07 4771 4577.