The Government’s latest budget includes several changes that will affect small businesses.
1. Proposed 50% discount on interest income abandoned
The 2010-2011 Federal Budget proposed a 50 per cent discount for individuals for interest income up to $1,000. In the 2011-2012 budget, it was announced that this change which was to begin from 1 July 2012 will not proceed.
2. Proposed standard deduction for work related expenses abandoned
It was also proposed in the 2010-2011 Federal Budget, a standard deduction for individuals on work related expenses of $500 which would take effect on 1 July 2012. It was also proposed that this deduction would increase to $1,000 from 1 July 2013. It has been decided that this measure will not proceed.
3. Changes to the net medical expenses tax offset
Currently, the medical expenses tax offset (NMETO) is 20 per cent of net medical expenses over $2,060. From 1 July 2012, for single with an adjusted taxable income of more than $84,000 and couples or families with an adjusted taxable income of more than $168,000 will only be able to offset 10 per cent of net medical expenses over $5,000. Those will income below these thresholds will be unaffected.
4. Concessional Contributions Cap for those aged 50 and over
Commencing on 1 July 2012 the concessional cap for the next two years will be $25,000 irrespective of a person’s age. It is expected that commencing 1 July 2014, individuals 50 years old and over who have low superannuation balances (under $500,000) will be allowed an increased concessional cap of $55,000 assuming that the concessional cap will increase to $30,000 through indexation.
Note: Those individuals salary sacrificing superannuation should review their salary sacrifice agreement to ensure that they do not exceed their concessional caps for the year commencing 1 July 2012.
5. Capital gains tax discounts for non-residents removed
The Government has proposed that non-residents whom have accrued capital gains after 7.30 pm (AEST) on 8 May 2012 will no longer receive the 50 per cent capital gains tax (CGT) discount.
The CGT discount will remain available for capital gains accrued prior to this time provided that the taxpayer obtained a market valuation of the assets involved as at 8 May 2012.
6. Company loss carry-back
Companies are able to carry-back tax losses of up to $1 million to receive a refund against tax previously paid. In 2012/13, a one year loss carry-back will apply where tax losses incurred in that year can be carried back and offset against tax paid in 2011/12. For 2013/14 going forward, tax losses can be carried back and offset against tax paid up to two years earlier.
Only revenue losses can be carried back. The carry-back will be subject to integrity rules and will be limited to a company's franking account balance.
7. Company tax rate will remain the same
The Government will not lower the company tax rate to 29 per cent for small business from the 2012–13 income year and companies generally from the 2013–14 income year as previously proposed. The company tax rates will remain unchanged.
8. Fringe benefits tax — reform of living away from home allowances and benefits
The Government will further limit the tax concession for living away from home allowances by:
- limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
- providing the tax concession for a maximum period of 12 months with respect to an individual employee for any particular work location.
From 1 July 2012, these rules will be applicable for arrangements entered into after 7.30pm (AEST) on 8 May 2012. From 1 July 2014, these rules will apply for arrangements entered into prior to that time.
The reforms will not apply to:
- tax concessions for ‘fly-in fly-out’ arrangements; or
- tax treatment of travel and meal allowances
9. Superannuation contributions tax for high income earners to rise
Individuals whose adjusted taxable income (ATI) is $300,000 or less will continue to have their concessional contributions taxed in the fund at 15 per cent.
However, individuals whose ATI is more than $300,000 will have their concessional contributions taxed in the fund at 30 per cent. Some taxpayers’ ATI exceeds $300,000 solely because their concessional superannuation contributions are included in the calculation of their ATI. For these individuals, only their contributions that cause the ATI to exceed $300,000 will be taxed at the 30 per cent rate; the remainder of the contributions will still be taxed at 15 per cent.