April Tax Tips

The changes, proposals and their implications!

The changes made in the 2011/12 period that will mostly likely affect you will be:

• the carbon tax
• the mining tax and super guarantee increase bills
• excess contributions tax relief
• means testing of the private health insurance rebate

Carbon tax to impact on individual thresholds, tax rate.

On 8 November 2011, the Federal Parliament passed the carbon tax legislation to put a price on greenhouse emissions.  The new law means several changes to personal income tax rates for the 2012/12 period.  The current $6,4000 tax free threshold will actually increase to $18,200 and that looks like quite good news, however it looks like a case of 'what has been given with one hand has been taken away with the other' according to Anne Houston, Tax Director, Bentleys, and Director, Taxbytes.  The current marginal 15% tax rates will be increasedto 19% and the 30% marginal tax rate will increase to 32.5% from 1 July 2012 and then be increased further to 33% from 1 July 2015.  The current low income tax offset of $1,500 will be reduced initially to $445 from 1 July 2012 and then to $300 from 1 July 2015.  However there will be a slight increase in the thresholds.  This has been shown in the following tables.

Tax rates to apply for 2012/13 (from 1 July 2012)

Source: Australian Taxation Office, 2012.

Tax rates to apply for 2015/16 (from 1 July 2015)

Source: Australian Taxation Office, 2012.

The low income tax offset

Source: Explanatory Memorandum to the Clean Energy (Income Tax Rates Amendments) Bill 2011 and the Clean Energy (Tax Laws Amendments) Bill 2011.

Lower house passes mining tax and 12% superannuation guarantee

On 23 November 2011 the Superannuation Guarantee (Administration) Amendment Bill 2011, passed the House of Representatives.  The Bill gradually increases the required Superannuation Guarantee (SG) from 9% to 12% by 1 July 2019.

Increases in superannuation guarantee

Source: Explanatory Memorandum to the Superannuation Guarantee (Administration) Amendment Bill 2011.

Further, the Bill removes the upper SG age limit.  This would mean that from 1 July 2013 eligible employees aged over 70 will be able to receive the SG. 

However, these SG measures are dependent on the Mineral Resource Rent Tax (MRRT) package passing through Parliament.

Excess contributions tax relief

On 1 March 2012, the Government introduced the Tax and Superannuation Laws Amendment (2012 Measures No 1) Bill, which will allow eligible individuals to have excess concessional contributions of up to $10,000 reduced.  There are several important points to note in this relief.  The relief will only be able to be used once, and it will apply if the excess was less than $10,000.  Further the relief will only apply to concessional contributions, that is contributions for which there was a tax deduction.  Under the existing provisions the excess contributions are taxed in the fund at 15%, and taxed to the member for 31.5%. 

If the legislation passes, a third option is that the member can withdraw the excess out of the super fund.  That amount will then become assessable in the member's own tax return at whatever their own marginal tax rate might be, and a credit of 15% will be applied for the tax already paid to the super fund.

Changes to the private health insurance rebate

The Government announced as part of its 2011 budget, a proposal to means test the private health insurance rebate from 1 July 2012.  The means testing legislation passed the House of Representatives on 15 February 2012.  The rebate is currently 30% of premiums for those under 65 years of age increasing up to a maximum of 40% of premiums for those over 70 years old.  The relevant Bills make amendments to the private health insurance rebate and Medicare levy surcharge and are reflected in the tables below.

Private health insurance tiers for 2012/13 – singles 

Tables adopted from medial release, Department of Health and Ageing (2012)

Private health insurance tiers for 2012-13 – families 

Tables adopted from medial release, Department of Health and Ageing (2012).

Income for Medicare levy surcharge purposes is the total:

• taxable income (including the net amount of which family trust distribution tax has been paid)
• exempt foreign employment income
• reportable fringe benefits
• total net investment losses (includes both net financial investment losses and net rental property losses)
• reportable superannuation contributions

Should this become law, the means testing legislation will begin reducing the private health insurance rebate for singles earning over $83,000 and for families over $166,000.  It will completely cut out for singles earning over $129,000 and families earning over $258,000.

This is just a summary of some of the changes and proposed changes during the current financial year.  We will provde more information on other chagnes such as ATO target areas and year-end tax planning considerations in our next newsletter.  The information provided in this article is based on our understanding of the relevant legislation and changes as proposed and is correct at the time of writing.