What does it mean for you?
Treasurer Wayne Swan released the Government’s third Federal Budget on Tuesday, 11 May 2010. It has been reported to be a budget with a “few surprises”, however there is potentially a number of proposals that may impact you.
The proposed changes still need to be legislated before becoming effective, therefore the final form of these proposals may differ significantly. It is important to seek professional financial advice in relation to the impact these measures may have on your personal financial position.
The budget aims to return us to a surplus by 2012/2013 after a budget deficit for 2009/2010, estimated at $57 billion.
PERSONAL TAX
Income Tax Reductions
Two key changes for taxpayers from 1 July 2010 include:
– the income threshold for the 30% tax bracket increases from $35,001 to $37,001 and
– the 38% tax bracket decreases to 37%
|
Taxable income |
Marginal tax rate |
|
$0 – $6,000 |
0% |
|
$6,001 – $37,000 |
15% |
|
$37,001 – $80,000 |
30% |
|
$80,001 – $180,000 |
37% |
|
$180,001 + |
45% |
This change in the tax brackets has led to annual tax savings as listed in the below table.
|
Taxable income |
Annual Saving |
|
$15,000 |
$0 |
|
$30,000 |
$150 |
|
$45,000 |
$450 |
|
$60,000 |
$450 |
|
$80,000 |
$300 |
|
$100,000 |
$500 |
|
$130,000 |
$800 |
|
$160,000 |
$1,100 |
|
$180,000+ |
$1,300 |
Case Study – Bill
Bill (45) earns $150,000pa working for a construction company as a site manager. After applying his marginal tax rate, he receives $105,550 in net income. In 2010/11, Bill will pay $1,000 less in tax.
What can he do with his windfall?
Bill could salary sacrifice an extra $1,587 to his super fund. His net pay after his marginal tax would remain at $105,550. Bill would have $1,349 more in his super (after contributions tax) to fund his retirement.
Low income tax offset increases
An increase in the maximum low income tax offset from $1,350 to $1,500 which means you can earn up to $16,000pa before paying tax.
Case Study – Jessica
Jessica (40) works full time in the office at the local primary school and earns $45,000pa. In 2010/11, the increased low income tax offset and increased 30% threshold will see her save $450 in tax.
What can she do with her windfall?
Jessica could make a $450 non-concessional contribution to super. The government would match her contribution with a $450 co-contribution. Jessica would be $900 closer to retirement without changing her lifestyle significantly.
Standardised tax deductions
From 1 July 2012, you may be able to claim an optional standard tax deduction of $500 in lieu of claiming work-related expenses and the cost of managing your tax affairs. The deduction increases to $1,000 from 1 July 2013.
If however your expenses are above the standard deductions, you can continue to claim those expenses as you would under the existing system.
This means preparing your annual tax return may be easier, as keeping records of low value work deductions may be unnecessary.
Case Study – Ron
Ron is a painter and pays $400 for tools each year but does not keep his receipts.In 2012/13 he can claim the standard deduction of $500 for his work expenses. In 2013/14 he can claim the standard deduction of $1,000 for his work expenses.
SAVINGS
Discounts on tax payable on interest earned through savings
From 1 July 2011, you may be entitled to claim a new 50% discount on the first $1,000 of interest earned on deposits held with a bank, building society or credit union as well as bonds, debentures or annuities The discount is available for interest income earned directly and indirectly, such as via a trust or managed fund.
The discount may reduce your taxable income, which may increase your eligibility for payments and other concessions such as Family Tax Benefits and the Commonwealth Seniors Health Card.
SUPERANNUATION
Co-contribution
The government will maintain the co-contribution matching rate at 100%, instead of increasing the rate over the coming years. This limits the maximum co-contribution to $1,000 in the current and future financial years.While the government co-contribution amount will not increase, co-contribution remains an effective strategy to boost super for low and middle income earners.
HENRY TAX REVIEW
In the budget the government confirmed a number of proposals announced in the recently released Henry Tax Review. These include:
– Increasing the Super Guarantee rate from 9% to 12% by 1 July 2019, meaning you earn more through super.
Super Guarantee Increases
|
Year |
Rate |
|
2013-14 |
9.25% |
|
2014-15 |
9.50% |
|
2015-16 |
10.00% |
|
2016-17 |
10.50% |
|
2017-18 |
11.00% |
|
2018-19 |
11.50% |
|
2019-20 |
12.00% |
– Increasing the Super Guarantee age limit from 70 to 75 years of age from 1 July 2013, providing an incentive for you to remain in the workforce.
– From 1 July 2012, the government proposes a new government super contribution of up to $500 for workers with income up to $37,000. Previously you would need to pay the contributions tax of 15% however with the government contributing up to $500, this is negated.
Case Study – Joe
– Joe works for Tick Tock Pty Ltd earning $36,999 pa. His super contributions total $3,330 ($36,999 x 9%). The government will make a contribution of $499 ($3,330 x 15%). $3,330 in super contributions, less 15% contributions tax ($499) plus his government contribution of $499, gives him a net amount in super of $3,330.
Business Tax Measures
Small business company tax rate reduced to 28% from 1 July 2013.
From 2012/13 small businesses will be able to:
– Write off assets costing less than $5,000 immediately (currently $1,000)
– Claim depreciation on most assets (not buildings) in a single pool at a 30% rate.
Get Assistance Now
Boost your retirement savings and maximise the opportunities announced in the 2010 budget.
Contact our office if you’d like to find out more about how we can help – Mango Wealth Creation (07) 5522 9500.
General Disclaimer
This material is current as at May 2010 but may be subject to change.
Article Dated – 26th May 2010
Written by – Alex Warren, Mango Wealth Creation