Money Mechanics
may 2011 Federal Budget Briefing      




Last night Federal Treasurer Wayne Swan handed down his fourth Budget (the first with Julia Gillard as Prime Minister) with a key focus on returning the budget to surplus by 2012-2013.


We have prepared this budget briefing to provide a summary of the key areas in relation to superannuation, taxation and social security benefits.


This is the first time in 9 years that there have not been changes to personal tax rates and there are some minor changes around the edges for social security and superannuation.  The Government has made substantial changes to minor tax offsets which will impact those who use a family trust to split income. 


If you have any questions with regards to your personal situation please do not hesitate in contacting me 1300 772 643. 


Best Regards    





Scott Malcolm
B.Comm | SSA� | RLP | Adv Dip FS (FP) | Authorised Representative (No. 262368)

No New Measures Announced


As previously noted there will also be a change to the previously announced concessional contribution cap for those over 50 with a superannuation account balance of less than $500,000 (with effect from 1 July 2012, when the current transitional arrangements end).  Instead of a cap of $50,000, the cap will be $25,000 over the 'general' concessional contribution cap and so will increase in line with the increase of the general cap.  No further clarity has been provided as to how this will be implemented.


MM Comment: There is still uncertainty around the operation of this measure and there is still industry consultation going on so we will keep you up to date with any changes.   



The Government will phase out the pension drawdown relief that has been provided over the last three years.  Minimum payment amounts for account-based, allocated and market linked (term allocated) pensions will be reduced by 25% for 2011-12 and will return to normal in 2012-13.


Pension Amounts


MM Comment:  For people who are transitioning to retirement and drawing a pension with salary sacrifice this measure may increase the overall personal tax position next financial year if you are already maximising your salary sacrifice levels. 



The Government has reintroduced the requirement, first aired in 2003, for employers to provide information on payslips about the amount of superannuation paid into an employee's superannuation account. Further, employees and employers will receive quarterly notification from their superannuation fund if regular payments cease, with effect from 1 July 2012.


It is stated that this measure will help employees to keep track of their employer's contributions and take action where there is a shortfall, but will result in additional work for administrators.  There is likely to be scepticism about the usefulness of this measure without additional initiatives to increase levels of member (employee) engagement with their superannuation savings.



Unwelcome news is that the Government will continue the freeze, for an additional year to 2012-13, of the indexation applied on the income threshold above which the maximum superannuation co-contribution begins to phase down.


Under the superannuation co-contribution scheme, the Government provides a matching contribution for contributions made into superannuation out of after-tax income. The matching contribution is up to $1,000 for people with incomes of up to $31,920 in 2010-11 (with the amount available phasing down for incomes up to $61,920). This measure will continue to freeze these thresholds at $31,920 and $61,920 respectively.



The Government has announced that it will provide eligible individuals with the option to have excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax.


The measure will apply where an individual has made excess concessional contributions of up to $10,000 (not indexed) in a particular year and is only available for breaches in respect of 2011-12 or later years, and only for the first year in which a breach occurs. This will allow those who have breached the cap for the first time, by $10,000 or less, the option to have these contributions refunded and taxed at their potentially lower marginal tax rate rather than the 46.5% effective excess contributions tax rate.


MM Comment: I always remind clients here that paying excess contributions tax on your concessional contributions may not be a big issue unless you also breach the non concessional contribution cap.  The excess tax rate for concessional contributions is 31.5% so depending on your marginal rates may not be a big impact.



The Government will make minor amendments to superannuation legislation so that where the trustee of a self managed superannuation fund is a body corporate, a parent or guardian may be director of the body corporate in place of a member who is a minor.



A number of funding measures were announced to enable APRA, ASIC and the ATO to facilitate the introduction of the Stronger Super measures.  These will variously be funded by an increase in the levy on APRA-regulated superannuation funds, a $30 increase to the SMSF levy (to $180 per year) and the introduction of SMSF auditor registration fees from 1 July 2012.


No Change to Personal Rates but adjustments around the edges..

Removal of low income tax offset for under 18s From 1 July 2011

Children under the age of 18 will no longer be able to access the low income tax offset (LITO) to reduce tax payable on unearned income such as dividends, interest and rent.

This measure won't impact income earned by children from work, unearned income of orphaned or disabled children and compensation payments and inheritances received by children.

MM Comment:

This measure will reduce the attractiveness of investing on behalf of minors or making trust distributions to minors. This is because currently it's possible for a minor to receive a maximum tax-free income of $3,333 pa when the low income tax offset is taken into account.


Changes to distribution of low income tax offset From 1 July 2011

Lower income earners will be taxed less during the financial year, rather than being compensated after their tax return is filed.


This change will be delivered by increasing the proportion of the Low Income Tax Offset (LITO) delivered to lower income earners via their regular pay packets from 50% to 70%.


For example, someone with an annual income of $30,000 will pay $300 less tax during the financial year, rather than receiving an additional tax refund of $300 at tax time.


In other words, this measure impacts the timing of the LITO benefit, not the actual benefit amount received.


This measure won't impact:

        the maximum LITO available (currently $1,500)

        the maximum amount of tax-free income lower income earners can receive each year (currently $16,000), or

        the upper limit to which a partial low income tax offset can be claimed (currently $67,500).

Dependant spouse tax offset phase out From 1 July 2011

The dependant spouse tax offset will no longer be available for spouses born after 30 June 1971. Certain exceptions will apply, including where the spouse is an invalid or permanently disabled. The maximum offset is currently $2,243 pa.

Reduction in GDP adjustment factor for PAYG instalments From 1 July 2011

The Gross Domestic Product (GDP) adjustment factor for Pay-as-you-go (PAYG) instalment taxpayers who use the GDP adjustment method in 2011/12 will reduce from 8% to 4%.

The GDP adjustment factor for PAYG instalment taxpayers is used to determine the tax instalments to be paid in the income year by increasing the previous year's adjusted taxable income by the previous year's nominal GDP growth. This method is commonly used by small businesses, individual investors and self managed super funds.

Capital Gains Tax relief when principal residence held by estate 

The ATO will have discretion to extend the two-year ownership period in which the trustee of a deceased estate or beneficiary of such an estate must dispose of their interest in the deceased's dwelling to access a full capital gains tax main residence exemption, or a more generous partial exemption.

Reduced HECS discounts From 1 January 2012

For payments made under the Higher Education Contribution Scheme (HECS):

  • the discount available to students electing to pay their student contribution upfront will be reduced from 20% to 10%, and
  • the bonus on voluntary payments of $500 or more will be reduced from 10% to 5%.

MM Comment:  For those with a HECS debt and available cash it could be worthwhile taking advantage of the higher repayment discounts before 1 January 2012.

Motor vehicle and other tax write-offs From1 July 2012

Small businesses will be eligible to write -off the first $5,000 of any motor vehicle purchased after 1 July 2012, a significant increase on the current amount of $1,000.

This measure will replace the entrepreneur tax offset. The remainder of the purchase price can be transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years.

Single rate for car fringe benefits From 10 May 2011

Changes were made to the way cars are treated under the fringe benefits tax; which will reduce the motivation to drive unnecessarily to receive more  attractive tax treatment.

Currently, multiple statutory rates are used to determine the taxable value of car fringe benefits, which depend on distance travelled. These will be replaced with a single rate of 20%. This measure will apply to new contracts entered into after 7:30pm (AEST) on 10 May 2011 and will be phased in over four years, as follows:

FBT Rates for Cars 

Special disability trusts - extension to CGT relief

The Government will extend the CGT relief for special disability trusts announced in the 2010 Budget by:

   providing a CGT exemption for assets transferred into a special disability trust for no consideration

   backdating the application of the CGT main residence exemption to 2006/07

   providing a CGT exemption for the recipient of the principal beneficiary's main residence, if disposed of within two years of the principal beneficiary's death

      ensuring equivalent tax treatment of special disability trusts under different Acts.


Improved taxation of trust income from 1 July 2010

The Government has announced it will introduce legislation to:

   enable the streaming of capital gains and franked distributions, and

   target the use of low tax and exempt entities to reduce the tax payable on the taxable income of a trust.

This is an interim measure in line with recommendations of the Board of Taxation while the trust tax provisions of the Tax Act are rewritten.


CGT and trading stock exception for super funds from 10 May 2011

The Government proposed to remove the trading stock exception to the CGT primary code rule for complying super funds for shares, units in a trust and land with immediate effect. This will ensure these assets are subject to CGT, as the primary code for taxing gains and losses of super funds.


Not-for-profit tax concessions from 1 July 2011

The Government has announced it will reform the tax concessions provided to not-for-profit (NFP) entities to ensure they only apply to those activities that directly further a NFP's altruistic purposes.

This means that, in relation to unrelated commercial activities, NFP entities will:

   pay income tax on profits from these activities

   not have access to the fringe benefits tax exemptions or rebate, goods and services tax concessions, or deductible gift recipient support.

The new arrangements will initially affect only new unrelated commercial activities that commence after 10 May 2011. The tax concessions applying to existing unrelated commercial activities will be subject to a transitional period and will be phased out over time.


Introducing a new statutory definition of charity from 1 July 2013

The Government has announced it will introduce a new statutory definition of 'charity' for all Commonwealth laws. The Government says a new definition will deliver smarter regulation, reduced red tape and improved transparency and accountability for the sector.


Social Security
Encouraging Workforce Participation

Greater support for families with teenaged children From 1 January 2012

Families with children aged between 16 and 19 who are studying full time will receive a raft of new support measures under changes to the Family Tax Benefit A.

These changes will:

          Remove the need to choose between Youth Allowance and Family Tax Benefit A.

          Match the payment rates for the benefit for dependent 16 to 19 year olds in full-time secondary study to the rates for 13 to 15 year olds. This will increase the level of support provided by up to $4,208 a year for 16 and 17 year olds and up to $3,741 a year for 18 and 19 year olds.

          Align the participation requirement for Family Tax Benefit B and the Multiple Birth Allowance with the existing Family Tax Benefit A participation requirement. This change will require 16 to 19 year olds to be undertaking full-time secondary study, or be exempt from this requirement, to be eligible for the payments.

          Include all 16 to 19 year olds in full-time secondary study for the purposes of calculating the Youth Allowance parental income test. This will ensure Youth Allowance recipients don't experience a lower rate of assistance as a result of siblings aged 16 to 19 years old in full-time secondary study remaining in the Family Tax Benefit system.

Youth Allowance will continue to be available for 16 to 19 year olds who are independent, living away from home or not in full-time secondary study, and for people aged 19 years and older. All Youth Allowance recipients aged 16 to 19 on 1 January 2012 will have the option to remain on Youth Allowance.


Aligning Family Tax Benefit A and Youth Allowance eligibility From 1 January 2012

The eligibility for Family Tax Benefit Part A (FTB-A) will be limited to children up to 21 years of age. This recognises that young people aged 22 and over are considered independent. This means that when a child turns 22, parents will no longer be able to receive Family Tax Benefit A for that child.

However, the child may be eligible to receive Youth Allowance. This will bring Family Tax Benefit A in line with the Youth Allowance age of independence.


Pausing of family payment income test indexation until 1 July 2014

The following higher income thresholds and limits will remain fixed until 1 July 2014:

          $150,000 for Family Tax Benefit Part B primary earner

          $150,000 for Dependency Tax Offsets

          $75,000 for Baby Bonus (family income in the six months following the birth or adoption of a child, which is equivalent to $150,000 a year)

          $150,000 for Paid Parental Leave primary carer in the financial year before the birth or adoption of a child, and

          $94,316 for the higher income-free threshold of Family Tax Benefit A family income, with an additional $3,796 provided for each child after the first.


Pausing of Family Tax Benefit supplement indexation until 1 July 2014

Indexation of the Family Tax Benefit Part A and B supplements will be fixed at the current 2010/11 levels of: 

          $726.35 pa per child for Family Tax Benefit Part A, and

          $354.05 per annum for Family Tax Benefit Part B.


Flexible advances for Family Tax Benefit Part A From 1 July 2011

To help families meet unexpected expenses, they'll be able to receive an advance up to $1,000 of their annual Family tax Benefit A entitlement.

Advances will be repaid over six months by reducing future fortnightly Family Tax Benefit payments. Families will also be able to apply to receive an advance of around $160 on a regular basis, paid every six months.


Paid Paternity Leave scheme delayed From 1 January 2013

The implementation of Paid Paternity Leave will now take effect from 1 January 2013. The measure will provide eligible working fathers, and other partners who are providing full-time care or sharing the child's care, with two weeks paternity leave paid at a rate equivalent to the national minimum wage where children are born on or after 1 January 2013.


Disability Support Pension (DSP) changes

These changes include:

          Allowing people who were granted the Disability Support Pension (DSP) after 10 May 2005 to work up to 30 hours a week and remain eligible for a part-pension for up to two years.

          From 1 July 2012, requiring all unemployed DSP recipients under 35 and assessed as having a partial work capacity of eight or more hours per week to attend Centrelink interviews. They'll also be required to create a participation plan to engage in community interaction and, potentially, employment.

          DSP claimants to provide evidence they have tested their future work capacity by participating in training or work related activities (from 3 September 2011). This activity test will, however, not apply to claimants who are clearly unable to work due to, for example, profound disability.

          Indefinite portability of DSP from 1 July 2012 where a recipient has a severe and permanent disability and no future capacity to work. This will allow eligible DSP recipients to continue to receive payments while living overseas.


Changes to Child Support income assessment From 1 July 2011

Under new arrangements, Child Support payers who are late lodging or fail to lodge a tax return for two years or more will have their income assessment based on their last known taxable income, indexed by growth in average wages during the period since their last return.

Currently, for such clients, the assessment is based on a default income of two thirds of Male Total Average Weekly Earnings (MTAWE), often resulting in an underestimation of their actual income.


Encouraging workforce participation

A number of measures will be introduced to encourage workforce participation by many people receiving Government benefits.  


These include:

          From 1 July 2012, the parental means test for Youth Allowance (Other) recipients will be extended to 21 years of age (currently 20). Newstart Allowance will be closed to new applicants under 22 years of age (currently under 21). To improve returns from work, this measure will also raise the Youth Allowance (Other) income free area from $62 to $143 per fortnight and the maximum available Working Credit bank limit will increase from $1,000 to $3,500.

          From 1 January 2013, the income test rates will be reduced for single principal carers on Newstart with a youngest child under 16. The new rate will reduce payments by 40 cents for every dollar of income earned above $62 per fortnight. Recipients currently have payments reduced by 50 cents in the dollar for income from $62 dollars per fortnight and 60 cents for income above $250 per fortnight.

in this issue
Social Security
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Scott with Client
quotable quote 


"The Budget will get back to surplus in 2012-13 as planned, get more people into jobs and spread the opportunities from Mining Boom Mark II to more Australians."


- Wayne Swan -

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This Publication has been prepared by Money Mechanics Pty Ltd ABN 64 136 066 272 who is licensed to provide financial services advice through PATRON Financial Services Pty Ltd trading as PATRON Financial Advice ABN 13 122 381 908 AFSL No 307379.

The information provided in this newsletter is General Advice Only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice you should consider the appropriateness of the advice, having regard to your objectives, financial situation and needs.