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.
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:
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.