Normally MYEFO is a document the Government releases as an update on how the economy and the Federal Budget are tracking. However on Tuesday the Treasurer released what was effectively a mini-Budget which included a number of important new saving measures with the intention of keeping the Budget on track for a surplus by 2013/14.

Key measures that affect advisers and their clients are:

Reduced minimum pension drawdown rate to continue to 2012/13

The current 25 per cent reduction in the standard minimum pension drawdown rate will be extended for another year as a consequence of the unsettled investment climate. The 2011 Budget announcement originally had the minimum pension drawdown rates returning to the standard rates by 2012/13. Under this announcement the drawdown rates will return to the standard rates by 2013/14.

$25,000 concessional contributions cap to continue for another year

The Government will delay indexation of the $25,000 concessional contribution cap until 2014/15 where it is expected it will increase to $30,000.

The concessional contributions cap has been $25,000 since 2009/10 when the original cap of $50,000 was halved. Consequently there has been no indexation of the concessional contributions cap since caps were introduced in 2007/08.

Government co-contribution to reduce by 50 per cent

The Government will reduce the matching co-contribution from 1 July 2012 to 50 per cent of the personal contribution (up to a maximum co-contribution of $500). The maximum co-contribution reduces for incomes over $31,920 until it ceases when income reaches $46,920.

This will save the Government $352m in 2012/13 (and similar amounts in later years). Note that the reduced 2012/13 co-contribution is actually in respect of personal non-concessional contributions made in 2011/12.

New low income superannuation contribution

The Government will make a contribution (up to a maximum of $500) to a low income earners’ superannuation to compensate for 15 per cent contributions tax paid on concessional contributions from 1 July 2012. The person must have adjusted taxable income of less than $37,000 and business/employment income of at least 10 per cent of total income. The Government announced this initiative with the 2011 Budget; however it has been modified to include the 10 per cent employment income requirement. The Bill introducing this has been passed by the House of Representatives and is now with the Senate.

Super Guarantee (SG) age limit to be removed commencing 1 July 2013

Originally the Government tabled amendments to lift the SG age limit from age 70 to 75. However in a late amendment the Government (sensibly) removed the age limit altogether. This Bill has already passed through the House of Representatives and will be debated in the Senate next year with the increase to the SG to 12 per cent and other parts of the Minerals Resources Tax package.

Other changes in MYEFO

• The baby bonus will be reset to $5,000 from 1 September 2012 (it is currently $5,437) and indexation will be paused for until 2015/16.
• The standard tax deduction for work-related expenses and the cost of managing tax affairs will be pushed out to 2013/14. It was originally supposed to commence in 2012/13.
• The 50 per cent discount on interest income for tax purposes will be pushed out to 2013/14. It was originally supposed to commence in 2012/13.
• The phase out of the Dependant Spouse Tax Offset from 1 July 2012 will be extended to taxpayers with a dependant spouse born from 1 July 1952 (i.e. aged 59). Originally the phase out applied where the spouse was born after 1 July 2071 (i.e. aged 40).
• Directors will be personally responsible for their company’s failure to pay SG contributions. This was originally due to start from 1 July 2011 but it has been put off until the Bill passes (2012/13).

Other important developments

New personal marginal tax rates and thresholds passed

The ‘Clean Energy” (carbon tax) bills passed through Parliament in the spring sittings and will soon receive Royal Assent. The package includes changes to the personal marginal tax rates and thresholds from 1 July 2012. Key changes are:

• The tax free threshold will increase from 1 July 2012 from $6,000 to $18,200.
• The second tier marginal rate will increase from 15% to 19% and the third tier to 32.5%.
• The Low Income Tax Offset will reduce from $1,500 to $445 (as it will be largely incorporated into the new tax free threshold).
• The Pensioner Tax Offset will be rolled into the Senior Australians Tax

Offset (SATO) from 1 July 2012. The new offset will be called the Seniors and Pensioner Tax Offset (SAPTO).

These changes may have a significant impact on planning strategies such as Transition to Retirement.

Increase to the Superannuation Guarantee passes though the House of Representatives

The Minerals Resources Tax bills passed through the House of Representatives after midnight on 22 November 2011. This package of legislation included a bill to phase in an increase to the compulsory Superannuation Guarantee from 9% to 12% commencing 1 July 2013. It also included changes to the age limit for SG contributions (see above).

Written by David Hasib

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