Quick Update from the team at Active Financial Services
Active Financial Services welcomes you to the Budget Update 2011 edition. With the end of the financial year fast approaching it has been a very busy time for all the staff at Active.
We have recently made some headway updating our system and processes to provide greater efficiencies within the business. Once completed, we will have an interactive website, state of the art software able to provide real time reporting for clients (which will be especially beneficial for our Self Managed Super Fund clients) and better facilities to complement client reviews. We are all very excited about what these new changes will bring to our business to ultimately service your needs more effectively. We suspect that most of the changes will be in place by the first quarter of the next financial year!
On behalf of the staff at Active, we look forward to catching up with you again soon.
There were very few surprises in the 2011/12 Federal Budget. In fact the usual pre-budget leaks were quite accurate. According to the Treasurer, the Budget is getting ‘back in the black’ in 2012/13 - a reference which did create some disturbing mental images during the Budget speech (imagining the Treasurer playing air guitar to AC/DC). Other than some tax initiatives from the Henry Review (changes to fringe benefits tax (FBT) treatment on cars), the removal of low income tax offset for children, support for families with teenagers and welcome tax concessions for disability income trusts, there wasn’t a huge amount in it that will have a major effects on client’s financial plans. There were only minor changes in superannuation covering the excess concessions contributions tax, required levels of pension income and further freezing of the co-contribution thresholds. From a tax point of view, there were no cuts to the Personal Income Tax rates.
Fiscal spending was cut by $22 billion and revenue will be boosted by the impact of the Resources Super Profits Tax (RSPT) which will come into force on 1 July 2012. Real gross domestic product (GDP) growth is forecast to be 4 per cent in 2011/12 and 3.75 per cent in 2012/13, although the Treasurer did point out the variability of this growth between different regions and industries. The impact of natural disasters in Australia and nearby regions is expected to have a 0.75 per cent negative impact on GDP this year.
Unemployment is expected to be low with a forecast of 4.5 per cent in mid-2013. Skills shortages will be an issue as significant mining investment continues. Programmes aimed at solving this skills shortage are numerous and include more spending on vocational education and training, accelerating apprenticeships and more skilled migration.
Key points on Superannuation
Refund of excess concessional contributions where breach is less than $10,000.
Current minimum pension reduction to be phased out.
No indexation to Co-contributions income thresholds.
$50,000 concessional contributions cap for those over 50.
Increase SMSF Levy to $180 per annum.
Key points on Taxation
Increase in the Medicare levy low income thresholds.
Changes to the operation of the Low Income Tax Offset (LITO).
Fringe benefit tax – cars.
Small business instant write off.
Key points on Social Security
The above summary highlights the areas that we believe will have the greatest impact on client situations. It does not include all the changes presented in the 2011 Budget and due to the number of changes, we will not expand on each individual area. If you would like further information on any of the above please contact your adviser or call our office and request a full budget update briefing (which will be happy to send to you).
Family Tax Benefit / Youth Allowance.
Family Tax Benefit Advances.
Family Tax Benefit A & B Indexation.
Paid Paternity Leave Implementation Date.
Changes to Disability Support Pension.
Please note that the above information has been taken from various Budget Update sources — ANZ, BT, IOOF, Westpac, MLC and Strategy steps.
Active's thoughts on the budget
The Budget has many elements within it that should be commended and are, in our view, entirely appropriate measures and policies for the current economic environment. However, the Government has also failed to undertake any truly significant economic steps to provide reform and thus a possible missed opportunity. The Australian Government budget of 2011 will remain highly vulnerable to a downturn in the global economy and commodity prices, and meaningful progress on tax and welfare reform will have to wait. Next year’s budget changes may need to be significant to make up lost ground!
The changes that we believe will have the most impact on client financial plans are the superannuation changes (the excess concessions contributions tax, required levels of pension income, further freezing of the co-contribution thresholds, and the SMSF Levy) and general tax changes (changes to the Low Income Tax Offset and FBT tax).
The Government has proposed that the higher concessional cap for eligible clients (over age 50) be $25,000 higher than the standard concessional cap. This replaces the Governments existing proposal and we believe this has only created greater uncertainty and further consulting will be required.
The Government has announced that minimum payment amounts for pensions be set at 75% of legislated minimums for 2011/12 and then return to normal in 2012/13. This means a pensioner aged 65-75 will have a minimum pension of 3.75% rather than the presently discounted 2.5%.
The Government has also announced it will increase the annual SMSF levy by $30 (to $180 per annum). This Levy is presently paid each year by all SMSF clients.
The government will provide a once-only opportunity to withdraw excess concessional contributions made during the 2011/12 or later financial years. This withdrawal opportunity is limited to excess concessional contributions of up to $10,000.
The Government intends to remove access to the low income tax offset (LITO) for minors (children under age 18). The purpose of this measure is to discourage income splitting between adults and children, including through family trusts.
The government will change the statutory method of calculating the taxable value of cars for FBT purposes.