12. Consolidation of dependency tax offsets 

Company tax rate reduction scrapped

The pre-budget speculation about reduced tax breaks for companies has come true, with the proposed tax rate reduction to 29% scrapped altogether (as the Government considered it could not get the cut through parliament).

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New loss carry-back provisions for companies

The budget confirmed the Treasurer's announcement on 6 May 2012 that the Government would allow businesses to carry-back losses.  The carry-back will be available to companies and entities that are taxed like companies.  The measure will be: subject to integrity measures;  limited to $1mil of losses for each year; and limited to the company's franking account balance.

As part of the loss carry-back, from 1 July 2012 companies will be able to carry-back up to $1mil worth of losses to get a refund of tax paid in the previous year.  From 1 July 2013, companies will be able to carry-back up to $1mil worth of losses against tax paid up to 2 years earlier.  This measure has the potential to provide a cash benefit of up to $300,000 a year.

Example 1 - simple case
* Company had taxable income for the 2012 financial year of $500,000, on which tax of $150,000 was paid
* The company has not paid a dividend to its shareholders and accordingly has a franking credit of $150,000; and
* For the year ended June 2013 the company suffered a tax loss of from it's business activities of $200,000

Previous Law
Based on the above facts and subject to the company meeting the continuity of ownership test or the same business test, the loss of $200,000 would have been able to be offset against future tax profits.

Proposed Law
With the new proposals, the company would be entitled to a cash refund of $60,000 in respect of the loss incurred in 2013 and the franking account would be reduced by the cash refund amount.

Example 2 - dividend paying company
Assume the same facts as above, except that the company distributed all of its 2012 taxable income as a frankable distribution during the 2013 financial year.

Proposed Law
In the above revised circumstances, the loss incurred by the company will not be cashable as the company does not have a franking account balance.  Accordingly the loss would be required to be offset against future tax profits.

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Tax -free threshold tripled 

Two rounds of individual tax cuts were announced - through increases in the tax-free threshold and corresponding adjustments to statutory tax rates and thresholds.  This will result in all taxpayers with a taxable income of up to $80,000 getting a tax cut, with most getting more than $300.  From 1 July 2012, the tax-free threshold will be increased to $18,200, and the first 2 marginal tax rates will be increased from 15% to 19% and from 30% to 32.5% respectively.

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Reductions to net medical expense tax offset

From 1 July 2012, the net medical expenses tax offset will be means tested.  Access to this offset is reduced from 2012/13 for people with an adjusted taxable income above the Medicare levy surcharge thresholds (which are $84,000 for singles and $168,000 for couples or families).  People with income below the surcharge thresholds will be unaffected.  Currently, the medical expenses tax offset or rebate is 20% of the excess over $2,000.  For those with income over these thresholds, the ability to claim the medical expenses offset will be reduced to 10% of the eligible out-of-pocket expenses incurred over the $5,000 threshold.

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Mature age worker offset phased out 

From 1 July 2012, the mature age worker tax offset will be phased out for taxpayers born on or after 1 July 1957. Access to the offset will be maintained for taxpayers who are aged 55 years or older in 2011/2012.

Increase to the Medicare levy low income threshold 

The Medicare levy low income threshold will increase to $19,404 for individuals and $32,743 for families for the 2011/2012 income year. The Medicare levy threshold for single pensioners below Age Pension age will also increase to $30,451 for the 2011/2012 income year.

Super contributions tax increased for wealthy 

The expected doubling of the superannuation contributions tax for those on incomes above $300,000 was confirmed. From 1 July 2012, the tax rate on concessional contributions will effectively double from 15% to 30% for individuals with income greater than $300,000. Precisely how (and from whom) the Government will collect this additional 15% tax on concessional contributions for very high income earners will be determined following consultation with the superannuation industry.

Significantly, the proposal to allow people with super balances below $500,000 to contribute $50,000 to super as concessional contributions has been deferred to 1 July 2014. For 2 years from 1 July 2012, everyone will be entitled to make only $25,000 in concessional contributions to their super.

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Education Tax Refund replaced with Schoolkids Bonus

The Schoolkids Bonus will be made in two equal instalments in January and July each year commencing January 2013. As a transitional arrangement, the Education Tax Rebate in 2011/2012 will be replaced by a one-off lump sum payment to eligible families in June 2012. All eligible families will receive the full rate of payment and will no longer need to keep receipts as proof of expenses that have been incurred, or wait until their tax returns have been lodged.  From 1 January 2013, and each year, families will receive the Schoolkids Bonus worth $410 for each child in primary school and $820 for each child in high school.

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Increased rate of Family Tax Benefit - Part A 

From 1 July 2013, The Federal Government will increase the maximum payment rate of Family Tax Benefit Part A (FTB-A) by $300 per annum for families with one child and $600 per annum for families with two or more children. For families receiving the base rate of FTB-A, the increase will be $100 per annum for families with one child and $200 per annum for families with two or more children.

From 1 January 2013, The Federal Government will limit eligibility for Family Tax Benefit (FTB) Part A to young people under 18 years of age or, where a young person remains in secondary school, the end of the calendar year in which they turn 19. Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance subject to usual eligibility requirements. This change will focus payments in the family assistance system on families with children who are at school, while Youth Allowance will become the primary form of assistance to eligible young adults aged 18 and over.

Higher concessional super contributions cap deferred

The proposed higher concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014. Accordingly, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012-13 and 2013-14 income years.  The higher concessional contributions cap measure would have seen individuals aged 50 and over with superannuation balances below $500,000 able to make up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap.

Changes to Living Away From Home Allowance 

The Government announced that it would further reform the tax concession for living away from home allowances (LAFHA) and benefits by "better targeting it at people who are legitimately maintaining a second home in addition to their actual home for an initial period". The reforms will prevent employers from giving the tax concession to employees who aren't maintaining a second home, or are maintaining two homes indefinitely by:
* Limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
* Providing the tax concession for a maximum period of 12 months for an individual employee for any particular work location.

The measure will not affect the tax concession for 'fly-in fly-out' arrangements or the tax treatment of travel and meal allowances. The additional restrictions will apply from 1 July 2012 for arrangements entered into after the Budget announcement, and from 1 July 2014 for arrangements entered into prior to 8 May 2012.

Consolidation of the dependency tax offsets

From 1 July 2012, the Government will consolidate dependency tax offsets into a single non-refundable offset. The offset will only be available to taxpayers who maintain a dependant and cannot work due to a carer obligation or disability. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper with child, child-housekeeper, child-housekeeper with child, invalid relative, and parent/parent-in-law tax offsets. Taxpayers eligible to claim more than one offset in relation to multiple dependants will still be able to do so. The consolidated offset will be based on the highest rate of the existing offset.

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