Financial Planning Impacts
Low Income Tax Offset (LITO)
The Government is changing the way the LITO operates to provide more timely relief to low‑ and middle‑income earners, and to encourage participation in the workforce. An individual on an income of $30,000 will receive an extra $300 during the year to provide assistance when it is needed.
Taxpayers eligible for the LITO currently receive one half of the benefit during the year through the PAYG withholding schedule, with the rest received on assessment of income tax returns. The Government is increasing the proportion recipients receive during the year to 70 per cent.
Enhancing the Education Tax Refund (ETR)
The Government is expanding assistance provided to parents and carers of school‑aged children through the Education Tax Refund (ETR). The ETR provides help by assisting parents and carers with expenses such as computers, stationery and textbooks.
The Government is extending the ETR to cover school uniform expenses. From 1 July 2011 the extension will cover expenditure on uniforms which are required or otherwise approved by a school, including optional school uniforms, and sports or physical education uniforms.
More flexible access to family payments
The Government will provide families in receipt of FTB Part A with more flexible access to their entitlement, to assist them meet these unexpected expenses as they arise.
From 1 July 2011, families will be eligible for an advance of up to 7.5 per cent, up to a maximum of $1,000, of their annual FTB Part A entitlement, at any time throughout the year. Advances will be repaid over six months by direct deductions from future FTB payments.
Families will also continue to be able to apply to receive an advance of around $160, paid every six months from a date of the recipient’s choosing and repaid by reductions in their FTB Part A payments through the rest of the six month period.
More flexible child care rebate payments
The Government is giving parents greater choice about when and how they receive their child care payments.
From 1 July 2011, families will be able to choose to have their Child Care Rebate paid at the time they incur child care costs. For most families, this will mean they will receive their Child Care Rebate payments fortnightly or weekly.
The option of more regular Child Care Rebate payments will reduce the upfront costs of care and make it easier for parents to manage the family budget.
Families will also be able to choose to have their Child Care Rebate paid directly to their child care provider as an immediate reduction on their bills or continue to receive the Rebate as a direct payment.
Small Businesses and Manufacturing
The Government will now allow small businesses to claim up to $5,000 as an immediate deduction for motor vehicles from the 2012–13 income year, providing a $350 million cash flow benefit to small business. The remaining cost will continue to be depreciated at 30 per cent (15 per cent in the purchase year).
For a motor vehicle purchased for $33,960, there would be a $9,344 tax deduction in the first year, an increase of $4,250 on the old arrangements.
The Government will also reduce Pay As You Go installments for 2011–12.
The Government has extended the freeze on the co‑contribution income thresholds for another year to 2012–13.
Penalties for Superannuation Fund members who exceeded the Superannuation Contribution Caps by up to $10,000 will have the opportunity to have these excess contributions returned to them. Applicable to first breach only. No news on retrospectivity.
The Budget contains a number of tax measures to adjust or remove tax benefits. These measures include:
- Reform of the statutory formula for valuing FBT on car fringe benefits to remove the incentive to drive greater distances to increase tax benefits. A flat 20% rate will apply. Operating Cost or Log book method still available.
- Phasing out the Dependent Spouse Tax Offset for taxpayers with a dependent spouse who was born on or after 1 July 1971, strengthening the incentives for dependent spouses to seek paid employment.
- Removal of access to the Low Income Tax Offset for unearned income of minors to reduce the tax benefits available from income splitting with children,. These will affect the use of family trusts as income splitting vehicles.
Treasury outlook for housing investment
Households remain cautious with respect to their dwelling investment decisions, with tighter credit conditions further weighing on activity in this sector. In the short term, forward indicators are pointing to continued weakness, with housing finance for new dwellings and dwelling approvals falling in recent months. In the medium term, demand for housing is expected to be supported by low unemployment, solid growth in household incomes and past strength in population growth.
However, ongoing supply constraints associated with planning and approval processes and land release restrictions are expected to continue to weigh on dwelling investment growth.
Dwelling investment is forecast to grow 1½ per cent in 2011–12, and 3 per cent in 2012–13 (diagram below). There has been little growth in the supply of new dwellings in Australia since 2002–03.