Q: I understand that the government has just announced changes that may affect Super, Allocated Pension and Tax from 1 July 2012. What are they and what should we do now?
A: On the 29 November the Government announced their Mid Year Economic and Fiscal outlook (MYEFO) for 2011-12 and 2012-2013. The headline numbers were an increased Budget Deficit of $37.1 Billion for 2011-12 returning to a surplus of $1.5 Billion in 2012-2013.
You need to be aware of the following changes that impact on an individual’s investments, benefits and tax planning.
Minimum Allocated Pension drawdown discount retained
The government proposes to continue with the 25% reduction of the minimum payment from account based pensions. From 1 July 2012 the minimum payment for someone under age 65 will be 3% and 3.75% for those between age 65 and 74.
Maximum Government Co-contribution cut by 50% to $500
From 1 July 2012, the government proposes to halve the Maximum Government Co-contribution to $500. A super fund member with total income of less than $31,920 or less will receive a $500 co-contribution by making an after tax payment of at least $1,000. The co-contribution will reduce to nil once total income reaches $46,920.
Concessional Contribution Cap frozen until 1 July 2014
Tax effective Salary Sacrifice or Personal Deductible Contributions will remain capped at $25,000 until at least the 2014-2015 tax year. For those over age 50, the 2011-2012 Financial Year will be the last opportunity to contribute at the higher cap rate of $50,000 unless you have less than $500,000 in Super. Given the budget position, it wouldn’t be too much of a stretch to see this cap reduced. Warning, use the higher caps whilst we still have them!
50% Tax discount on Bank interest deferred until 1 July 2013
This tax benefit was announced in the 2010 Budget with a 1 July 2012 start date but had been deferred a further 12 months. Therefore income tax payable on 100% of interest earnt.
Standard deduction for work related expenses deferred until 1 July 2013
Again this benefit was announced in 2010. The proposal was to give tax payers a standard tax deduction for work related and tax management expenses of $500 in 2012-13 tax year and $1,000 from 1 July 2013. Keep all those work related receipts and claim as you would have previously.
Dependent Spouse Tax Offset phase out extended to those age 59 or less
In May 2011, the Government announced the phase out of the Dependent Spouse tax offsets for dependent spouse born on or after 1 July 1971. This has now been extended to include dependent spouse born on or after 1 July 1952. This will take effect from 1 July 2012. Previous exemptions will remain.
The key point to recognize out of all the changes is that it is vital that you use any available strategies and benefits as and when they are available to you before they shrink or disappear! Stay tuned….
This article was published in The Australian on 3 December 2011. A direct link to the article can be found here.
If you have a question you would like Andrew to answer, you can go here and click on the “Your Questions” section.