May 2011 - Budget Summary

 The following is a very brief summary of some of the budget measures that could have possible application to our small business and other clients.

Tax rates from 1st July 2011 (incorporating the Flood Levy)

Taxable income


Current rates


Rates from 1/7/2011 (Inc. Flood Levy)


0 – $6,000






$6,001 – $37,000






$37,001 – $50,000






$50,001 – $80,000






$80,001 – $100,000






$100,001 – $180,000






$180,001 and over






Note: the above rates do not include the Medicare Levy 1.5% or the Low Income Tax Offset

Tax on “unearned income” of children under 18 years

Previously, the Low Income Tax Offset was available to under 18 year olds so they could have tax-free earnings of up to $3,333 from trust distributions, dividends, interest, etc. This budget measure will remove the availability of this and reduce the tax free income amount back to $416. Note that the offset is still available against “personal exertion” income such as wages.

No deductions allowed against student Youth Allowance

In response to the recent Anstis case where the Courts ruled in favour of a University student being able to deduct certain course expenses against their income from Youth Allowance, the Government will change the Law to ensure that from 1/7/2011, deductions will not be allowed against any form of Government assistance payments.

Means testing of private health insurance rebate

The government proposes to re-introduce the previously defeated legislation to reduce the current 30% rebate on the cost of health insurance premiums for people earning more than $75,000 ($150,000 for a couple). Depending on the level of income, the rebate would reduce to 20% or 10% and there would be no rebate available for people earning more than $120,000 ($240,000 for a couple)

Excess contributions tax – minor concession

As from 1/7/2011, people who contribute too much to a superannuation fund and breach the concessional contribution cap by less than $10,000 will have the option of withdrawing the excess from their superannuation fund and paying tax on it at their marginal rate (rather than leave it in the fund where is will be  taxed at a penalty rate of 46.5% - and possibly more). Note that this concession is only for a first time breach (after 1/7/2011) and does not apply to non-concessional contributions.

Minimum Superannuation Pension Drawdowns

For people drawing a superannuation pension, the previous 50% “temporary” reduction will change to a 25% reduction for 2011/12 and then back to normal from 2012/13. So as an example, the current (50% reduced) percentage for a 65 year old is 2.5%. This will change to 3.75% from 1/7/2011 and then become 5% from 1/7/2012.

SMSF levy

The annual levy for Self Managed Superannuation Fund’s will increase from $150 to $180 as from the 2010/11 year (i.e. current financial year). A new registration fee for SMSF auditors will also be introduced as from 1/7/2012.

Concessional superannuation contributions for people over 50 years of age

In accordance with previous announcements, the maximum annual concessional superannuation cap for people aged 50 and over will continue to be $50,000 after 1/7/2012, provided their total superannuation balances are less than $500,000. If the balance is greater than $500,000, the cap reduces back to the standard $25,000 pa.

Superannuation information on employee pay slips

Employers will be required to provide relevant SG Contribution information on employee pay slips as from 1/7/2012.

HECS discounts

The discount for up-front payment of HECS for tertiary education students will be reduced from 20% to 10% and the discount for voluntary cash repayments of $500 or more will be reduced from 10% to 5% effective from 1/7/2012.

Motor Vehicle tax write-off

The first $5,000 of the purchase price of a motor vehicle (new or second hand) purchased after 1/7/2012 will be allowed as an instant write-off with the balance of the purchase price depreciated as usual. This is in addition to the previously announced incentives for small business applying from 1/7/2012; immediate write off for assets costing less than $5,000 (currently $1,000) and reduction of the company tax rate from 30% to 29%.

FBT and car benefits

The current “statutory formula” method for valuing car fringe benefits provides for a rate between 7% and 26% depending on the total kms covered in a year. This will be replaced with a flat rate of 20% regardless of distance travelled for vehicles purchased after 10/5/2011 and fully implemented by 1/4/2014.

Income Tax for Charities

A statutory definition of “charity” will be introduced and certain “commercial activities” of charities and Not-For-Profit organisations may be subject to income tax with effect from 1/7/2013 and access to some concessions such as FBT and GST may no longer be available in respect of those activities.

Farm Management Deposits

If primary producers are affected by natural disasters (and drought), they will be allowed to access FMD’s within 12 months of making the deposit without impacting on the tax treatment of the original deposit. In addition, primary producers will be allowed to hold FMD’s with more than one financial institution. Commencement date is not clear at this stage.

Countering fraudulent “Phoenix” activity by company directors

These arrangements apply where a company intentionally accumulates debts to improve cashflow or wealth and is then liquidated to avoid paying the debts. The business then starts up again free of debt and controlled by the same person or group. The tax laws will be strengthened to counter this, including greater powers to commence recovery action and making directors personally liable for unpaid employee superannuation (in addition to PAYG withholding).

Reporting of certain contractor payments

From 1/7/2012, the government will require certain businesses to report annually on payments made to contractors in the building and construction industry. Funding to the ATO has also been increased for “data matching” activity.


Note the commencement date for the various measures as some are well into the future.




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