Personal Income Tax:

Personal income tax rates are adjusted to add the previously announced flood levy. Other changes include the removal of the low income tax offset for minors, the removal of deductions against Government assistance payments, the Medical levy threshold increase, the reduction in HECS discounts and Pacific Seasonal Worker Pilot Scheme amendments.

Pay As You Go (PAYG) Instalments Taxpayers

From 1 July 2011, entities that use the GDP adjustments factor method to work out their quarterly PAYG tax installments will have to remit less income tax instalments for the 2011 income tax year and onwards.

Small Business Tax Changes

The Government has announced the introduction of an immediate tax write off for the first $5000 of any motor vehicle purchased by a small business from 1^st July 2012. They have also announced an integrity measure to ensure that a trust will not be able to avoid being treated as a connected entity for the purpose of testing eligibility for the CGT small business concessions.  Click here for more detail

Capital Gains Tax

Integrity provisions currently applying to limit the cost base of entities acquired under CGT scrip for scrip roll-over relief are to be extended to ensure they apply to all types of acquiring entities. Other CGT changes include a CGT exemption relating to renewable resources or preserving environmental benefits and minor amendments to ensure proper functioning of certain CGT provisions

Company Loss Recoupment Rules

The company loss recoupment rules are to be amended with effect from the 2011-12 income year to make it easier for companies to satisfy the continuity of ownership test in certain circumstances. The rules will be modified so that ownership does not need to be traced through certain superannuation entities and technical deficiencies in the rules for widely held entities are overcome.

Debt / Equity Tax Rules

The Government will narrow the scope of an integrity provision in the debt/equity tax rules designed to re-characterise a debt interest into an equity interest in certain circumstances where the return on the debt interest funds a return on an equity interest through connected entities.

Taxation of Financial Arrangements

A number of important amendments were announced in relation to the Taxation of Financial Arrangement provisions, including changes to the tax hedging provisions as well as an announced extension of the functional currency provision to certain trusts and partnerships.

Managed Investment Trusts

The Government has announced extended timeframes for measures relating to managed investment trusts, being an extension of certain aspects of the interim investment manager regime for the 2011 income year and a deferred start date for the MIT tax system to 1 July 2012. There has also been an extension of countries that can access the reduced withholding rates under the MIT fund payment rules.

Goods and Services Tax

In relation to GST, the Government announced a further deferral of the start date for a number of Board of Taxation recommendations, amendments in relation to the treatment of new residential premises that are subject to development lease arrangements, clarification to the registration obligations of mortgagees in possession and an extension to the GST instalment system to entities in a net refund position.

Fringe Benefit Tax

Over the next four years, the Government will progressively replace the current statutory formula method of calculating the taxable value of a car fringe benefit with a single statutory rate of 20% to be applied regardless of the number of kilometers travelled in a year. 

There are two methods of calculating the taxable value of car fringe benefits – the statutory method and the operating cost method. The proposed changes to the statutory method will benefit people who travel less than 15,000km per year and will maintain the current tax concessions for people who travel between 15,000km and 25,000km per year. There will be a decrease to the tax concessions provided under the statutory method for those who travel more than 25,000 km per year. However, they still have the option of using the operating cost, or log book method.

Improving the taxation of trust income

Effective from 1^st July 2010

The Government will implement the recommendations of the Board of Taxation to take interim steps to improve the trust income tax provisions, with effect from 1 July 2010 while the Government updates and rewrites the trust income tax provisions of the Income Tax Assessment Act.

The Government will introduce legislation to:

• Enable the streaming of capital gains and franked distributions; and
• Target the use of low tax entities, especially exempt entities, to reduce the tax payable on the taxable income of a trust

The measure will provide increased certainty and will reduce opportunities for taxpayers to manipulate their tax liabilities.

Reduction in minimum amount for account based pensions for 2011/12

Effective from 1 July 2011

During the last three years, the minimum amount of account based pensions and market linked income streams have been set at 50% of the “standard rate” due to the impact of the Global Financial Crisis. For the 2011/12 financial year the minimum rate of these pensions will be reduced by 25% of the standard rate. After that time, it is proposed to return to the minimum amount of pensions to the standard rate. 

Superannuation

The Budget provides initial funding for some of the Government’s longer term structural reforms of the industry such as implementing a low frills super option and improving the efficiency of the back office processes. Other announcements are of a minor nature. It is disappointing the Government has not adequately addressed key issues around excess contributions tax and improving incentives for individuals to self fund retirement.  Click here for more detail

Not-For-Profit Sector Reforms

Significant changes relating to eligibility for tax concessions were announced including the removal of concessional treatment for commercial activities conducted by charities where the commercial activities are “unrelated” to the altruistic purpose, and introducing a statutory definition of “charity”.

Tax Compliance – Improvement Measures

The Government has announced various measures to improve tax compliance across various aspects of the economy. The following measures are expected to result in $1 billion in additional revenue.

Other Amendments

Other amendments contained in the Budget include water reform income tax relief, luxury car tax relief for eligible entities, recommendations relating to the minerals resource rent tax, amendment to the special disability trust regime and farm management deposit amendments.