In releasing the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) on 29 November 2011, the Treasurer said that GDP growth would not grow as strongly as forecast and that forecast tax receipts had been written down by more than $20bn over the forward estimates. He said global economic and financial conditions had “deteriorated markedly in recent months”. Mr Swan said lower tax receipts and higher payments (including advance payments for Qld disaster recovery, and household and business assistance as part of the carbon tax measures) had led to a larger forecast deficit of $37.1bn in 2011-12, returning to a small surplus of $1.5bn in 2012-13.
As a result, the Government announced a number of significant tax and superannuation changes.
Tax changes
Living-away-from-home allowance (LAFHA)
- Access to the LAFHA tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as “fly-in fly-out” workers;
- individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount;
- permanent residents will not be affected by these changes, unless they are receiving LAFHA in excess of their actual expenses. The Government says the changes will not prevent temporary residents who are “fly-in fly-out” workers in Australia from accessing the tax concession, and will not affect employees who receive allowances for having to travel from their usual place of work for short periods.
Other tax-related changes
Other changes announced include:
Previously announced tax reforms will be deferred by 12 months:
- the start date of the standard deduction for work related expenses will be deferred by 12 months until 1 July 2013;
- the start date of the 50% tax discount for interest income will be deferred by 12 months until 1 July 2013 [this was originally announced in the 2010-11 Federal Budget to start from 1 July 2011 and with a cap of $1,000. After the 2010 election, it was deferred to 1 July 2012 and the cap reduced to $500 but increasing to $1,000 from 1 July 2013.];
- the start date of the phase down in interest withholding tax for financial institutions will be deferred by 12 months until 2014-15 [this was announced on 23 November 2011 - see 2011 WTB 49 [1848]];
- the start date of the new tax system for managed investment trusts will be deferred by 12 months until 1 July 2013.
The Government will restrict the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. That is, it will extend the phase out of the Dependent Spouse Tax Offset to those aged 60 years and under at 1 July 2012. However, these changes will not affect people eligible for the zone, overseas forces or overseas civilian tax offsets, or whose dependent spouse is an invalid, permanently disabled or a carer. [Thomson Reuters note: The 2011-12 Federal Budget had announced that the Offset would be phased out for those aged less than 40 (ie born on or after 1 July 1971) from 1 July 2011. That was legislated in the Tax Laws Amendment (2011 Measures No 5) Act 2011 so will presumably only apply for one year ie the 2011-12 year. The maximum Offset is $2,355 for 2011-12.]
Directors and phoenix arrangements: The Government deleted Sch 3 to the Tax Laws Amendment (2011 Measures No 8 ) Bill 2011 which contained amendments that would extend the director penalty regime to make directors personally liable for their company’s unpaid superannuation guarantee amounts, and in some instances, would make directors and their associates liable to PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the Commissioner. When reintroduced in 2012, the MYEFO said this measure will have effect from the day after Royal Assent to the necessary legislation, instead of 1 July 2011 as originally proposed – this would avoid retrospectivity.
Tax Studies Institute: The MYEFO announced that the Government would provide $3m over 3 years 2012-13 to 2014-15 to establish an independent Tax Studies Institute. The Institute will undertake additional research into Australia’s tax and transfer system. Business donations to the Institute will be an allowable tax deduction. The establishment of the Institute was announced by the Treasurer on 5 October 2011 at the conclusion of the Tax Forum.
The Government will reset the Baby Bonus to $5,000 per child from 1 September 2012 and pause indexation of the Bonus for 3 years from 1 July 2012. For babies born on or after 1 September 2012, the rate of the Baby Bonus will be reset to $5,000, from its current rate of $5,437. Indexation of the Baby bonus will be paused from 1 July 2012 until 1 July 2015. The Baby Bonus will continue to be paid in 13 fortnightly instalments, with the first instalment being $846 and the balance being paid in 12 fortnightly instalments of $346.
This article appeared in longer form in Thomson Reuters’ Weekly Tax Bulletin (2 December 2011). Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here
