Federal Budget 2012 - Issues For SMEs

The Australian government's Federal Treasurer, Mr Wayne Swan, delivered the Labor government's budget on the 8th May 2012.  This special edition of Business Plus+ refers to many of the matters contained in the budget which will affect small/medium enterprises.

None of the items contained within the budget will become law until the budget has been passed by the House of Representatives and the Senate and signed by the Executive Council.

Key 2012 Federal Budget Outcomes

  Budgeted 2011/12
Forecasts 2012/13
Projected 2013/14
 GDP Growth
3% 3.25% 3.0%
 CPI  1.25% 3.25%
 2.5%
 Unemployment Rate
 5.25%  5.5%  5.5%
 Wage Price Index
 3.5%  3.75%  3.75%
 Forecast Deficit/Surplus
 $44.4 deficit
 $1.5B surplus
 $2B surplus

Personal Income Tax Rates 2012/13:

Taxable Income
2012/13 Marginal Tax Rate %
 $0 - $18,200  0%
 $18,201 - $37,000  19%
 $37,001 - $80,000  32.5%
 $80,001 - $180,000  37%
 $180,001 plus  45%

Budget Comments

The government forecasts a bumper 11% increase in taxation revenue which the government has indicated will come from an increase in company tax receipts of up to 9% and an increase in personal tax collections of 8%.

The budget is a big taxing, big spending budget with significant increases in welfare payments.

The government expects the 2011/12 deficit of $44B (which last year was forecast to be a deficit of $22.6B) will turn into a $1.5B surplus at the end of 2012/13.

Even though the government is predicting a surplus of $1.5B, it intends to increase its debt ceiling to $300B from the current ceiling of $250B.  This is partly caused by the non-inclusion of the National Broadband Network expenditure in the government's forecast budget surplus figure.

The government is relying on the introduction of the carbon tax from the 1st July 2012 to generate revenue during 2012/13.  This is based on a carbon price of $23 per tonne.  The carbon price is predicted to increase to $29 per tonne in 2015/16 irrespective of what the market rate for carbon pricing is in other countries, primarily Europe.

Key Issues Announced In The Budget

Previous announcements not being proceeded with:
  • The government has indicated it will not proceed with the 1% reduction in company tax, due to commence from the 1st July 2012.
  • Standard Tax Deductions For Work Related Expenses - has been withdrawn.
  • Tax Breaks for "Green Building Fund", estimated to cost $405M, has been withdrawn.  (This related to the government's intention to allow an automatic deduction for work related expenses in the hope that taxpayers would not wish to lodge personal tax returns).
  • The higher cap for superannuation contributions for people aged over 50, with under $500,000 invested in superannuation, has been deferred for two years.  (The affect of this is that superannuation contributions for persons aged over 50, with under $500,000 invested in superannuation, will only be $25,000 per annum, from 1st July 2012, as compared to the original commitment to increase the allowable deduction to $50,000).
  • The announced tax break on interest earned on bank deposits (a 50% tax discount) has been scrapped.

Other Key Issues Affecting Small/Medium Enterprises

  • Taxation on superannuation contributions for persons with pre-tax incomes of $300,000 and over, will double from 15% to 30%.  The higher tax rate of 30% only applies to contributions and not to the earnings of the superannuation fund, which will remain at 15%.  •   The government has announced a crack down on Living Away From Home Allowance Benefits.  The tax concession will be limited to employees who are living away from home and maintaining a house in both locations.  A twelve month limit will also be imposed on how long an employee can receive the tax concession for living away from home at a particular work location.
  • The government has said that the reforms will not affect the tax concession for "fly-in-fly-out" arrangements, as these employees will not be subject to the twelve month time limit.
  • The government has also said that the new measure will not affect the tax treatment of travel and meal allowances, which are provided to employees who have to travel from their usual place of work for short periods, up to 21 days.
  • The government has indicated that the changes in the treatment of living away from home allowances will apply from the 1st July 2012 to arrangements entered into from 9th May 2012 and from 1st July 2014 for prior arrangements.
  • The government has announced a tightening of termination tax breaks to rein in what they believe were unfair "golden handshakes" payments.  These are generally taxed at 15%.  The government will now change the rules so that only people who have become genuinely redundant or lose their jobs due to illness or disability, will be able to claim the 15% special tax rate.
  • The 15% tax rate for "golden handshakes" will increase to 30% once the taxpayer's total income exceeds $180,000.
  • The government is introducing a loss carry-back tax break for small businesses, which actually only relates to companies with turnovers under $2M.  Businesses will be able to claim losses of up to $1M against tax they've paid in the previous two years.
  • In its first year of operation (2012/13) the loss carry-back tax break only allows a reach back for one year to 2011/12.  From the 2013/14 years, the reach back can apply for two years.
  • The maximum amount that can be claimed on the loss carry-back tax break for small business companies is the company's franking credit balance or a maximum of $300,000.
  • This scheme will not commence operation until the 1st July 2012, which means that the cashflow benefit from any loss carry-back tax break will not accrue to a small company until 2014.
  • The strict same business and continued ownership tests that apply for losses carried forward deduction will also apply to the loss carry-back tax break.
  • The government has announced the introduction of low income superannuation contributions.  From 1st July 2012, taxpayers with an income up to $37,000 will receive a boost to superannuation savings of up to $500 to ensure they effectively pay no tax on their superannuation guarantee contribution.
  • The government has announced the Australian Taxation Office will receive an extra $195M over four years to extend its GST compliance programme.
  • The government has introduced funding for a Small Business Commissioner.
  • The government has announced that it will continue with the Small Business Support Line until 2015/16.  There will also be extra funding for the Small Business Advisory Service.
  • The Enterprise Connect Programme has been allocated $29.8M for a Manufacturing, Technology, Innovation Centre which the government has indicated will be the creation of a small number of sectoral collaborations involving major manufacturers, small/medium enterprises, public research agencies and universities.
  • The Enterprise Connect Programme (a key supporter of small business operations) will be extended to include support for tourism operators but total funding will be reduced from $30M to approximately $23M in each of the next two financial years.
  • Commercialisation Australia, another programme targeted at SMEs, receive a boost in funding to total $294M over the next four years.
  • The government has announced a "Buy Australia at Home and Abroad" campaign, with an expenditure of $34M aimed at helping manufacturers hit by economic uncertainty and the high Australian dollar.
  • The budget includes $55M in new training initiatives including $19.4M in funding to help tradespeople establish their own businesses.
  • The government intends to increase skilled migration places by 4,000 to a total of approximately 129,000 in 2012/13.  Of these places, 16,000 will be devoted to sponsored migration in regional areas to help critical skills shortages.
  • The rural sector will benefit by an additional 12,000 seasonal workers invited into Australia over the next four years, under an agreement with Pacific Island countries and East Timor.
  • The government has announced changes to the subsidy paid to employers for low level training programmes.  Subsidies will be scrapped for, what the government refers to as, "soft traineeships" in areas such as retail that were not on a list of critical skills shortages identified by the government.
  • The government has announced an increase in the standard completion incentive paid to apprentices by $500 to $3,000 to be paid at the completion of the course.
  • Approximately $20M will be paid, over four years, for general business and accountancy skills training.
  • From the 1st July 2012, truck operators will pay an extra charge, from 23.1 cents to 25.5 cents, on fuel for vehicles heavier than 4.5 tonne.
  • Superannuation funds are being forced to pay an additional $467M to the Australian Prudential Regulation Authority over the next seven years to implement a set of reforms.
  • $1B has been allocated for the new National Disability Insurance Scheme, scheduled to commence in 2013.
  • Small/medium enterprises working in the defence industry, will probably be affected by the defence department spending reduction of $5.45B over the next four years, including $1B in 2012/13.
  • The government has allocated approximately $1B worth of help for the elderly who wish to stay in their own homes.  These services will be subject to means testing.  Businesses supplying services to the elderly, who wish to stay in their own homes, will probably benefit from this initiative.
  • The government is introducing means testing to the Medical Expenses Rebate.  The rebate is currently 20% of expenditure over $2,000 per annum.  The changes are that, for singles with an income of up to $84,000 or more and families on $168,000 or more, the claim threshold would increase from $2,000 to $5,000 and the reimbursement will be reduced from 20% to 10%.
  • Fuel tax credits will be reduced from 38 cents to 32 cents per litre for electricity generation, mining, rail and marine transport.
  • The government has announced that the exemption from the temporary flood levy will apply to people who were eligible for the $1,000 grant, even if they didn't claim it.
  • The government has introduced a requirement for employers to report on employees' payslips the amount of superannuation withheld and the expected date that the superannuation will be paid to the superannuation fund.
  • Businesses operating in the building and construction industries will have to prepare a detailed list of payments made to all contractors during the year and submit that to the Australian Taxation Office in July each year.
  • The fuel tax credits for businesses using plant and equipment, off road machinery etc., will increase from 19 cents to 32 cents per litre.  This will primarily apply in the construction and manufacturing industries.  A self-assessment system applies for these credits and therefore eligible businesses should ensure that their systems are in place to facilitate the claims being made to the government.
  • Wine Equalisation Tax - the Wine Producer Rebate provisions will be amended by the government to ensure that wine producers will not be able to claim multiple rebates for the same quantity of wine beyond the total amount of wine equalisation tax payable.  The measure will apply to assessable dealings from the 1st July 2012.
  • The government announced increased taxes on foreign investors in property trusts.  The tax rate is being doubled to 15%.
  • Non-residents will lose their 50% discount on capital gains tax.
  • The non-resident tax rate will increase from 29% to 32.5%.
  • The government intends to make some changes relative to the treatment of deceased estates for capital gains tax purposes.  In last year's Federal budget proposals were announced to amend the capital gains tax (CGT) treatment of deceased estates.  These proposals were designed to enshrine in the law the current government's practise of allowing a testamentary trust to distribute a deceased person's asset without a CGT taxing point occurring.  The government has indicated that it will legislate for this.

Previous Announcements By The Government

  • The small business assistance previously announced with immediate write-off of eligible assets which cost less than $6,500 and an accelerated write-off of $5,000 for the purchase of cars and utilities, operational from 1st July 2012, will continue.  The cashflow benefit from this initiative will not accrue to taxpayers until 2013/14.
  • The budget includes massive cash handouts to boost Family Tax Benefit Part A recipients and introduces a new school children's bonus to replace the education tax refund which was not being fully utilised.
  • Changes to Private Health Insurance Rebate and Medicare Levy Surcharge - the government has already announced measures to change the entitlement to the Private Health Insurance Rebate and the Medicare Levy Surcharge which will be income tested against three income tier thresholds.  The income thresholds that apply to the 2012/13 financial year are:
       Details            
Full Entitlement Tier 1 Tier 2 Tier 3

 Taxable Income
 Private Health Insurance Rebate        
 Singles  $84,000 or less  $84,001 to $97,000  $97,001 to $130,000  Over $130,000
 Families  $168,000 or less  $168,001 to $194,000  $194,001 to $260,000  Over $260,000
 Aged under 65 years  30%  20%  10%  0%
 Aged 65 to 69 years  35%  25%  15%  0%
 Aged 70 and over  40%  30%  20%  0%
 Medicare Levy Surcharge        
 All ages  0%  1%  1.25%  1.5%

In view of these changes, consideration should be given as to the financial affect of private health insurance cover.  It may be possible to retain the full 30% rebate currently available for private health insurance premiums for the 2012/13 year if the premium is prepaid before the 1st July 2012.

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