What's Changing on 1 July 2012

Superannuation contribution caps

Concessional contributions are employer based contributions (including contributions made under a salary sacrifice arrangement), and if you are self employed, personal contributions claimed as a tax deduction. Non-concessional contributions are contributions that are made with post tax dollars.

*If you’re aged 65 or over, you must satisfy a work test to make super contributions. You cannot make super contributions beyond the age of 74.
**The bring forward rule only applies to people under 65 years of age and once the $150,000 non-concessional cap is exceeded in a year the bring forward rule applies which means no more than $450,000 non concessional contributions can be made in the current and next 2 financial years.

Review salary sacrifice arrangements

If you are 50 or over and using a salary sacrifice arrangement to get money into your fund, you need to review these arrangements before 30 June to ensure that you are within the reduced concessional cap for 2012/13.

Tax rates

Personal tax rates will change for the year starting 1 July 2012 and the flood levy will cease to apply. The personal income tax rates for the 2013 income year are as follows (the Medicare levy is excluded):
 

The low income tax offset will reduce to $445 for the year starting 1 July 2012. This means the effective tax-free threshold is $20,542.
If you use a payroll software package to calculate the withholding amount from salary and wages, please ensure your tax rates are updated.

Accelerated deductions for plant, equipment and motor vehicles

From 1 July 2012, Small Business Entities (operational businesses with an aggregated turnover below $2 million) have access to a much more generous system for claiming depreciation deductions on the purchase of plant and equipment. Key changes that apply to assets first used or installed ready for use from 1 July 2012 include:

• An immediate deduction for any depreciating assets that cost less than $6,500 (after GST credits have been taken off the original cost);
• An immediate deduction for the first $5,000 for any motor vehicle used for business purposes. This includes both new and second hand vehicles;
• The removal of the ‘long-life pool’. This means that from 1 July 2012 all depreciating assets that do not qualify for an immediate deduction will be depreciated at 15% in the year of purchase with a 30% deduction being claimed in future years.

Let us know if you are considering buying any new assets in the near future so we can calculate the cash flow impact for you and determine whether you are better off acquiring the assets before 30 June 2012 or waiting until the new financial year.

Building and construction industry reporting

From 1 July 2012, there will be a new reporting regime for certain businesses in the building and construction industry. The main aim of these rules is to assist the ATO tackle the ‘cash economy’ by requiring these businesses to lodge an annual report setting out details of payments made to contractors.
The reporting rules apply to companies that carry on a business primarily in the building and construction industry. If these rules could potentially apply to your company, then it is a good idea to start recording the following details of all payments made to contractors from 1 July 2012 for building and construction services:

• The ABN of the contractor, if known;
• The name and address of the contractor;
• The gross amount paid for the financial year, including GST; and
• The total GST included in the gross amount paid.

Living away from home allowance changes

Over the last 6 months or so the Government has released information on proposed changes to the living away from home allowance (LAFHA) rules. While the changes are not yet law, the main points to be aware of are:

• From 1 July 2012, cash LAFHAs will no longer be taxed to employers under the FBT system. LAFHAs will need to be included in the taxable income of the employee and will be taxed at their marginal tax rates. LAFH benefits that are not paid in the form of a cash allowance (e.g., reimbursement of actual expenses) will still be taxed under the FBT system in the hands of employers.
• As LAFHAs will be included in the taxable income of employees, the new rules will allow them to claim a deduction for reasonable accommodation and additional food expenses incurred while living away from home if certain conditions are met. The main condition is that the employee must have a usual place of residence in Australia that is maintained for their personal use and enjoyment while they are living and working in another location (i.e., it cannot be rented out or sub-let while they are away). Employees will only be entitled to claim deductions against a LAFHA for a maximum period of 12 months in respect of a specific work location (there is an exception for fly in fly out workers).
• Some transitional arrangements will apply to employees who had LAFHA arrangements in place before 7.30pm AEST on 8 May 2012. The transitional rules expire on 1 July 2014 or when a new employment arrangement is entered into, whichever is earlier. The application of these transitional rules will depend on whether the employee is a temporary resident for tax purposes.

If you are already providing LAFHA or similar benefits to employees then it’s important to consider the impact of these new rules as soon as possible. Please let us know if you would like to discuss the changes to these rules in more detail.