The 2012-13 Budget delivers major tax reforms to improve the fairness and efficiency of the tax system and provide relief to households and businesses not in the fast lane of the mining boom.
The tax reforms in this Budget deal with today's challenges and build foundations for the future.
The Labor Government has delivered significant tax relief and reforms that mean Australians are today paying much less tax than they did when Labor came to office in 2007.
Australia's tax-to-GDP ratio is forecast to be 22.1 per cent in 2012-13, compared to the all-time high of 24.2 per cent recorded in 2004-05 and 2005-06, and 23.7 per cent in the last year of the previous government.
If the tax-to-GDP ratio had remained at the level we inherited when we came to office, Australians would be paying nearly $24.1 billion more in tax next year - over $1,030 extra for every man, woman and child.
The measures delivered in this Budget build on the Government's growing record of tax reform, and mean that the Government has now announced nearly 40 reforms that progress recommendations of the Australia's Future Tax System review.
Among these reforms are measures to improve the fairness of the tax system and deliver savings that reflect the Government's commitment to disciplined budget management and strong public finances.
Extra support with the cost of living
A new Schoolkids Bonus for Australian families
The Government will transform the Education Tax Refund into a Schoolkids Bonus paid through the family payments system to provide timely assistance to families.
The Schoolkids Bonus will guarantee eligible parents $410 for primary school students and $820 for secondary school students and will be paid in equal instalments at the start of the school semesters in January and July each year from January 2013.
As a result of this reform, families won't have to wait until tax time or keep track of receipts during the busy back-to-school period. By making the Schoolkids Bonus an automatic payment, the Government will also be making sure that no eligible families miss out. It is estimated that to date there are 500,000 eligible school children whose families are missing out on the Education Tax Refund in respect of 2010-11.
The Schoolkids Bonus will be simpler, fairer, and provide more timely assistance to Australian families for the cost of educating their children. It's a reform that makes sense, relieves the cost of living and was recommended by the Australia's Future Tax System review.
Families bringing up the next generation of Australians are doing the most important job in the country, so this reform will help relieve some of the financial strain that come with that job of educating kids.
As a transitional arrangement, the full Education Tax Refund for the 2011-12 will be paid in June 2012, recognising that families have already been paying the bills for this school year.
This reform progresses recommendation 6(c) of the Australia's Future Tax System review.
Investing in a productive economy
Loss carry-back scheme
From 1 July, the Government will provide further tax relief for companies that report a loss through the introduction of a loss carry-back, which will benefit up to 110,000 companies.
Currently businesses can carry forward losses to future tax years to offset their profits and therefore reduce their tax bills.
Companies that incur losses from 2012-13 will be able to carry back losses so that they get a refund against tax previously paid. From 1 July 2012, companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.
This new initiative will support businesses facing challenges in our patchwork economy. It will encourage businesses to invest and adapt, boosting productivity and strengthening our economy as it goes through a period of major transition.
This reform progresses recommendation 31 of the Australia's Future Tax System review and will have a cost of $714 million over the forward estimates.
Helping small businesses in our patchwork economy
The Government will cut red tape and boost cash flows for Australia's 2.7 million small businesses, encouraging them to invest and grow.
From 1 July 2012, small businesses will be able to write-off any new business asset costing less than $6,500, for as many assets as they purchase. This means that a business that purchases four items of equipment worth $6,000 each will be able to get a deduction of $24,000 in the first year (rather than $3,600). As a result, this small business company will pay around $6,120 less tax in the next tax return. If they operated as a sole trader they may be able to get an even bigger tax saving. This tax break is worth around $1 billion in its first year alone.
Assets costing $6,500 or more can be depreciated in a single pool from 2012-13 (15 per cent in the year they are purchased, 30 per cent in each subsequent year).
We also recognise that for many small businesses their biggest asset is their car, ute or van.
Small businesses will be able to also instantly write-off the first $5,000 of a motor vehicle, from 1 July this year. These reforms will help small businesses - whether they operate as sole traders, partnerships, companies or trusts - to invest to compete.
This reform progresses recommendation 29 of the Australia's Future Tax System review.
Participation and reward for effort
A landmark tax reform - tripling the tax-free threshold
From 1 July 2012, the Government will triple the tax free threshold - the largest increase in the history of the tax free threshold.
All taxpayers on a taxable income of up to $80,000 will get a tax cut, with most getting more than $300. This critical tax reform will mean up to one million people will no longer have to lodge a tax return and around 630,000 additional people will no longer have to pay any tax.
Over 7 million people on less than $80,000 a year will receive tax cuts including over 6 million people receiving a tax cut of more than $300. Thousands of people will benefit from this reform across all States and Territories. This measure may also benefit around 1.4 million small business people who are sole traders or hold interest in a trust or partnership.
| State or Territory | No longer pay tax | Tax cut of $300 or more | Receive a tax cut |
|---|---|---|---|
| New South Wales | 203,000 | 1,967,000 | 2,283,000 |
| Victoria | 163,000 | 1,612,000 | 1,856,000 |
| Queensland | 126,000 | 1,307,000 | 1,502,000 |
| Western Australia | 63,000 | 640,000 | 753,000 |
| South Australia | 47,000 | 496,000 | 567,000 |
| Tasmania | 14,000 | 150,000 | 171,000 |
| Australian Capital Territory | 9,000 | 110,000 | 134,000 |
| Northern Territory | 4,000 | 62,000 | 73,000 |
| Total | 629,000 | 6,344,000 | 7,339,000 |
Note: Based on estimates for the 2012-13 income year, assuming State and Territory taxpayer distributions from 2009-10 tax return data.
A consolidated dependency tax offset
The Government will better target the support provided to dependants through the tax system. This will remove out-dated barriers to dependants seeking employment and build on the Government's participation agenda.
Many of these dependency offsets simply no longer reflect community attitudes. For example, it is a relic of a bygone era to assume that unmarried daughters will stay home and keep house rather than study or work, and yet the child housekeeper offset was designed with this in mind.
From 1 July 2012, eight existing dependency offsets will be consolidated into a single offset available to taxpayers maintaining a dependant who is unable to work due to disability or carer responsibilities. This offset will leave taxpayers with dependants who are genuinely unable to work no worse off and, in many cases, better off.
This reform progresses recommendation 6(a) of the Australia's Future Tax System review and will provide savings of $66.9 million over the forward estimates.
A fairer and more sustainable tax system
Living-away-from-home allowances and benefits
The Government will further reform the tax concession for living-away-from-home allowances and benefits, by better targeting it at people who are legitimately maintaining a home away from their actual home for an initial period.
One of the issues raised at last October's Tax Forum was the increasing exploitation and misuse of this tax concession by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.
This measure will build on the reforms to this tax concession announced in the 2011-12 Mid-Year Economic and Fiscal Outlook by:
- Limiting access to the tax concession to employees who are maintaining a home for their own use in Australia, that they are living away from for work; and
- Imposing a 12 month time limit on how long an employee can receive the tax concession at a particular work location.
These further reforms will stop businesses from being able to give a very large taxpayer-funded tax break to employees who aren't maintaining a second home, or are maintaining two homes indefinitely.
It's simply not fair or reasonable for ordinary taxpayers to be funding this kind of massive tax perk for a very small number of people.
This measure:
- will not affect the tax concession for 'fly-in fly-out' arrangements, as these employees will not be subject to the 12 month time limit;
- 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 (generally up to 21 days).
The reforms will apply from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to that time.
The Government will consult with tax experts and employers on the technical detail of the legislation.
These reforms further progress recommendation 9(c) of the Australia's Future Tax System review, which stated that "all fringe benefit tax exemptions should be reviewed to determine their continuing appropriateness."
These further reforms will provide additional savings of $1.0 billion over the forward estimates, including an increase in GST payments to the States and Territories of $9.0 million.
Better targeting tax breaks for 'golden handshakes'
The Government will take steps to improve the fairness and integrity of the tax treatment of golden handshakes. Golden handshakes are among a large class of payments known as employment termination payments (ETPs).
At present, ETPs are taxed at a maximum rate of 15 per cent for those over preservation age and 30 per cent for those under preservation age up to an indexed cap of $165,000. The very design of this tax concession means that many low-income earners cannot benefit from it, and it is most beneficial to high-income earners receiving large payouts.
This reform will keep the existing concession for payments related to hardship, namely redundancy payments, compensation for employment-related disputes, and payments for invalidity or death.
This reform progresses recommendation 6(c) of the Australia's Future Tax System review, and will provide savings of $196.4 million over the forward estimates.
Mature age worker tax offset
From 1 July 2012, the Government will phase out the mature age worker tax offset (MAWTO) for taxpayers born on or after 1 July 1957. This will not affect any person who currently receives MAWTO. New Treasury analysis suggests that the MAWTO only brings an extra 5,000 full-time equivalent people into the workforce at a cost of $90,000 per worker.
The Government has already moved to put in place better measures to boost the employment prospects of older Australians who want to stay attached to the workforce.
In this Budget, the Government will fund new workforce participation measures as part of its response to the Economic Potential of Senior Australians review, chaired by Everald Compton AM.
To help those older Australians who wish to continue work, but face barriers to getting a job, the Government will provide a Jobs Bonus of $1,000 to 10,000 employers who recruit and retain a worker aged 50 years or over for over three months.
The Jobs Bonus will make it easier for mature age Australians to find work by giving incentives to those businesses who embrace their vast skills and experience. It will help older job seekers who do not currently receive intensive Government support to find and keep a job.
In addition, the Government will provide $26 million for a "silver service" for older Australians seeking work which will reach the long-term unemployed and provide them with tailored assistance to find work. For those still in work, the Government will work with industry with a $35 million boost for the National Workforce Development Fund to partner with businesses to re-skill and up-skill mature age members of their workforce.
This reform progresses recommendation 6(c) of the Australia's Future Tax System review and continues the Government's tax reform agenda. It will provide savings of $255 million over the forward estimates.
Duty free allowances
From 1 September 2012, the Government will reduce the inbound duty free allowance for international travellers to 50 cigarettes or 50 grams of tobacco. Large duty free allowances date back to a time when tobacco was just another product - before we knew that smoking was harmful.
This reform progresses recommendation 75 of the Australia's Future Tax System review, and will provide savings of $600 million over the forward estimates.
Non-resident taxpayers - personal income tax rates and capital gains tax discount
From 1 July 2012, the Government will adjust the personal income tax rates and thresholds that apply to non-residents' Australian income. This will ensure that they better align with the rates and thresholds that apply to residents.
This will generate $88.9 million of additional revenue over the forward estimates, which will support other Government programs and initiatives.
Non-residents who earn eligible income under the Pacific Seasonal Workers Program will not be affected by this proposal.
In addition, the Government will remove eligibility for the 50 per cent discount on capital gains earned after Budget night by non-residents on taxable Australian property, such as real estate and mining assets. Non-residents will still be entitled to a discount on capital gains accrued prior to Budget night (after offsetting any capital losses), provided they choose to value the asset as at that time.
The discount is not necessary to attract investment from non-residents into these assets, which are immobile. Savings from this measure are estimated to be $55.0 million over the forward estimates period.
Managed Investment Trusts
The Government will return the withholding tax rate to our original 2007 election commitment of 15 per cent. This rate is competitive with current rates applying in other countries (such as Japan and the US at 15 per cent) and is significantly lower than the 30 per cent non-final withholding rate under the previous government.
The 15 per cent rate strikes the right balance between attracting foreign investment and ensuring Australia receives a fair return on profits to be made in Australia.
This measure will provide savings of $260.0 million over the forward estimates.
Net Medical Expenses Tax Offset
The Government will better target expenditure on the net medical expenses tax offset (NMETO) by means testing the threshold above which a taxpayer may claim the offset and the rate of reimbursement from 1 July 2012.
For those people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples/families in 2012-13), the claim threshold will be increased to $5,000 and the rate of reimbursement reduced to 10 per cent. Taxpayers with income below the MLS threshold will continue to receive the same assistance as currently.
Australian Government annual health expenditure is expected to reach around $100 billion in the next 10 years. Better targeting support through the NMETO is one of a number of measures the Government has identified to ensure we have a strong and sustainable health care system. The Government is continuing to provide substantial support for health expenses, including around $27 billion in 2012-13 through the Medicare Benefits Schedule, the Pharmaceutical Benefits Scheme and related safety nets.
This reform will provide savings of $370 million over the forward estimates.
Airline transport fringe benefits
The Government will update the method of determining the taxable value of airline transport fringe benefits from stand-by value to market value. This measure will apply to benefits provided after 7.30pm (AEST) on 8 May 2012.
An airline transport fringe benefit may arise when an employee of an airline or travel agent is provided with free or discounted travel on a stand-by basis. The taxable value of airline transport fringe benefits is currently the stand-by value of the benefit less the employee contribution. This method was developed when stand-by travel was a feature of commercial airline pricing and staff could be displaced from a flight up to the time of boarding. The concept of stand-by travel, however, is no longer commercially relevant as airlines now use discounted pricing to optimise passenger levels.
This reform progresses recommendation 9(a) of the Australia's Future Tax System review, which stated that "market value should generally be used to value fringe benefits".
The reform will increase revenue by $12.0 million over the forward estimates, including an increase in GST payments to the States and Territories of $4.0 million.
Measures not being proceeded with
Standard deduction for work-related expenses
Given the significant reform of tripling the tax free-threshold from 1 July this year - freeing up to 1 million Australians from having to lodge a tax return - and changing and simplifying the arrangements for the Education Tax Refund, the Government has decided not to proceed with the standard deduction for work-related expenses.
This measure was scheduled to commence on 1 July 2013, so the decision not to proceed with this measure will not impact on the current taxation arrangements of any person. Taxpayers with genuine work-related expenses will still be able to claim tax deductions.
This decision will deliver a substantial saving of $2.1 billion over the forward estimates period, and reflects the Government's commitment to disciplined budget management and strong public finances.
50 per cent discount for interest income
This measure was announced in the 2010-11 Budget to encourage Australians to save more, however given the significant increase in savings since then, the Government has decided not to proceed with this measure. The Government's public consultation process has made it clear that the tax discount for interest income would be difficult to implement and may not have a significant impact on savings behaviour.
This measure was scheduled to commence on 1 July 2013, so the decision not to proceed with this measure will not impact on the current taxation arrangements of any person.
This decision will deliver a substantial saving of $924 million over the forward estimates period, and reflects the Government's commitment to disciplined budget management and strong public finances.