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The 2011 Federal Budget - how it impacts mining families

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For most of us, talking about tax is as enjoyable as listening to the kids bicker in the back seat of the car. Not so for the friendly blokes at PKF Business Advisers in Adelaide, who not only like talking about tax but even make it easy to understand. With tax time upon us yet again, Wayne Manna (the man that can) offers his tax insights into the 2011 Federal Budget and the implications for mining families. For his super-popular general tax-time checklist, click here. (Please note though: although comprehensive, the list below is not exhaustive and your individual circumstances must be considered. Please consult your adviser or PKF before acting on any info below. The items discussed focus upon individual taxation and are not necessarily applicable to those carrying on business.) Enjoy and over to Wayne...

Overall, the perception is that the 2011 Federal Budget was fiscally cautious, if not tight.

There were a number of relatively small changes that were announced that might impact on individual taxpayers and by extension might affect those employed in the mining sector.  However, there appeared to be no specific measures that were directed at the mining sector, although there were some announcements in relation to mining resource taxes. 

The major points for individuals coming out of the Budget are set out below. Please note that at this stage, none of the measures announced have been turned into legislation, so it is not possible to say with certainty that all of these measures will eventually become law and to predict the final form that the law might take. 

The phased removal of the dependant spouse rebate for spouses born after 1 July 1971.

This is a measure designed to encourage younger spouses, particularly those with no children, back into the workforce.  The Government's position appears to be that the existence of the spouse rebate in all cases where a (younger) spouse is not working is operating to discourage such spouses, almost exclusively women, from taking paid employment. For women with younger children whose husbands are claiming the spouse rebate, there appears to be no corresponding attempt to increase the availability of affordable child care places, which appears to remain a significant impediment to mothers returning to work.

Higher caps for superannuation

Higher caps will apply to superannuation contributions by persons over 50 years of age who have superannuation balances below $500,000.

For a while now, the amount of "concessional" (i.e. tax deductible) personal superannuation contributions that could be made has been capped. Under current superannuation laws, an employee 50 years or over would be limited to concessional superannuation contributions of no more than $25,000 annually. This cap was to apply from the income year commencing on 1 July 2012 (the cap is currently $50,000).

For most employees, this means that if they wish to salary sacrifice into superannuation to supplement employer contributions, the total of the existing contributions plus any additional salary sacrificed contributions can’t exceed the applicable cap.

However, it is proposed that where an employee is 50 years or over and that employee's total superannuation fund accumulation is less than $500,000, the higher $50,000 annual cap will be retained.  How the $500,000 limit will be measured raises more questions than it answers, but regardless of the underlying philosophical arguments, the measure at least enables older high income earners to continue to boost retirement savings tax effectively. 

For more specific advice and assistance on all matters relating to superannuation, please contact Tony Simmons at PKF on (08) 7421 1400.

University tax deducations

Legislation will be enacted to prevent students claiming tax deductions for course costs where they are receiving student and other youth allowances that are paid subject to participation in a course of education.

This measure is a response to a court decision in 2011 that allowed a student to claim tax deductions for course-related costs against a Youth Allowance she was entitled to receive on the condition that she was enrolled in a study course. This proposed change to the law simply aligns the law with the long-held ATO view that the costs of study were and are not tax deductible unless the study is directly related to existing employment. 

However, employees in the mining sector who have children in receipt of such allowances should ensure that their children do claim study costs for those years where they are able to make claims, including the 2010 and 2011 income years.  The ATO has advised that it will allow affected taxpayers to make claims for expenses in the 2007, 2008, 2009, 2010 and 2011 income years (the measures apply from 1 July 2011).  If you have studying children who have been receiving study allowances, it may be useful to seek further taxation advice, as tax refunds may be available.

HECS payments

The discount on up-front HECS payments will be reduced from 20 per cent to 10 per cent. It is unlikely that lower income families would ever be in a position to take advantage of the upfront payment discount, so this measure appears to be directed towards higher income earning families and may affect families in the mining sector where incomes are generally higher, if not substantially higher than incomes in other sectors.

Fringe benefits on cars

The current statutory fractions for calculating fringe benefits tax on employer-provided cars will be progressively consolidated into one rate. This measure is intended to curb the annual lunacy where some employees who salary package a motor vehicle can be seen driving around aimlessly in a desperate attempt to increase their annual mileage and in turn reduce their fringe benefits tax cost.  The Government has been aware of this mileage "spike" around March each year for some time. However, the benefit is that for those whose annual car mileages are less than 15,000 kilometres annually (like the author of this article), the reduction of the applicable statutory fraction from 26 per cent to 20 per cent should reduce their FBT cost and may in fact increase the benefit from packaging.  In general, packaging low-mileage private cars may well become more attractive as these measures take effect.  The measure is intended to apply only to new contracts entered into on or after 10 May 2011.  Whether the reference to a "new contract" is to a (novated) lease or to an employment contract is not clear at this stage. As with the other Budget measures, there is no draft legislation to refer to at this stage, so the way that this measure will apply is still unclear. 

Family trusts

Distributions from trusts to children under 18 years of age will effectively be capped at $416 per year by removing access to the low-income rebate.

Historically, trusts could only distribute $416 to children under the age of 18 years.  Distributions above that threshold were subject to high penalty tax rates to discourage using trust distributions to children as a way of reducing a family tax burden.  

This limit has been in place for many years, but with the advent of the low-income rebate, the amount of trust distributions that could be made to younger children has steadily increased and is currently in excess of $3,000, which means that if you use a family trust for investment purposes, you could distribute around $3,000 of investment income to a child before the child would have any tax to pay (the figure could be further increased if the trust distribution included franked company dividends).  This Budget measure will remove access to the low income rebate in respect of "non-work income" from 1 July 2011.  If your teenager works at McDonalds after school, their wages won't be affected by this measure. 

PAYG instalment uplift factor

Taxpayers with more than $2,000 of investment income will generally find they are liable to pay PAYG quarterly instalments of tax in respect of the next year of tax.  These instalments are effectively advance payments of tax and are offset against the actual tax assessed when the tax return for that year is lodged. 

When these instalments are calculated, one method the ATO uses to calculate the instalments is to apply an "uplift" factor which assumes your investment income will increase in the next year. 

For the moment, the uplift factor notionally increases your income from one year by 8 per cent.  For the 2012 year, this uplift factor will be reduced to 4 per cent. This measure will offer short-term cash flow benefits, because PAYG instalments will be reduced, although unless investment income is also reduced, more "top-up" tax may be payable once the tax return for the income year is lodged.

However, where investment income is expected to be reduced, it is also possible to vary the amount of a PAYG instalment to reflect that you expect to have less tax to pay for the relevant income year.  If you think that might apply to any PAYG instalment, you should contact your tax advisor for assistance, as the ATO can penalise you if you underestimate your income.

Overseas travel to work on mine sites

This measure is more applicable to mining employers.  The government announced earlier in 2011 that it would align the fringe benefits tax treatment of the costs of travel paid by an employer to transport an employee to an overseas mine site.  Travel costs paid to transport an employee to a remote mine site within Australia were always exempted from fringe benefits tax, but the exemption did not include mine sites overseas.  The fringe benefits tax treatment of the two costs is now the same.  As the costs of overseas travel could be substantial, this was a welcome, if not obvious, initiative for mining employers.  The problem does however highlight one of many issues that were unexpected consequences of the government removing the tax exemption for certain foreign employment earned by Australian residents working offshore from 1 July 2009.  A number of problems arising from that change are still yet to be properly addressed.

Wayne Manna and Tony Simmons are both Adelaide-based directors of PKF, one of the largest accounting firms in Australia.  PKF has offices in most Australian states and many offices around the world. Wayne specialises in income tax and in particular expatriate taxation. Tony Simmon's focus is superannuation, personal investment, financial planning and personal insurances. Both have more than 20 years' experience in income tax and superannuation.

PKF contacts across Australia are:

For financial planning, contact Wayne if you're based in SA/NT or Tony if you're based elsewhere throughout Australia.   

 

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