A Pre June 30 2012 Checklist for tax planning

1. Pre 30 June Checklist
Ord Minnett June 2012
The end of each financial year represents an opportunity to Six points you must consider before 30 June
review your financial position with your adviser. In this way
1. If you have realised gains in the 2012 financial year, review
your investment structures and strategies will be up to date,
tax loss selling possibilities to minimise capital gains tax.
and you will enter the new financial year with a clear
understanding of the way forward. To assist you in this 2. Use current market volatility to transfer assets tax
efficiently into superannuation.
process, we have prepared this checklist which also includes
analysis of this year’s Federal Budget. 3. Commence a tax effective Transition to Retirement
Income Stream.
This year’s Federal Budget was notable in its projection of a
surplus in the 2013 fiscal year. Whether it is achieved remains 4. Maximise concessional contributions (salary sacrifice or
to be seen, but an important point is that Australia is part of self supported) to superannuation before 30 June.
only a tiny circle of advanced countries that can meaningfully 5. Bring forward deductible expenses (i.e. pre-pay investment
engage in such a debate. As to superannuation, there have interest, certain insurance premiums, subscriptions
been a few amendments this year that people need to be or donations).
aware of in their year end planning. 6. Consider pre-paying private health insurance premiums in
For further information, please contact your adviser at the 2012 financial year to retain the rebate, which will be
Ord Minnett. subject to means testing from 1 July 2012.
Broad strategies If you have reached your preservation age, consider commencing a Transition to Retirement
Pension. Review the tax implications of taking a pension before doing so.
Superannuation Ensure the minimum superannuation pension has been withdrawn to make sure income earned
pensions from superannuation assets supporting the pension is tax-exempt.
If you are 59 years of age at the start of the financial year, consider delaying the withdrawal of
pension payments until after your 60th birthday. All pension payments are tax free after the
age of 60.
If you are retired and between 55 and 59 years of age, are able to access your super funds and
require income from superannuation, consider making a tax-free lump sum withdrawal (within
legislative limits) rather than a taxable pension.
If you have commenced a pension but do not need the income in the short term, consider
making a non-concessional contribution back into superannuation.
Review the cost structure of your superannuation scheme before 30 June.
Personal Defer receipt of income where legally possible. This includes delaying receipt of any bonuses into
the next financial year.
Bring forward deductible expenditure (e.g. subscriptions, donations etc).
Identify opportunities to offset losses against capital gains in this financial year. In the process,
do not ignore the Australian Taxation Office’s ‘wash sales’ ruling (i.e. the selling of assets purely
to incur a capital loss if the intention is to buy them back again).
Pre-pay deductible interest this financial year.
Review your portfolio and financial goals, taking into consideration current economic conditions
and prospects.
Financial Year End Checklist 1

2. Pre 30 June Checklist
Estate planning Are there any changes to your family situation that need consideration?
and insurance Update superannuation binding death benefit nominations as they only remain valid for three years.
Does your Will reflect your current wishes?
Does your Will include Testamentary Trusts? These may have significant taxation advantages in
terms of income splitting and protection of the bequeathed assets from any financial or other
difficulties that the beneficiaries may suffer.
Are specific bequests still set at appropriate levels?
Confirm Enduring Powers of Attorney (financial) and Enduring Guardian (health/medical/lifestyle)
appointments are up to date.
Review insurance to ensure coverage is appropriate and the correct beneficiaries are nominated.
The Federal The Budget projects a $1.5 billion surplus in 2012-13, rising to $2.0 billion the year after. Compared to
Budget the Mid-year Economic and Fiscal Outlook released in November 2011, the deficit for the current
financial year has been revised up to $44.4 billion (more than $7 billion worse than forecast last
.0
November, and double the deficit projected for 2011-12 in the Budget a year ago).The projected fiscal
turnaround from this year to next is equivalent to 3.1% of national income and would be the largest
since the early 1950s.
The increase in the 2012 deficit (compared to what was expected six months ago) has been
driven by some spending on local councils shifting back into this year, plus revenue shortfalls
(most notably in company tax, taxes on superannuation funds, and excise tax receipts relative
to earlier projections). Revenue weakness is also projected to continue in 2013. Overall, the
weaker economic environment has wiped some $11.5 billion off the Budget bottom line over
the next four years. Treasury expects gross domestic product will grow by 3.25% in the 2013
fiscal year, while unemployment will reach 5.5% in the June quarter.
The Budget aims to share the benefits of the resource boom by using the mining tax to fund
cash payments and tax breaks to families and low income earners and provide a supplement
for students, the unemployed and parents with young children. However, the Treasurer also
stated that in order to deliver these benefits several previously announced measures would
be abandoned, including the one per cent cut to the company tax rate.
Federal Budget 2010–11 2011–12(e) 2012–13(e) 2013–14 (e) 2014–15 (p) 2015–16 (p)
position
Budget balance
and forecasts
$ billion –47.7 –44.4 1.5 2.0 5.3 7.5
% of GDP –3.4 –3.0 0.1 0.1 0.3 0.4
GDP Growth (% oya) 2.25 3.00 3.25 3.00 3.00 3.00
Source: Government budget papers. oya – on year ago; e – estimate; p – projection
Personal income 2011–12 2012–13 to 2014 15
–
tax rates and
Income range Rate % Income range Rate %
thresholds
0 – 6,000 0 0 – 18,200 0
(excluding Medicare
Levy) 6,001 – 37,000 15 18,201 – 7
3 ,000 19
37,001 – 80,000 30 37,001 – 80,000 32.5
80,001 – 180,000 37 80,001 – 180,000 37
180,001 + 45 180,001 + 45
2 Ord Minnett

3. Pre 30 June Checklist
Key Budget Higher tax on concessional contributions for very high income earners from 1 July 2012
The Government proposes that individuals with income greater than $300,000 will have the tax
proposals
concession on their concessional contributions reduced by 15%. That is, these higher income
Superannuation earners will be subject to a 30% rate of tax on non-excessive concessional contributions rather
than the 15% rate.
Details on exactly how this measure will operate (such as whether it means a dual-rate
contributions tax (i.e .15% and 30%), a super surcharge-like mechanism or an extension to the
excess contributions tax assessment and collection process) have not been provided, other than
the following:
–– ‘Income’ means taxable income, concessional super contributions, adjusted fringe benefits,
net investment loss, target foreign income, tax-free government pensions and benefits, less
child support.
–– If concessional contributions themselves push a person over the $300,000 limit, the higher
rate of tax will only apply to the part of the contributions that are in excess of the threshold.
–– ‘Concessional contributions’ means all employer contributions (both SG and salary sacrifice),
deductible personal contributions and notional employer contributions for defined
benefit members.
–– Excess concessional contributions will only be subject to excess contributions tax not the
additional 15% tax.
Deferral of higher concessional contributions cap from 1 July 2012
The general $25,000 concessional cap will apply to all individuals from 1 July 2012 to 30 June 2014.
The Government proposal to provide a higher concessional cap for individuals aged 50 and over
with super balances below $500,000 will be deferred until 1 July 2014. Further, in its mid-year
economic statement released in November 2011 the Government proposed pausing indexation of
the general concessional cap until 1 July 2014. It therefore expects that the general cap is likely to
increase to $30,000 in 2014/15 with the higher cap commencing at $55,000.
Financial year 2011–12 2012–13 2013–14 2014–151
General concession cap $25,000 $25,000 $25,000 $30,000
Concessional cap for over 50s $50,000 $25,000 $25,000 $55,0002
1. Expected, but subject to actual indexation changes 2. Where the individual’s super balance is less than $500,000
Employment termination payment tax offset
From 1 July 2012, only that part of an affected employment termination payment (ETP), such as a
golden handshake, that takes a person’s total annual taxable income (including the ETP) to no
more than $180,000 will receive the ETP tax offset.
Amounts above this whole-of-income cap will be taxed at marginal rates. The whole-of-income cap
will complement the existing ETP cap ($175,000 in 2012-13, indexed) which ensures that the tax
offset only applies to amounts up to the ETP cap.
The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15%
for those over preservation age and 30% for those under preservation age. Existing arrangements
will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and
over), invalidity, compensation due to an employment-related dispute and death.
Taxation Capital gains tax and loss relief to facilitate super reforms
measures Amendments will be made to ensure income tax considerations do not prevent mergers of
superannuation funds or transfers of existing default members’ balances and relevant assets in
the transition to Stronger Super and MySuper.
Financial Year End Checklist 3

4. Pre 30 June Checklist
Taxation measures Medicare low income thresholds
(continued) The Medicare low income thresholds will increase to $19,404 for individuals and $32,743 for
families for 2011–12. The additional amount of threshold for each dependent child or student will
also increase to $3,007 .
The Medicare levy threshold for single pensioners below Age Pension age will increase to
$30,451 for 2011–12. This ensures that pensioners below Age Pension age do not pay the
Medicare levy when they do not have an income tax liability.
Means testing of net medical expenses tax offset (NMETO) from 1 July 2012
People with adjusted taxable income above the Medicare levy surcharge thresholds (i.e. $84,000 for
singles and $168,000 for couples in 2012-13) will be means tested. The threshold above which a
taxpayer may claim NMETO will be increased to $5,000 and indexed annually thereafter. The
reimbursement rate will be reduced to 10% for eligible out of pocket expenses. People with income
below the surcharge thresholds will be unaffected.
Changes to tax rates for non-residents from 1 July 2012
The Government will adjust the personal income tax rates and thresholds applicable to non-
residents’ Australian-sourced income. From 1 July 2012, the first two marginal tax rate thresholds
will be merged into a single threshold aligned with the second marginal tax rate threshold. This
means that a tax rate of 32.5% will apply to all non-residents’ taxable income under $80,000. This
32.5% marginal tax rate will increase to 33% from 1 July 2015.
Removal of 50% CGT discount for non-residents from 8 May 2012
The 50% CGT discount for non-residents was removed for capital gains accrued after 7.30 pm
(AEST) on 8 May 2012. The CGT discount remains available for capital gains accrued prior to this
time where non-residents elect to obtain a market valuation of assets as at 8 May 2012.
Schoolkids bonus
The Government will replace the Education Tax Refund with a new Schoolkids Bonus. Eligibility for
the payment will remain open to families with children enrolled and attending school who are in
receipt of FTB A or other qualifying income support payments or allowances under a prescribed
educational scheme that precludes the family from receiving FTB A.
Previous In the Budget the Government announced that it will not implement three measures it had
proposals shelved previously announced:
–– Reduction of the corporate tax rate to 28%. The corporate tax rate will remain at 30%.
–– Standard tax deduction of $1,000 for work-related expenses and the cost of managing tax affairs.
–– 50% discount for the first $1,000 of interest income.
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