13 May 2012, The Canberra Times
The major changes to last week's budget include the substantially higher income tax threshold of $18,200 and the steep reduction in the super concessional contributions caps to $25,000 annually. For people aged over 50, this tax year is the last opportunity to claim a tax deduction of up to $50,000 for self-employed or employer super contributions. Next year, the maximum limit falls to $25,000 for all taxpayers, forcing those wanting to build up their savings quickly to look at the suitability of other tax concessions.
Surprisingly in a year when the government desperately sought additional revenue, the budget did not alter any of the tax benefits available for negative gearing. This means that over the next six weeks, individual geared investors can reduce this year's tax bill substantially by prepaying up to 12 months of their interest and other tax deductible expenses. Doing this will result in a substantially larger negative gearing tax loss this tax year and entitle the investor to a prompt refund of the resulting gearing tax benefits as soon as they submit their 2011-12 tax return.
Self-employed people and other taxpayers eligible to claim a personal super tax deduction similarly have until June 30 to deposit up to $25,000 or $50,000 (for those aged over 50) in their super fund to claim a tax deduction.
Particularly for taxpayers aged 55 or more, there are further tax advantages flowing from this strategy because of their ability to use the money deposited in their fund to start a tax advantaged income stream.
In claiming superannuation tax deductions, care needs to be taken to ensure that total annual deductible super contributions do not exceed the designated caps because all excess contributions will trigger penalty tax.
For superannuation fund investors also, the budget decision not to reduce the company tax rate for large companies is good news because any reduction in company tax will reduce the value of the imputation credits on fully franked dividends received by their super fund.
For retirees and other investors, the new $18,200 tax-free area to apply from July 1 opens up new investment opportunities, including holding sufficient investments in personal names outside a super or pension fund to receive this amount of taxable income. In the future, one attractive strategy will be to retain sufficient investments in personal names to earn up to $18,200 annually tax-free and invest the balance in a low or no tax superannuation or pension
Read more about the author Daryl Dixon, Executive Chairman of Dixon Advisory.
company tax rate
super contributions cap
income tax threshold
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