The top tax changes you need to know about in 2012

Just as the new financial year brings a heap of legal changes entrepreneurs need to read up on, the tax system is also set for a refresh.

And it’s a big change coming this year. New tax brackets, two massive industry-wide taxes and a whole heap of new assistance means there’s a lot to get your head around.

Thankfully, we’ve done the hard yards. Here are the most important tax changes you need to know about in 2012-13.

The end of the flood levy

You may remember the huge debate last year over the Federal Government’s flood levy, which was introduced to help the Commonwealth pay for the damages caused by the Queensland floods. From July 2012, the levy will no longer apply.

Brand new tax brackets – including carbon tax assistance

As part of the government’s introduction of the carbon tax, there’ll be some dramatic changes to the income tax rates – including the adjustment of the tax-free threshold to $18,200 from the current level of $6,000. That means you’ll be able to earn up to $20,542 before any tax is payable at all.

These changes are crucial for employers. Next year, your staff will have less tax withheld from their paychecks, so you’ll need to make the necessary changes to ensure they’re being paid correctly.

Here are the tax brackets for the 2011-12 year, followed by the new tax brackets, which will take effect from the 2012-13 year.

2011-12:

• $0 – $6,000 = Nil
• $6,001 – $37,000 = 15c for every $1 over $6,000
• $37,001 – $80,000 = $4,650 plus 30c for every $1 over $37,000
• $80,001 – $180,000 = $17,550 plus 37c for every $1 over $80,000
• $180,001 and over = $54,550 plus 45c for every $1 over $180,000

2012-13:

• $0 – $18,201 = Nil
• $18,201 – $37,000 = 19c for each $1 over $18,200
• $37,001 – $80,000 = $3,572 plus 32.5c for every $1 over $37,000
• $80,001 – $180,000 = $17,547 plus 37c for every $1 over $80,000
• $180,001 and over = $54,547 plus 45c for each $1 over $180,000

At the same time, the maximum value of the low-income tax offset reduces from $1,500 to $445, and after that, will be reduced by 1.5 cents in every dollar over $37,000. Previously, that number was at $30,000. From 2015, that figure will be reduced to just $300.

The pensioner tax offset will merge with the new senior Australians tax offset. Meanwhile, there have also been some changes to the Medicare levy and Medicare levy surcharge thresholds.

From July 1, the Medicare levy surcharge thresholds will be changed, while the low-income thresholds will be changed as well. The full details of those changes are available on the Australian Tax Office’s website here.

Carbon tax assistance – individuals

This is a huge area of tax change, so we’ll break it down into two categories – individuals, and then businesses.

Most of the assistance is taken care of with the adjusted tax brackets, and they’ll mostly help lower-income earners. But there will be some changes to the way pensions and the Family Tax benefits are handed out.

For instance, pensioner payments have already started arriving, equating to $250 for singles and $380 for couples. After July, pensioners will start receiving supplements worth a 1.7% increase in the maximum pension rate.

Family Tax Benefit A recipients will receive up to $110 extra per child, while those receiving Family Tax Benefit B will get up to $59. Single parents will receive up to $234, as well.

Carbon tax assistance – business

While there are only 500 companies that will be directly affected by the carbon tax, the indirect effects will come in higher electricity prices, and other costs that will be passed along supply chains.

There are few regulatory issues required of SMEs, then. Some manufacturing businesses will be obliged to report their energy use under the National Greenhouse and Energy Reporting Act – manufacturing businesses should contact the ATO to determine if they’re in this category.

However, there are plenty of assistance programs businesses can tap into. Businesses that use up to $20,000 in electricity every year or have up to 10 employees can get a 50% rebate, and manufacturers will be able to access the $800 million Clean Technology Investment Program.

There’s also the Solar Credits scheme, which small businesses can use, and SMEs in Sydney and Perth which sign up to the CitySwitch Green Office program can get a rebate of $1,000.

But according to Andrew Douglas, principal at M+K Lawyers, looking for assistance isn’t the only thing you should be doing.

“Reducing your exposure; and businesses aren’t doing that. They’re not concentrating on their supply chain, they’re trying to pass through the carbon tax price but every major retailer is rejecting it, so right now it’s a real problem. The other issue is that people aren’t doing an assessment of the true cost.”

Instant asset write-off

Perhaps the instant write-off for assets under $6,500 is the biggest assistance businesses will receive for the carbon tax.

From July this year, any SME with under $2 million in turnover will be able to write off any asset worth less than $6,500 immediately. Right now, the threshold is just $1,500.

Changes to the private health rebate

The government will start testing the private health insurance rebate and the Medicare levy surcharge against income, in three different thresholds. High income earners will receive less of the private health insurance rebate, and the surcharge may increase.

The thresholds are a bit complex, but here’s the table straight from the ATO.

Research and development tax scheme

From July 1, businesses will be able to register for and claim the new research and development tax incentive. The incentive has two key components.

Firstly, a 45% refundable tax offset for research and development entities with turnover less than $20 million per year, and secondly, a 40% non-refundable tax offset for any other companies with turnover above that amount. Unused offset amounts may be carried forward in some circumstances.

If a business has a standard income year starting from July 2011, you can start to register and claim the incentive from next month.

But to do so, you need to first establish that you’re an eligible entity, that you meet the requirements of the R&D incentive and that you’ve registered your R&D activities with AusIndustry.

You’ll need to justify your R&D activity under the new incentive, and you’ll need to identify which activities are “core”, or “supporting” activities. You can check out the definition of both of those here, but essentially, core activity is an activity whose outcome cannot be known or determined in advance on the basis of current knowledge.

The business records you keep must be sufficient to verify the amount of money you spend on R&D, and you’ll need to satisfy a few tests as well.

In short, there’s a lot to get in order. To get all the details about how you can access the R&D incentive, you should head over to the AusIndustry site here, which will give you all the details.

Changes to employee termination payments

There will be a few changes made to employment termination payments next month. From July 1, the offset is limited so it only applies where it takes up the person’s total annual taxable income to no more than $180,000.

Any amount above this will be taxed at marginal rates. Any existing arrangements will remain in place for genuine redundancies, or for compensation due to death or an employment-related dispute.

Tourist charges

The movement charges will change next month. The passenger movement charge will increase to $55 – although it won’t be indexed –and there’ll be an increase in visa label charges from $60 to $70.

Entrepreneurs’ tax offset

Last year, the government announced the entrepreneurs’ tax offset would be scrapped in order to help fund the $5,000 deduction for any vehicle purchase – that will take effect from next month.

The offset provided businesses an offset equal to 25% of the income tax payable on business income. While the move is a disappointing one for small business, it was only available for entrepreneurs earning less than $75,000 a year.

On the upside, businesses will now be able to access an immediate $5,000 deduction for all vehicle purchases from next month.’

The loss carry-back

The loss carry-back scheme is one of the most anticipated tax changes by SMEs – one of few.

At the moment, businesses can only carry losses forward to offset future income and profits. They can’t carry their current loss back and offset it against past profits.

But under the new scheme, businesses will be able to claim losses of up to $1 million against tax paid in the past two years.

To be eligible, a business needs to have made a profit and then a loss from July 1, 2012. So while that provides some relief for SMEs, it doesn’t mean anything for businesses that have made a loss in the past few years.

Of course, there are a few caveats – businesses structured as partnerships, sole traders and trusts are ineligible.

Living away from home allowance

The government will be making a few changes to the Living Away From Home allowance come July.

Access to the concession for temporary residents will be limited to those people who maintain a residence for their own use in Australia, but are required to live away from work. These workers are known as “fly-in, fly-out”.

Also, employees will be required to justify their spending on accommodation and food beyond the statutory amount, and a year limit will be placed on how long an employee can receive the benefit at any one work location.

These changes will affect anyone signing an agreement after May 8, 2012, and from July 1, 2014 for any contracts before that time.

Building industry reporting

If you’re a business or entrepreneur operating in the building or construction industries, then you’ll need to start reporting on every payment made to contractors in the New Year.

As for who needs to report – any business primarily operating in the building and construction industries, including businesses making payments to contractors. If more than half of your business activity relates to building and construction, then you need to start reporting.

The details you need to report for each contractor include:

• ABN
• Name
• Address
• Gross amount paid in the financial year
• Total GST included in the gross amount paid

You’ll also need to report worksheets and other records, including payment details for work done in relation to any sort of building or structure. That includes construction, demolition, design, destruction, erection, improvements, maintenance and repair.

Contractors who pay other contractors may need to fill in all this information as well.

Businesses will need to make this report by July 21 each year, but don’t fear – the first report isn’t due until July 2013.

Fuel changes

There will be some key changes to fuel tax credits from July 2012. The following rate changes will be affected:

• Liquid fuels, including diesel, petrol or fuel oil used in some off-road activities
• The introduction of a carbon charge
• Heavy vehicles travelling on a public road
• Gaseous fuels
• And some blended liquid fuels

When calculating fuel tax credits, you’ll need to use the rate applied when you acquired the fuel.

For more details on fuel tax credits for fuel acquired from July, you’ll need to check out this table here.

Mining tax

It’s been gone over plenty of times before, but it bears repeating: from July 1, the government will impose a 30% levy on the “super profits” of the country’s biggest coal and iron ore miners.

If you’re a small business, the effects won’t come in tax changes, but rather in the industrial changes that may result in the larger companies being taxed more – costs may be passed along the supply chain.

Superannuation changes

There will be plenty of changes made to superannuation this July.

The Government has deferred the start date of maintaining a cap at $50,000 for individauls aged over 50 years with balances below $500,000. So that means for everyone, the concessional contribution cap will drop to $25,000.

The government will also provide a low income superannuation contribution for individuals earning up to $37,000, so they’ll effectively be refunded the 15% contributions tax.

It will also reduce the super co-contribution by 50%, to just 50c per $1 contribution, effectively reducing the top benefit from $1,000 to $500.

There will also be some changes for high-wealth individuals. People with income greater than $300,000 will have contributions reduced from 30% to 15%

And some others

There are a couple of changes coming to the Dependent Spouse Offset. While the offset was restricted last year, the eligibility will also restrict even further to dependent spouses born before July 1952.

And just one more – last year, the High Court ruled the ATO could not hold GST refunds for any period of time in order to investigate whether the refund is legitimate.

But with new laws coming in next month, the Tax Commissioner may be able to hold onto refunds for investigation with individuals and businesses given a right of appeal.

This article first appeared on SmartCompany.