Mini-budget tightens fringe benefits, health rebates and more

On 22 October 2012, the Treasurer released the Mid-Year Economic and Fiscal Outlook 2012–2013 (MYEFO), revising down the expected Budget underlying cash surplus to $1.1 billion for 2012–2013 (down from $1.5 billion estimated in the May 2012 Budget). Mr Swan said the reduction in the estimated surplus has been driven by a further write-down in tax receipts of $4 billion in 2012–2013 alone (and almost $22 billion over the forward estimates), almost all from company tax and resource rent taxes. The Treasurer said the Government will deliver $16.4 billion in new savings over the forward estimates.

The following are key tax and superannuation measures announced by the Government.

Major tax announcements

Monthly PAYG instalments for large companies

There will be a phased introduction of monthly PAYG instalments for large companies in Australia over three years. This will be introduced as follows:

• from 1 January 2014, for companies with a turnover of $1 billion or more (around 350 companies);

• from 1 January 2015, for companies with a turnover of $100 million or more (around 2,500 companies); and

• from 1 January 2016, for companies with a turnover of $20 million or more (around 10,500 companies).

According to the MYEFO statement, the proposal is estimated to increase revenue by $8.3 billion over the forward estimates period. The Government proposes to issue a consultation paper "early next year". In addition, the Government has said that, through consultation, it will be open to additional reforms to the calculation of the PAYG instalments to ensure that total instalments paid throughout the year match, as closely as possible, the final tax liability.

Tip: Many affected taxpayers will have been paying PAYG instalments on a quarterly basis. These measures will bring forward future payments, affecting cash flow and adding to administration. As the changes are not proposed to apply until 1 January 2014, affected organisations have some time to plan ahead.

In-house fringe benefits

Concessional treatment will be removed for in-house fringe benefits accessed through salary sacrifice arrangements. This proposal will apply with effect from 22 October 2012 to salary sacrifice arrangements entered into on or after that date, and from 1 April 2014 for arrangements entered into before 22 October 2012. Under the changes, the taxable value of in-house fringe benefits provided through a salary sacrifice arrangement will be either the lowest price at which an identical benefit is sold to the public or the price under an arm's length transaction, depending on the nature of the benefit.

Tip: Some of the hardest hit employers are likely to be schools and insurers, as well as retailers who utilise card mechanisms to allow employees to salary sacrifice the cost of goods purchased.

Private Health Insurance Rebate

From 1 April 2014, the premium to which this rebate is applied will move in line with the CPI or commercial premium increase, whichever is lower. However, the rebate as it currently applies will remain unchanged.

Baby bonus rate

From 1 July 2013, the baby bonus rate will be reduced from $5,000 to $3,000 for second and subsequent children.

ATO compliance activities

An additional $390 million in funding will be provided to the ATO for further compliance activities. This will allow the ATO to continue to target profit shifting and high-wealth individuals and to focus on outstanding income tax lodgments in the micro and small business segments. The additional funding will also enable the ATO to follow up businesses with two or more years of outstanding lodgments, to address the escalation in promotion of and participation in tax avoidance and tax evasion schemes, and to target non-compliance relating to profit from criminal activities and organised crime.

Visa Application Charges

A number of Visa Application Charges will increase from 1 January 2013. The changes to Visa Application Charges will apply to skilled graduates, partners, working holiday-makers and temporary overseas workers.

Superannuation proposals

While the superannuation industry was apprehensive that the MYEFO might have further clawed-back superannuation tax concessions, no such anticipated large-scale superannuation changes were announced. However, the following superannuation-related changes and policy tweaks were outlined in the MYEFO:

Lost superannuation transfers to the ATO

From 31 December 2012, the account balance threshold below which inactive superannuation accounts, and accounts of uncontactable members, are required to be transferred to the ATO will be increased to $2,000 (from $200). Further, the period of inactivity before the account of an unidentifiable member is required to be transferred to the ATO will be reduced to 12 months (from five years). The ATO will also be given additional funding to use its data matching resources to match lost accounts with active accounts.

Interest on lost superannuation

From 1 July 2013, for the first time, the Government will pay interest at the rate of CPI inflation on all unclaimed superannuation monies reclaimed from the ATO and unclaimed monies reclaimed from ASIC.

Amendments to implement these proposals have been introduced into the House of Representatives: see the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012.

SuperStream start date deferred

The start date for the proposed e-commerce data and payment standards for superannuation trustees in relation to superannuation contributions and rollovers will be deferred from 1 July 2013 to 1 January 2014. However, the Government has said it remains committed to mandating electronic contributions from medium and large employers from 1 July 2014 (as originally announced). As such, the proposed six-month transition period for rollovers between funds will end on 1 January 2014, so that the industry can prepare itself to receive contributions electronically from employers from 1 July 2014. The Minister for Financial Services and Superannuation, Bill Shorten, said the Government has asked the ATO and APRA to work together with industry to ensure an orderly transition into the new standard for rollovers.

Superannuation income streams upon death of member

The Government will amend the law to allow, with effect from 1 July 2012, the tax exemption for earnings on assets supporting superannuation income streams to continue following the death of a fund member in the pension phase until the deceased member's benefits have been paid out of the fund. The proposed changes are intended to provide tax certainty for deceased estates by allowing superannuation fund trustees to dispose of pension assets on a tax-free basis to fund the payment of death benefits. It will also eliminate the need for funds to rework tax calculations following the death of members in the pension phase. However, the proposed continuation of the exempt current pension income (ECPI) provisions beyond the death of a member will be subject to the existing requirement for the benefits of a deceased member to be paid out of the fund as soon as practicable following the member's death.

Note: This proposed measure appears to be in response to industry concerns with the Commissioner's preliminary views on superannuation income streams. In Draft Taxation Ruling TR 2011/D3, the Commissioner took the position that a superannuation income stream ceases as soon as the member in receipt of the income stream dies, unless a dependent beneficiary of the deceased is automatically entitled to receive the income stream. Under the Commissioner's preliminary view, tax would generally apply to a fund's investment earnings (including realised capital gains) following the death of a pensioner member. The National Tax Liaison Group, Superannuation Technical Sub-group had previously flagged various industry concerns with the Draft Ruling at its meeting on 5 June 2012. Mr Shorten has now acknowledged that legislative changes are necessary to address concerns that the Commissioner's approach would pose practical difficulties for funds and would risk eroding the value of death benefit payments to beneficiaries.

Self managed superannuation funds (SMSF) levy

The levy will be increased to $259 per annum from 2013–2014 (up from $191 in 2012–2013) and levied and collected from SMSFs in the same year of income. The change in the timing of the collection of the SMSF levy will be phased in over the two years 2013–2014 and 2014–2015.

Supervisory levy

The Superannuation Supervisory levy collected from APRA-regulated superannuation funds will be reduced by $38.2 million over the next six years (starting with a 10.4% reduction that commences in 2013–2014).

This measure follows the Government's inclusion of a temporary SuperStream levy as part of the supervisory levy from 2012–2013 to recover the estimated $467 million cost of implementing SuperStream.

Superannuation proportioning rule

The Government will ensure that the proportioning rule in s 307-125 of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply to transactions that are beyond the control of individual members from 1 July 2013. The proposed changes seek to provide greater certainty around superannuation fund mergers and certain transactions in response to the Stronger Super reforms.

Member protection rules

The Government will repeal the superannuation member protection regulations from 1 July 2013.

Superannuation Consumer Centre

The Government will provide $10 million over three years as a contribution to a non-government investment fund, the earnings of which will be used to fund the ongoing costs of a new Superannuation Consumer Centre (SCC). The Government's contribution will be contingent on matching funds being provided by industry. The SCC will be a non-profit organisation with a primary focus on superannuation policy research and related consumer advocacy.

SuperStream Advisory Council

The Government announced the membership of the SuperStream Advisory Council, which will provide external scrutiny of the implementation of the SuperStream reforms.

Lost bank accounts

The period of time that banks and other deposit-taking and life insurance institutions hold unclaimed moneys will be reduced to three years (down from seven years).

The legislative amendments to implement this proposal have been introduced into the House of Representatives: see Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012.

Other minor (but not unimportant) changes

Penalty unit increase

All penalty units for offences underCommonwealth legislation will be increased to $170 (up from $110), with effect from one month after the amending legislation receives Royal Assent. The penalty unit was last set at $110 in 1997.

The Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012, introduced on 10 October 2012, proposes to give effect to this measure. The proposed increase in a penalty unit means that the administrative penalties for SMSF trustees under the proposed ATO penalty regime (and all other federal offences linked to the penalty unit) will also be 55% higher than originally announced. Draft legislation proposes to enable the Commissioner to issue administrative penalties to SMSF trustees for certain contraventions of the Superannuation Industry (Supervision) Act 1993 and related regulations from 1 July 2013. The penalties will range from five to 60 penalty units, depending on the particular contravention. Accordingly, the MYEFO proposal to increase a penalty unit means that the administrative penalties for SMSF trustees will range from $850 to $10,200 (instead of the $550 to $6,600 originally proposed).

Charities – removal of ASIC annual fee

The annual review fee that is currently charged by ASIC for corporations that are registered with the Australian Charities and Not-for-profits Commission (ACNC) will be removed from 1 July 2013.

Customs and compliance

The Government will provide $13.5 million over the forward estimates period to expand the Australian Customs and Border Protection Service's compliance assurance system at our borders. The funding will allow additional staff to undertake targeted reviews of Tariff Concession Orders (TCOs).

GIC on student income support

The Government will introduce a general interest charge (GIC) on student income support debt. From 1 January 2014, the charge will apply to student income support debtors who do not have, or who are not honouring, an acceptable repayment arrangement. The GIC will be applied at the 90-day Bank Accepted Bill rate plus an additional 7%, consistent with the charges applied by the ATO for tax debt.

Miscellaneous amendments to tax laws

The MYEFO statement says the Government will make a series of minor technical amendments covering the income tax, GST, fuel tax, minerals resource rent tax and petroleum resource rent tax legislation.

Note: No further details on the “miscellaneous amendments” were released.

Sources: MYEFO 2012-13, www.budget.gov.au/2012-13/content/myefo/html/index.htm;

Treasurer's media releases Nos 099 and 100: www.treasurer.gov.au/wmsDisplayDocs.aspx? doc=pressreleases/2012/099.htm&PageID=003&min=wms&Year=&DocType=0;

www.treasurer.gov.au/wmsDisplayDocs.aspx? doc=pressreleases/2012/100.htm&PageID=003&min=wms&Year=&DocType=0;

Minister for Financial Services and Superannuation’s media releases, Nos 69 and 70: www.treasurer.gov.au/DisplayDocs.aspx? doc=pressreleases/2012/069.htm&pageID=003&min=brs&Year=&DocType=0;

www.treasurer.gov.au/DisplayDocs.aspx? doc=pressreleases/2012/070.htm&pageID=003&min=brs&Year=&DocType=0.