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Federal Budget 2009-10

Tuesday 12 May, 2009

Looking for our report on the Federal Budget 2010-11? Click here. 

 

At 7:30pm on Tuesday 12 May, Treasurer Wayne Swan presented the 2009 Federal Budget and a $57.6 billion deficit. Swan reiterated this is a “program of responsible borrowing” with a view to returning to surplus in the “medium term”.

Whilst there were no significant or ground breaking tax changes announced in the budget, there were a number of measures proposed. Of most impact to all individuals is to note that the tax rate cuts announced in last year’s budget have been honoured.

Here are some of the tax highlights and lowlights from this year’s Federal Budget:

Superannuation

A: Major superannuation concessions

Key points

• The Concessional Cap (CC) for superannuation contributions introduced under the Better Super regime has been halved from $50,000 to $25,000, and the Transitional Concessional Cap (TCC) has been reduced to $50,000 per year from its former non-indexed limit of $100,000 effective 1 July 2009

• The Non-concessional Contributions Cap (NCC) will remain at $150,000 for 2009-10 (or $450,000 under the ‘bring forward option’ over 3 years), and

• The Government Co-contribution Scheme (GCS) will be reduced to a rate of 100% for contributed amounts for the 2009-10, 2010-11 and 2011-12 years, increasing to 125% for the 2012-13 and 2013-14 years and returning to 150% for the 2014-15 year.

Concessional contributions caps reduced

[Editor: Recently updated cap thresholds released by the Tax Office had increased the CC for 2009-10 to $55,000. Therefore it would appear that the Budget Night change amounts to more than a halving (approx. 54.5%) of what would have been the applicable cap for 2009-10.]

The government has made its first rollback of the Better Super reforms, reducing the concessional contributions caps from the start of the 2009-10 income year. The concessional contributions cap has been halved to $25,000 a year from its current limit of $50,000. The government will introduce special concessions for persons who are defined benefit fund members on 12 May 2009.

A reduction will also apply to the transitional threshold for concessional contributions. The transitional concessional cap will be reduced from its current annual level of $100,000 to $50,000 per year. The transitional concessional cap of $50,000 will apply for the 2009-10, 2010-11 and 2011-12 years of income.

The government has ruled out any reduction to the non-concessional caps at this time, stating that they remain at $150,000 (indexed) which will now be six times the amount of the concessional cap for the 2009-10 income year and beyond.

Non-concessional contributions cap unchanged

The Non-concessional Contributions Cap (NCC) will remain at $150,000 for the 2009-10 (or $450,000 under the ‘bring forward option’ over 3 years). In the future, the non-concessional contributions cap will only increase when the new lower $25,000 cap is increased by indexation. It will be calculated as 6 times the level of the indexed concessional contributions cap.

Superannuation co-contribution decreased

The Government Co-contribution Scheme will be reduced to 100% of eligible contributions for 2009-10, 2010-11 and 2011-12 income years, with the rate increasing to 125% of contributions for the 2012-13 and 2013-14 years and returning to its former level of 150% for the 2014-15 year.

The adjusted superannuation co-contribution rates from 1 July 2009 will be:

• 100% for 2009-10, 2010-11 and 2011-12, with a maximum co-contribution of $1000, reduced by 3.333 cents for each dollar by which the person’s total income exceeds the shade out threshold for receiving the full co-contribution

• 125% for 2012-13 and 2013-14, with a maximum co-contribution of $1,250, reduced by 4.167 cents for each dollar of total income above the shade out threshold, and

• 150% from 2014-15 onwards, with a maximum co-contribution of $1,500, reduced by 5 cents for each dollar of total income above the shade out threshold.

B: Other superannuation and retirement measures

Key points

• The age pension age will be gradually increased to 67 years of age

• The income test taper will be altered to increase the rate at which the pension is reduced with increasing private income. It will be increased from 40 to 50 cents for each additional dollar of income received by the pensioner

• Superannuation funds will be required to align their lost superannuation reporting with unclaimed money regulations and to transfer lost superannuation accounts with balances less than $200 to unclaimed monies

• A halving of the minimum annual drawdown amount for account-based pensions has been extended to include the 2009-10 financial year

• The future tax panel's review into retirement incomes has released its report, recommending keeping the superannuation guarantee charge at 9%, increasing the age pension age to 67 years and aligning the age pension with the preservation age, and

• Australia and New Zealand have agreed in principle to allow movement of superannuation benefits between Australian and New Zealand superannuation funds.

Pension age to be increased to 67

The age pension age will be gradually increased to 67 years of age. The new pension changes will apply to new pension entrants from 1 July 2017, which will mean that it applies to people who are 57 years of age or younger on July 2009.

The following table indicates the new age pension ages:

Date	New age pension age	Affects people born	When group reaches new age pension age
1 July 2017	65 years and 6 months	1 July 1952 to 31 December 1953	1 January 2018 to 30 June 2019
1 July 2019	66 years	1 January 1954 to 30 June 1955	1 January 2020 to 30 June 2021
1 July 2021	66 years & 6 months	1 July 1955 to 31 December 1956	1 January 2022 to 30 June 2023
1 July 2023	67 years	From 1 January 1957	From 1 January 2024

The reform to the age pension arose out of the Pension Review Report which was also released in the 2009 Federal Budget.

Income test taper

The Income test taper will be altered to increase the rate at which the pension is reduced with increasing private income. It will be increased from 40 to 50 cents for each additional dollar of income received by the pensioner.

Lost superannuation accounts amendments

Two small amendments have been made to the treatment of lost superannuation amounts. These changes are:

• superannuation providers will be required to transfer lost accounts with balances less than $200, or which have been inactive for five years and for which there are insufficient records to identify the owner of the account, to unclaimed monies. This measure will apply from the 2010-11 income year, and

• superannuation providers obligations under the unclaimed money regime will be matched with the requirements of the temporary resident unclaimed superannuation regime. The amended regime will apply to payments of unclaimed money due after 1 July 2009.

Pension drawdown relief extended

The minimum drawdown amount for account-based pensions will be halved for the 2009-10 income year. This extends the current drawdown relief concession provided to self-funded retirees for the 2008-09 income year.

The Seniors Supplement payment will also be made available to certain self-funded retirees. Self-funded retirees who are eligible for the Senior's Health Card or the Department of Veteran's Affairs Gold card with Seniors Concession Allowance will be eligible for the annual payment of $790.40 for singles and $1190.80 for couples.

Retirement incomes report released

The Australia's Future Tax System Review Panel has released its report into retirement incomes. The review supports the current three-pillared system with some minor amendments. The major recommendations of the review include:

• increasing the age pension age to 67 years

• maintaining the current superannuation guarantee threshold of 9%

• aligning the superannuation preservation age with the age pension age, and

• undertaking further examination into the concessional tax treatment for superannuation contributions and for salary sacrifice arrangements.

The final version of the panel's report will be released in December 2009.

Australia-New Zealand superannuation portability scheme

Australia and New Zealand have agreed in principle to allow movement of superannuation benefits between Australian and New Zealand superannuation funds. The final details of the scheme are currently being settled with New Zealand.

Individuals

• Tax Rates changes remain

The Government has left the tax rate cuts announced in the previous Budget unchanged. As a result, the Government will deliver in full the tax cuts as follows:

For the 2008-09 income year, the tax rates for resident individuals are:

$0 – $6,000	Nil
$6,001 – $34,000	15c for each $1 over $6,000
$34,001 – $80,000	$4,200 plus 30c for each $1 over $34,000
$80,001 – $180,000	$18,000 plus 40c for each $1 over $80,000
$180,001 and over	$58,000 plus 45c for each $1 over $180,000

For the 2009-10 income year, the tax rates for resident individuals are:

$0 – $6,000	Nil
$6,001 – $35,000	15c for each $1 over $6,000
$35,001 – $80,000	$4,350 plus 30c for each $1 over $35,000
$80,001 – $180,000	$17,850 plus 38c for each $1 over $80,000
$180,001 and over	$55,850 plus 45c for each $1 over $180,000

• Foreign Employment Income

The Government has announced they will amend the general exemption available for Australians working overseas for over 90 consecutive days so that this exemption is targets at only for income earned:

• as an aid or charitable worker employed by a recognised non-government organisation; or 

• as a government aid worker; or

• as a specified government employee (for example, defence and police force personnel deployed overseas).   

Further, income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt, as provided for by existing rules.

To avoid Australians paying double-taxation, a tax offset will be available for any foreign tax paid on their foreign employment income.

• Private Health rebates & Medicare levy surcharge

The Government has announced that the 30% Private Health Insurance Rebate will be reduced for single taxpayers earning more than $75,000, and families earning more than $150,000 per year from 1 July 2010.

According to the budget announcement, the Medicare levy surcharge rate will also be increased for singles earning above $90,000 and families above $180,000 to continue to provide higher income Australians with incentives to take out private health insurance.

The detailed changes to Private Health Rebate Rates and Medicare Levy Surcharge are summarised in the table below:

	Private Health Insurance Rebate			Medicare levy Surcharge Rates
Income levels	Below 65 years	65 years or over	70 years or over
$75,000 single or $150,000 family	20%	25%	30%	1%
$90,000 single or $180,000 family	10%	15%	20%	1.25%
$120,000 single or $240,000 family	0%	0%	0%	1.50%

• Increase in Medicare levy low-income thresholds

From the 2008-09 income year, the Medicare levy low-income thresholds will be increased:

• Individuals: $17,794

• Individuals in families: $30,025

• Pensioners below Age Pension age: $2,757

• The additional amount of threshold for each dependent child or student will also increase to $2,757.

• Various family payment changes

Paid Parental Leave

The Government has announced the first ever comprehensive Paid Parental Leave scheme. The scheme will be available to parents for births and adoptions that occur on or after 1 January 2011 and parents will be able to lodge claims from 1 October 2010.

The scheme will provide 18 weeks postnatal leave paid at the federal minimum wage (currently $543.78 per week). There is some eligibility requirement for the scheme which is largely based on being actively in the work force prior to the birth or adoption of the child and includes a means test of an adjustable taxable income of $150,000 or less in the financial year prior to the date of birth or adoption of the child.

The Government has said it will provide employers with the funds in advance and employers will act as “paymasters” in most situations.

Alignment across Family Assistance Office and Child Support Program

Government will ensure that parents only have to participate in one care determination to work out both their child support and family assistance entitlement. This measure which removes the duplication between the Child Support Program and Centrelink and simplifies the process for parents provides government a saving of $0.5million over four years and ongoing savings thereafter of approximately $10 million per annum from 2012 13.

Reform of family payments — Family Tax Benefit Part A (FTB A) 

The Family Tax Benefit Part A (FTB-A) for children under 16 is currently benchmarked to the higher of a proportion of the combined couple pensioner rate or the Consumer Price Index (CPI). From 1 July 2009, FTB A payment rates will be indexed by the CPI. This is in line with other family payments such as Family Tax Benefit Part B and the Baby Bonus. Government expects this measure will generate savings of $1.0 billion over four years.

Reform of family payments — pause to indexation of upper income thresholds of FTB A, FTB B and Baby Bonus

Government has frozen the indexation of a number of family payment thresholds until July 2012. While the expected savings will generate an additional $1.4 billion over the next four years, the measure is focused on better targeting those families most in need. The following higher income thresholds for family payments are affected:

• The Family Tax Benefit Part B primary earner income threshold -  $150,000

• Dependency tax offsets threshold - $150,000

• Baby Bonus eligibility threshold - $75,000 of family income in the six months following the birth or adoption of a child (equivalent to $150,000 a year),

• FTB-A higher income free area - $94,316 of family income (plus $3,796 for each child after the first).

Higher Education System for the 21st Century

Government has announced a number of measures highlighting the higher education system.

Education and nursing graduates working in those professions will have a reduction of $1,536 to the required HELP debt repayments. The HELP debts will be reduced by $1,536 (indexed annually by the Consumer Price Index) for each year the graduates work in these professions, up to a maximum of five years. This measure targets students graduating from semester two 2009 and is designed to encourage continuation of employment in these professions.

Business Taxation

• Small Business and General Business Tax Break

The budget announcement outlines an expansion of the “tax break” proposed for business taxpayers investing in eligible new depreciating assets or enhancing existing assets. Currently the Tax Laws Amendment (Small Business and General Business Tax Break ) Bill 2009 provides for an additional deduction at a rate of 30% for investment committed by 30 June 2009, provided the asset is installed ready for use by 30 June 2010. The rate of deduction is proposed to fall to 10% for investment committed between 1 July 2009 and 31 December 2009 where installation of the asset is completed by 31 December 2010. This Bill is currently before parliament.

The budget announcement increases the rate of deduction to 50% for “small businesses” acquiring an eligible asset between 13 December 2008 and 31 December 2009 provided the asset is installed ready for use by 31 December 2010.

It is assumed that the term “small businesses” will refer to a small business entity as presently defined in the tax law ie carrying on business with an aggregated annual turnover of less than $2 million.

Example: A small business entity expending $30,000 on 12 May 2009 to acquire an eligible asset which is installed ready for use on 1 July 2009 would obtain an additional deduction of $15,000 in the 2009-10 year. This presumes the legislation is ultimately enacted in accordance with the terms of the budget announcement.

The existing provisions contained in the Bill which is currently before parliament are intended to continue to apply to businesses which are not “small businesses.”

• Research & Development

From 2010-11, the existing R&D Tax Concession will be replaced with a simplified R&D Tax Credit system. The new Tax Credit provides a 45 per cent refundable credit for firms with an annual turnover of less than $20 million. This is equivalent to a Tax Concession of 150 per cent. This means that firms will receive a tax refund of 45 per cent of their R&D spending when they file their tax return. The refundable credit will be available to small companies in tax loss, with no limit on the level of R&D expenditure they undertake.

Businesses with a turnover of more than $20 million will also benefit from the new scheme, with access to a 40 per cent non-refundable credit. This is equivalent to a tax concession of 133 per cent. Companies undertaking R&D in Australia where the intellectual property is held offshore will also be able to access the 40 per cent non-refundable credit.

As a transitional measure for 2009-10, the R&D expenditure cap for the existing R&D Tax Offset will be lifted from $1 million to $2 million. The cap is the maximum amount a firm can spend on R&D to be eligible for the Tax Offset. Under the new Tax Credit system, eligibility criteria will be tightened to support only genuine R&D. 

• Employee Share Schemes

Significant changes have been made to the taxation of shares and options received under employee share schemes. All discounts on shares and options provided under an employee share scheme will now be assessed in the income year in which they are acquired, whether they are qualifying or non-qualifying. This means employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time.

The Government will also limit access to the $1,000 upfront concession. The $1,000 upfront tax exemption will be limited to those employees with a taxable income of less than $60,000 after adjustment for fringe benefits, salary sacrifice and negative gearing losses.

These measures will apply to shares and options acquired after 7.30pm on 12 May 2009. The measures will not affect shares or options already held by employees.

• Use of Non-Commercial Losses

The budget announcement proposes to remove the ability of taxpayers with an adjusted taxable income more than $250,000 to apply losses from non-commercial business activities against income from other sources such as salary or investment income. Such losses will only be able to be offset against income from the business activity. Taxpayers will have the ability to seek an exercise of discretion from the Commissioner of Taxation to ignore the new rules where exceptional circumstances exist or where the business being carried on is independently assessed as commercially viable.

The measures are intended to apply from the 2009-10 income year.

The existing non-commercial loss rules will continue to apply to taxpayers with an adjusted taxable income of $250,000 or less.

• Extending TFN withholding to closely-held trusts

The government intends to extend the current TFN withholding arrangements to closely-held trusts to ensure that assessable distributions to beneficiaries as disclosed in the trust income tax return aligns with the amounts returned as assessable income by those beneficiaries.

It is likely that closely-held trusts will be defined as discretionary trusts and other trusts with fewer than twenty beneficiaries.

The announcement indicates that the withholding obligation will apply to family trusts.

It is intended that the arrangement operates as follows:

• a beneficiary of a closely held trust will be required to provide their TFN to the fund trustee prior to a distribution being made;

• if the TFN is provided, no withholding will occur;

• if the beneficiary does not provide their TFN to the trustee, the trustee will be required to withhold tax from the distribution for remittance to the Tax Office;

• where the trustee has withheld tax, the applicable beneficiary will be entitled to a corresponding tax credit upon lodgement of their income tax return.

Withholding will not apply where the trustee is assessed to tax on behalf of a beneficiary, such as in the case of a minor beneficiary.

The measure is intended to apply from 1 July 2010.

• Entrepreneurs' tax offset — defer the application of the income test

Government will defer the application of the income test for the Entrepreneurs' Tax Offset (ETO) announced in the 2008-09 Budget for 12 months.  Previously, in the 08/09 budget government announced, the income test will focus the benefit of the ETO towards genuine small businesses, by restricting eligibility for singles from $75,000 and families from $120,000 adjusted taxable income per year.

The Government is to consult on how the income test will apply from the 2009-10 financial year.

• Division 7A changes

Government proposes a tightening of the rules of the Division 7A loan rules.  These rules are designed to increase the integrity of the regime and will be extended to capture payments by way of a licence or right to use real property and chattels. This measure further captures those transactions conducted by private company shareholders or their associates at less than market value. 

• Review of DGR registers

The Government has announced they will commence a review of the Deductible Gift Recipient Registers. The reviews will encompass the guidelines for the registers and the organisations on the registers.

• Uniform Capital Allowance Regime

 The proposed amendments are technical in nature and in some instances are merely intended to provide clarification of the law. The amendments will mostly apply from 1 July 2009 with a small number having retrospective application to 1 July 2001.

The proposed amendments deal with issues such as:

• the interpretation of items 5 & 6 in s 40-40 (the “holder” provisions);

• the interaction between divisions 40 (UCA) and 240 (hire purchase transactions);

• aspects of sale and leaseback transactions;

• cost rules for software development pools;

• the interaction between the CGT provisions and the UCA regime; and

• application of the UCA regime to mining rights.

GST

• From 1 July 2010 the administration of GST is to be streamlined and compliance costs reduced
• Those countries that are eligible for the Indirect Tax Concession Scheme have been expanded
• Legislation will be amended to clarify GST treatment of the Carbon Pollution Reduction Scheme

Other & Tax Administration

Review of unlimited amendment periods and elections in the tax law

The Government will move to repeal over 100 provisions in the income tax laws that currently provide the Commissioner with an unlimited period in which to amend an item in a taxpayer’s income tax return. 

First Home Owner Boost

The Government announced that the First Home Owners Boost will continue for an extra six months, although this will be divided into two extension periods of eligibility that consider the date of the contract and whether the purchase is for an existing home.