2009 Federal Budget

Budget Overview

A “temporary collapse in revenue” has prompted a “program of responsible borrowing” and “longer term nation building projects” by the Rudd Labor Government, as announced in last night's Federal Budget. The government hopes that this will provide the stimulus needed for the economy, with the aim of bringing the budget back to surplus in the medium term.

As a result, no radical tax changes were announced, although measures have been proposed to reduce tax concessions for middle to high income earners in the form of superannuation reform and changes to the private health insurance offset. Contrary to speculation, the incentive for first home owners has been extended and so has the small business tax break. Reform of the tax system is high on the agenda but tax cuts announced in last year's Budget will be honoured.

Fortunately tax planning opportunities have been relatively untouched for the 2009 financial year but a number of changes will be required from 1 July 2009 given the changes in superannuation contribution limits which will then apply. A number of other changes will require adjustment in the structure of some client groups.

Here are the highlights of the tax and superannuation changes announced in the Budget.

Highlights

Superannuation concessions

• The annual cap for concessional superannuation contributions has been halved from $50,000 to $25,000, and the transitional concessional contributions cap has been reduced to $50,000 per year from its former annual limit of $100,000.

• The superannuation co-contribution scheme 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.

Individuals and families

• From 1 July 2010, the government will introduce three new “Private Health Insurance Tiers” in respect of the Private Health Insurance Rebate

• From the 2008/09 year, the Medicare levy low-income thresholds will be increased to $17,794 for individuals and $30,025 for individuals in families.

• The First Home Owner’s Boost will be extended for an extra six months.

• The employee share scheme deferral election will not apply to shares and options acquired after 7.30pm on 12 May 2009.

• From the 2009/10 income year, taxpayers with an adjusted taxable income of over $250,000 will have excess deductions quarantined to the business activity under the non-commercial losses rules.

• From 1 July 2009, the foreign employment income exemption will only be available for income earned by aid or charitable workers, government aid workers, and specified government employees.

• From 1 July 2009, Family Tax Benefit Part A (FTB-A) payment rates will be indexed by the Consumer Price Index. The higher income thresholds for family payments (FTB-A, FTB-B and Baby Bonus) will be maintained at their current level until July 2012.

• A Paid Parental Leave scheme will be available to parents for births and adoptions that occur on or after 1 January 2011.

Small Business

• A bonus deduction of 50 per cent will be available to small businesses that acquire an eligible asset between 13 December 2008 and 31 December 2009 and install it ready for use by 31 December 2010

• The application of the income test for the entrepreneurs’ tax offset will be deferred for 12 months and commence on 1 July 2009.

• The government has made the income recovery subsidy payments for the Victorian bushfires and for the North Queensland floods exempt from income tax.

• Certain grants to small businesses and primary producers affected by the Victorian bushfire will be income tax exempt.

Companies and trusts

• From 2010/11, the current R&D concession will be replaced by the new R&D tax credit.

• From 1 July 2009, the non-commercial loan rules will be extended to payments by way of a licence or right to use real property and chattels.

• The government will convert Medibank Private to a “for profit” government-owned business enterprise in early 2009/10.

• There has been confirmation that the immediate annuity conditions for life insurance companies did not change when they were transferred to ITAA 1997.

• Australia’s foreign source income attribution regimes will be reformed.

• A number of technical amendments will be made to the Uniform Capital Allowance rules.

• The government will implement the recommendations of the Board of Taxation to improve the taxation treatment of off-market share buy-backs.

• The government will change the thin capitalisation regime for approved authorised deposit taking institutions.

• Australian managed investment trusts will be able to make an irrevocable election to apply the capital gains tax regime as the primary code for taxing certain disposals of assets, with effect from the 2008/09 income year.

• A limited CGT roll-over will be provided for assets transferred between trusts that have the same beneficiaries with the same entitlements and no material discretionary elements (i.e. fixed trusts).

• From 1 July 2010, TFN withholding arrangements will apply to closely held trusts.

Other superannuation and retirement measures

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

• 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.

• The minimum drawdown amount for account-based pensions will be halved for the 2009/10 income 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.

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

Indirect and other taxes

• The administration of GST is to be streamlined, and compliance costs reduced, from 1 July 2010.

• The GST law will be amended to clarify the GST treatment of the Carbon Pollution Reduction Scheme.

Carbon Pollution Reduction Scheme

• With effect from the introduction of the Carbon Pollution Reduction Scheme all Kyoto units registered in Australia will be subject to the scheme’s proposed tax treatment.

• The government will delay the start date of the Carbon Pollution Reduction Scheme by one year to 1 July 2011.

Summary

As usual, the Budget contains many more tax amendments than expected. Some of them are “tax nasties”, but, to be honest, given the circumstances, we would have expected more. However, one gets the impression that the Government is keeping its powder dry for the Henry review of the Australian Taxation System which is due at the end of the year.

We now enter into a period of uncertainty where we have a Bill before Parliament and there is certainly no guarantee that all of the measures will actually become Law given the state of play in the Senate. We can all look forward to future amendments and keeping on top of the changes as they occur.

If you would like further information regarding the Budget changes, then please attend our Budget Synopsis this Thursday night. Following is a link to our website to confirm your place if you have not done so already.

http://www.completebusiness.com.au/latest_news/budget_synopsis

If you have a specific request with regard to how any of the tax changes will affect you or your family then please let us know. More detailed information can be provided upon request. Please note that some changes may be a little scant on information as the Government simply hasn’t released the information to date.

Good luck and best wishes.

From the team at Complete Business Strategies.

Acknowledgements:

• Treasury – Budget Paper No 2
• CCH Australia
• Tax Institute of Australia
• Television Education Network