2008/9 Budget report

With the announcement of the Federal Budget by the Treasurer Mr Wayne Swan, we bring you this summary of the main changes that will affect our clients. Changes to taxation were expected with the change of Government, but Mr Swan has confirmed that  a review of the Australian taxation system and wider reform is on the agenda for 2009. We will keep you informed as information becomes available. (Subscribe to updates)

Some of the major highlights announced in the budget include:

	Delivery of personal tax cuts promised in the previous election
	Increased eligibility testing for various Government payments
	Alterations to Medicare Levy thresholds for both low and high income earners.

For the individual

Personal income tax cuts

The Government confirmed that it will deliver the tax cuts it announced during the 2007 election campaign. They include deferring the previously budgeted reductions in the top marginal tax rate for taxpayers on incomes of more than $180,000 per annum until beyond 2010-11.

Medicare levy

Low income thresholds

The Medicare levy low income thresholds will be increased to $17,309 for individuals and $29,207 for families, with effect from 1 July 2007.

The additional amount of threshold for each dependent child or student will also increase to $2,682. The Medicare levy threshold for pensioners below the Age Pension age will be increased to $22,922.

This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.

Surcharge thresholds

The Medicare levy surcharge thresholds for singles will be increased from $50,000 to $100,000 and for families from $100,000 to $150,000, with effect from 1 July 2008.

Family Tax Benefit Part B payments

Eligibility for Family Tax Benefit Part B to families will be limited to where the primary earner has an adjusted taxable income of $150,000 a year or less. This will also apply to related dependency offsets, including the dependent spouse, housekeeper, child housekeeper, parent/parent-in-law and invalid relative tax offsets.

Baby Bonus

The Baby Bonus will be increased from $4,258 to $5,000 and will be limited to families with an adjusted taxable income of $75,000 or less in the six months after the birth of a baby (equivalent to an annual income of $150,000) from 1 January 2009. It will be paid in 13 fortnightly instalments, rather than as a lump sum.

The age restriction on the Baby Bonus for adoptive parents will be lifted, extending to families with newly adopted children aged two years to 16 years.

Luxury car tax

The luxury car tax rate will be increased from 25% to 33%, with effect from 1 July 2008. The current threshold of $57,123 from which the luxury car tax applies will remain.

Education tax refund

Families receiving Family Tax Benefit (Part A) with children undertaking primary or secondary studies or whose school children receive Youth Allowance or another relevant payment will be eligible for the Education Tax Offset applying to expenses incurred from 1 July 2008.

Eligible families will be able to claim a 50% refund every year for key education expenses up to:

	$750 for each child undertaking primary studies (maximum refundable tax offset of $375 per child per year)
	$1,500 for each child undertaking secondary studies (maximum refundable tax offset of $750 per child per year).

Affected families should plan to keep records of education expenses from July 1 to ensure that the full amount of the refund is claimed.

For business

CGT small business concessions

Access to the small business capital gains tax (CGT) concessions will now be available for taxpayers owning a CGT asset used in a business by a related entity and for partners owning a CGT asset used in the partnership business, with effect from the 2007-08 income year.

The small business entity test does not currently cover business structures where the CGT asset is owned by an entity but is used in a related entity which carries on the business. In addition for partnerships, the small business entity test requires the taxpayer making a capital gain to be a partner in the partnership and for the asset to be an asset of the partnership. This measure will allow these structures and assets to qualify for the CGT small business concessions.

Entrepreneurs’ tax offset

An income test will be introduced for the entrepreneurs’ tax offset. The scheme provides a 25% tax offset for small businesses with annual turnover of less than $75,000. The income test will restrict eligibility for singles from $75,000 and families from $120,000 adjusted taxable income per year.

Fringe Benefits Tax

The current FBT exemptions for certain work related items (including laptop computers, personal digital assistants and tools of trade) will be tightened by ensuring the exemption only applies where these items are used primarily for work purposes. The FBT exemption will generally be limited to one item of each type per employee per year. The current list of FBT exempt work related items will also be updated to reflect changes in technology.

Also ending is the commonly used “double dip” where FBT exempt items are depreciated by the individual taxpayer. Items purchased before budget day can only be depreciated to 30 June 2008.

Superannuation clearing house facility

The Government will provide funding of $16 m over 3 years to set up an optional superannuation clearing house facility that will enable an employer to pay their contributions to a single location. The clearing house will then distribute them to the relevant superannuation funds as selected by their employees.

This is an excellent initiative for businesses with many employees and will enable streamlining of quarterly superannuation contributions.

Depreciation of computer software

The period over which capital expenditure on in house computer software is depreciated will be extended from 2.5 years to 4 years. In house software is computer software, or the right to use computer software, that is acquired, developed or developed by someone else and that is mainly used by the taxpayer in performing the functions for which the software was developed (that is, not for resale). Expenditure on in house computer software will continue to be depreciated on a straight line basis.

Other announcements

Australia’s future tax system

The Treasurer has confirmed that the Government will conduct a comprehensive review of Australia’s tax system. An initial discussion paper will be released by the end of July 2008. The review panel will provide a final report to the Treasurer by the end of 2009.

Means testing of government support

The definition of “income” that is used to determine eligibility for government support programs has been tightened. The changes are complicated and Saward Dawson will be able to advise you on the changes.

The new definitions will take effect from 1 July 2009.

Proposed first home saver accounts scheme modified

The proposed First Home Saver Accounts Scheme, which allows individuals to contribute up to $75,000 towards the purchase of their first home, has been amended. The previously announced $10,000 annual contribution cap has been replaced with an overall contribution cap of $75,000. Also, the requirement to contribute $1000 to commence the account has been removed.

The commencement date of the scheme has been delayed until 1 October 2008 to enable account providers more time to develop products. This delay does not affect individuals as they are still entitled to a government contribution on the first $5,000 of personal contributions in 2008/09.

Published : 14 May 2007