2009 Federal Budget Summary
The Government's second budget includes a number of measures affecting business. One of the significant changes is the replacement of the current R&D Tax Concession with a Tax Credit. Small Business CGT amendments will also be made and the small business and general business tax break is to be expanded. Changes to GST laws will be implemented to apply from 1 July 2010.
The budget proposes measures to reduce tax concessions for high income earners in the form of superannuation reform and changes to the private health insurance rebate. The first home owner's incentive and the small business tax break have both been extended. Tax cuts will be honoured and reform of the tax system remains a focus, although no significant tax changes were announced on budget night.
Business taxation
Small business and general business tax break
The Small Business and General Business Tax Break will be expanded to allow a tax deduction of 50 per cent to small businesses with a turnover of less than $2 million that acquire an eligible asset between 13 December 2008 and 31 December 2009 and install it ready for use by 31 December 2010.
Eligible assets include tangible depreciating assets, such as computers and vehicles, and new expenditure on existing assets used in carrying on a business for which a deduction is available under the capital allowance provisions of the Income Tax Assessment Act 1997. Intangible assets such as software are excluded.
The previously announced 30 per cent and 10 per cent bonuses will continue to apply to all other businesses that meet the $10,000 cost threshold.
The legislation is still awaiting Royal Assent.
CGT limited roll-over for fixed trusts
From 1 November 2008, the CGT limited roll-over relief for fixed trusts will be provided for assets transferred between trusts that have the same beneficiaries with the same entitlements and no material discretionary elements. Typically, the transfer of assets from one trust to another would trigger a CGT taxing point.
As a result of this measure, trustees of eligible trusts will be able to defer the CGT consequences of the asset transfer until the receiving trust subsequently deals with the asset. This will allow eligible trusts to restructure without immediate CGT consequences. The measure will be accompanied by appropriate integrity rules.
PAYG instalments relief for small business
For the 2009-10 financial year, the Government will reduce PAYG instalments for all taxpayers who pay quarterly instalments based on their previous year’s tax adjusted by GDP growth. From next year the adjustment factor for calculating quarterly instalments will be reduced from 9% to 2% to align it with current market conditions.
This will more closely align PAYG instalment amounts with the tax payer's likely income tax liability.
Non-commercial loan rules extension
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. This will reduce the scope for private companies to allow their shareholders or associates to use company assets such as real estate, cars and boats for free or at less than arm's length value.
Other amendments will be made, including to ensure corporate limited partnerships cannot be used to avoid its operation.
GST administration amendments
The Government announced a number of recommendations in relation to GST Administration. Most of the substantial changes to GST law will apply from 1 July 2010.
The key components include:
- Introducing simpler BAS methods for reporting GST refunds
- Harmonising the GST law and the income tax self assessment regime and rulings regime
- Adopting more principled and flexible GST grouping rules
- Simplifying the GST adjustment provisions and
- Reforming the GST treatment of sales or going concerns and farmland.
Treasury will undertake reviews of the GST margin scheme and financial supply provisions, which are designed to simplify operation of the legislation and reduce both compliance and administrative costs.
Innovation
R&D tax concession replaced with tax credit
The current R&D tax concession will be replaced by the R&D Tax Credit from 2010-11. The government will consult further on the eligibility criteria in developing legislation for the new tax credit. A consultation paper will be released in the next few months.
The new R&D tax credit will provide a 45% refundable credit for firms with an annual turnover of less than $20m (ie equivalent to a 150% deduction). The credit will be available to small companies in a loss position, with no limit on the level of R&D expenditure undertaken.
Businesses with a turnover of more than $20m will be entitled to a 40% non-refundable credit (equivalent to a 133% deduction).
Companies undertaking R&D in Australia where the intellectual property is held offshore will also be able to access the 40% 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 $1m to $2m.
The Premium Concession and International Premium tax offsets will be abolished.
New Commonwealth Commercialisation Institute
A $196.1 million Commonwealth Commercialisation Institute will be established to develop a new approach to commercialising the best Australian research and ensure our innovative young companies are still operating when the economy improves.
The Institute will see that innovative firms with the potential for rapid growth, as well as the best ideas developed by universities and publicly funded research organizations, are assisted in taking their research and ideas to the market place and become successful commercial realities.
Export Market Development Grants 100% payouts in 2008-09
An additional $50 million will be added to the existing EMDG funding available to ensure grants are paid in full for 2008-09.
The extra funding will benefit an estimated 1800 Australian companies and be delivered in June 2009. Under the former arrangements, eligible small and medium sized exporters would have received second round payouts from the scheme of around 30 cents in the dollar.
Superannuation
Reduced concessional contribution cap
Under the current laws, taxpayers aged 50 and over at any time up to 30 June 2012, are eligible to make a concessional contribution of $100,000 per annum into superannuation. All other taxpayers are eligible to contribute up to $50,000 per annum into super.
From the start of the 2009-10 income year, the concessional contributions cap will be halved to $50,000 and $25,000 respectively.
The government will introduce special concessions for persons who are defined benefit fund members on 12 May 2009.
The government has ruled out any reduction to the non-concessional caps at this time. The cap will remain at $150,000 (indexed) and will now be six times the amount of the concessional cap for the 2009-10 income year and beyond.
Super co-contributions decreased
The superannuation co-contribution scheme will be temporarily reduced during 2009-10, and then scaled back to the former level of 150% in subsequent years.
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.
Extension of pension drawdown reduction
The minimum drawdown amount for account-based pensions will be halved for the 2009-10 income year. This extends the current 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.
Individuals
New personal tax thresholds
The budget committed to deliver the previously promised tax cuts without further change. The new personal income tax thresholds for the 2009-10 year will be amended to:
| Income threshold |
Tax rate |
| $0 - 6,000 |
0% |
| $6,001 - 35,000 |
15% |
| $35,001 - 80,000 |
30% |
| $80,001 - 180,000 |
38% |
| $180,000 + |
45% |
Deductions for non-commercial losses removed
Excess deductions from unprofitable business activities (such as hobby farms) can no longer be used to reduce salary and wage income for those with an adjusted taxable income of more than $250,000.
Excess deductions for these taxpayers will be quarantined to the business activity. The existing rules will continue to apply to taxpayers with an adjusted taxable income of $250,000 or less.
Taxpayers will still have the ability to apply to the Commissioner of Taxation for relief from the rules if there are exceptional circumstances, or because the nature of the activities means a taxpayer is temporarily carrying on an uncommercial business but the activities they are undertaking are nonetheless independently assessed as commercially viable.
TFNs required for closely held trusts
Tax file number (TFN) withholding arrangements will apply to closely held trusts from 1 July 2010. The rules will extend to family trusts. These trusts must withhold amounts from trust distributions at the top marginal rate where beneficiary taxpayers do not provide their TFN. The measure will not apply to income on which tax is directly payable by the trustee of the trust (eg income assessable to minors). Individuals who have tax withheld by trustees can claim a credit for that tax in their tax returns.
Private health insurance rebate
From 1 July 2010, the government will introduce three new “Private Health Insurance Tiers” in respect of the Private Health Insurance Rebate as follows.
| |
Current Medicare
Levy Surcharge Threshold |
Tier 1
|
Tier 2
|
Tier 3 |
| Single |
>$70,000 |
$75,001-90,000 |
$90,001-120,000 |
$120,001 |
| Couples |
>$140,000 |
$150,001-180,000 |
$180,001-240,000 |
>240,001 |
| Medicare Levy Surcharge |
1% |
1% |
1.25% |
1.50% |
| Private Health Insurance Rebate |
|
|
|
|
| Up to 65 years |
30% |
20% |
10% |
Nil |
| 65-69 years |
35% |
25% |
15% |
Nil |
| Over 70 years |
40% |
30% |
20% |
Nil |
All income thresholds will continue to remain indexed.
For low and middle-income earners, the existing 30%, 35% and 40% Private Health Insurance rebates will remain in place.
Increase in Medicare Levy low-income thresholds
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 additional amount of threshold for each dependent child or student will also increase to $2,757.
Further, the government will increase the Medicare levy low-income threshold for pensioners below Aged Pension age to $25,299, with effect from 1 July 2009.
First Home Owner’s Boost extended
The First Home Owner’s Boost (FHOB) will be extended for an extra six months and will be reduced by half for the last three months of the extension period.
For eligible first home buyers entering into contracts between 1 July 2009 and 30 September 2009 (inclusive), the existing grants will apply.
From 1 October 2009 to 31 December 2009 the FHOB will reduce to $14,000 for the purchase of new homes and $10,500 for existing homes.
The FHOB grants are in addition to the existing $7,000 grant under the First Home Owners Scheme.
Other budget announcements
Below is a summary of the other budget announcements the Government made on budget night:
Business
- ASIC fees will be indexed to the Consumer Price Index from 2010-11.
- Small business capital gain tax changes include a transitional rule to extend the time for taxpayers to choose to access the concessions where the choice arises from changes announced in the 2008-09 Budget and the 2008-09 Mid-Year Economic and Fiscal Outlook; access to the concessions for assets acquired on the death of an individual to be amended; and the provisions which treat certain distributions to entities connected with a private company as dividends to be excluded from applying to the small business CGT retirement exemption.
- Australian Managed Investment Trusts (MITs) will be eligible to make an irrevocable election to apply the CGT regime to the disposal of certain assets, with effect from the 2008/09 income year. The election will not be available to MITs that are currently taxed as companies.
- Technical changes to uniform capital allowance (UCA) rules for mining rights, low-value pools, software pools, project pools, the interaction of the UCA rules and hire purchase arrangements, sales and leaseback arrangements, the definition of a depreciating asset and the calculation of cost.
- Implement a number of amendments that affect the tax treatment of off-market share buy-backs.
- Change the thin capitalisation regime for approved authorised deposit taking institutions from 1 January 2009.
- Income recovery subsidy payments for Australian disasters and Clean-up and Restoration Grants made tax exempt.
- Legislation to be introduced to confirm that non-assessable non-exempt income of life insurance companies includes income from assets supporting immediate annuity policies that satisfy the pre-July 2000 immediate annuity conditions effective from 1 July 2002.
- A mechanism will be provided to conduct a triennial review of the guidelines for, and organisations on, the four deductible gift recipient (DGR) registers, with effect from the 2009-10 income year.
- The government will delay the start date of the Carbon Pollution Reduction Scheme by one year to 1 July 2011, with industry and household assistance being delayed until the scheme is introduced in 2011-12.
Trusts
- From 2008-09 any unexpended income of a Special Disability Trust will be taxed at the beneficiary's personal income tax rate rather than the top margin rate. From 1 July 2009 the CGT main residence exemption will be extended to a residence owned by a Special Disability Trust and used by the beneficiary as their main residence.
Individuals
- From 1 July 2009, the foreign employment income exemption will only be available for income earned as an aid or charitable worker employed by a recognised non-government organisation; as a government aid worker; or as a specified government employee (for example, defence and police force personnel deployed overseas); or when employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt. A tax offset will be available for any foreign tax paid on the foreign employment income.
- Entrepreneurs tax offset income test deferred for 12 months.
- Remove the tax deferral option for employees with employee share schemes and limit the $1,000 tax exemption to employees with a taxable income of less than $60,000. This comes into effect from 7.30pm 12 May 2009.
- Introduce a Paid Parental Leave scheme for parents in respect of births and adoptions that occur on or after 1 January 2011. 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.
- From 1 July 2009, FTB-A payment rates will be indexed by the Consumer Price Index consistent with other family payments such as FTB-B and the Baby Bonus.
- The 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 single base pension will be increased to 27.7 per cent of Male Total Average Weekly Earnings (MTAWE), from its present 25 per cent of MTAWE. In addition, from 20 September 2009 the base pension and the Pension Supplement will be increased by $32.49 per week for single pensioners on the full rate of pension; and $10.14 per week (combined) for couple pensioners on the full rate of pension.
- A new pension supplement will be introduced which will be an amalgamation of the former GST pension supplement, Pharmaceutical Allowance, Utilities Allowance and Telephone Allowance. From 20 September 2009 a new seniors supplement will be established for Commonwealth Seniors Health Card holders and veterans eligible for the Gold Card. It is the amalgamation of the former Seniors Concession Allowance and the Telephone Allowance.
- From 20 September 2009 the income test taper will increase from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents in the dollar for each member of a couple above the allowable income free thresholds.
- The Pension Bonus Scheme will be closed to new entrants. An income test concession will be introduced instead.
- A $600 pa carer supplement will be payable to eligible carers. All Carer Payment recipients will receive $600 pa. Carer Allowance recipients will receive $600 pa for each person they are caring for. Where a person receives both the Carer Payment and the Carer Allowance, they will be entitled to both payments. The payment will be non-taxable.
- The government will remove the inclusion of gross tax-free superannuation pension income in the proposed amendment to the definition of income used for determining eligibility to the Commonwealth Seniors Health Card. The government will proceed with the inclusion of income that is salary sacrificed to superannuation in the income assessment criteria.
- Amendments have been made affecting the treatment of lost superannuation amounts requiring superannuation providers to transfer unclaimed monies after certain trigger events and matching providers obligations with the requirements of the temporary resident unclaimed superannuation regime.
- A memorandum of understanding has been signed with New Zealand to establish a trans-Tasman retirement savings portability scheme.
For further information about these announcements, please contact our offices.
Source: CCH Australia Ltd
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