2007/8 Budget report

With the announcement of the Federal Budget last Tuesday, we bring you this summary of the income tax related items.

Some of the major initiatives announced in the budget include:

	The lifting of the threshold at which the 30% personal tax rate applies and the increase in the Low Income Tax Offset effective from 1 July 2007.
	The further increase in the tax thresholds at which the two top marginal tax rates apply effective from 1 July 2008.
	Significant improvements to childcare assistance arrangements

We also discuss:

	The changes relevant to small business
	Medicare low income thresholds
	Dependent spouse rebate
	The superannuation co-contribution

Personal income tax cuts

Cuts to personal income tax are proposed to take effect in two stages.
Stage One will commence on 1 July 2007 and Stage Two from 1 July 2008.
 

Comment
The effect of the tax cuts is that, from 1 July 2007, senior Australians eligible for the senior Australians tax offset will be able to earn more income without paying tax. Singles will be able to have taxable income up to $25,867 (up from $24,867) and couples up to $43,360 (up from $41,360).

Superannuation co-contribution

The Treasurer announced a one-off doubling of the superannuation co-contributions scheme. The one-off payment applies to eligible contributions made by individuals during the 2005/06 income year.

For example, an individual who is currently eligible for a co-contribution of $500 on their 2005/6 contributions will now receive an additional $500 resulting in $1,000 in total co-contributions from the Government.

Comment
Whilst this announcement applies to contributions already made, we still recommend the co-contribution scheme as an excellent way for eligible persons to enhance their superannuation. Note that you cannot do anything now to achieve entitlement to these benefits.

Small business changes

GST and PAYG changes will apply to small business, including an increase to the GST registration turnover threshold.

Registering for GST

From 1 July 2007, businesses with annual turnover of less than $75,000 will no longer be required to register for GST. Also, the GST registration threshold for non-profit bodies will be increased to $150,000. However, if businesses and non-profit bodies which fall below the threshold choose to register for GST, they will have the option of remitting GST only once a year.

Comment
If your business is currently registered for GST and has an annual turnover of less than $75,000 you may consider de-registering. We recommend you to consult us before acting.

Simplified GST

Small businesses will have the option of using a simplified method to calculate their GST obligations if it suits their requirements. The ATO will develop simplified accounting methods for entities with annual turnovers of less than $2m that make mixed (taxable and tax-free) supplies or mixed purchases. This will take effect from 1 July 2007.

From 1 July 2007, business purchases valued at $75 or less (not including GST) will no longer require an approved tax invoice to claim an input tax credit. The current threshold is $50. For purchases of $75 or less, businesses will be able to rely on the same record keeping requirements for both GST and income tax purposes.

Note: The Government will need to obtain the unanimous agreement of the States and Territories to implement the these GST changes.

PAYG instalments

Businesses with an annual turnover of less than $75,000 and who have voluntarily registered for GST will be able to pay their PAYG instalments on an annual basis from 1 July 2008.

Child care tax offset

From 1 July 2007, the payment of the 30% child care tax offset will be brought forward so that families will receive the offset as a direct payment shortly after the year in which the child care costs have been incurred.

Families with out-of-pocket expenses in both 2005/06 and 2006/07 will receive two offsets in 2007/08. One offset will be paid through the tax system. The other will be received as a direct payment from the Family Assistance Office.

The maximum payment will be $4,096 per child for 2005/06 and $4,211 per child for 2006/07. The payments will begin from September 2007 for child care expenses incurred in 2006/07.

Medicare low income thresholds

From 1 July 2006, the Medicare levy low-income threshold will increase:

  to $16,740 (from $16,284) for individuals and
  to $28,247 (from $27,478) for families.

The additional amount of threshold for each dependent child or student will increase to $2,594 (from $2,523).

The Medicare levy low-income threshold for pensioners below age pension age will also be increased. From 1 July 2006, the threshold will rise to $21,637 (from $19,583).

Dependent spouse rebate

The dependent spouse rebate will be increased to $2,100 (up from $1,655) for the 2007/08 and later income years. This increase will benefit taxpayers with a dependent spouse, who do not have a dependent child.

This change will also allow the dependent spouse to earn more income before the rebate is completely phased out. The dependent spouse rebate will be completely phased out when the spouse has separate net income of $8,681 (up from $6,901 currently).

Published : 11 May 2007