Federal Budget 2009

The 2009 Budget will be remembered for its big deficit but the real pain of the Budget will be felt in the years to come when the debt we are accumulating will need to be repaid. One tag that has been applied to the Budget today is that Gen Y have now become Gen Debt!

The Government was in a tough position. $210b of tax revenue expected to be lost over the next 4 years due to the economic downturn put an end to the dream run of the nation’s finances. The 2010 Budget shows a record $57.6b deficit. Unemployment is forecast to rise to 8.5% or around 1 million Australians out of work! The net Government debt is expected to peak in 2013 at $188b or 13.8% of GDP. This is well below similar economies throughout the world and lower than Australia’s peak in the 1990s. However, the forecast to reduce this to 3.7% of GDP by 2020 must include some very uncertain and optimistic growth.

However, the pain of the Budget is restricted to relatively few people. Tax cuts announced in previous budgets are preserved. Although the concessional superannuation contributions have been reduced from 1 July 2009, the taxation of superannuation is unchanged. Aged pensioners will receive pension increases, although there are other welfare recipients who miss out.

There is significant funding for health, education and infrastructure which represents investment in the future of our nation. However, the jobs impact of these will be delayed due to the inherent lag between announcement and implementation.

The pension age will be progressively increased from 1 July 2017 to age 67. With the scaling back of superannuation concessions, we can all expect to work a little longer.

We are also of the view that there is more change to come. The Henry review of the taxation system is scheduled to be handed down in December 2009 and we anticipate that there will be further taxation reform to emerge. We will need to wait to see what this delivers.

Follow the links below to a detailed discussion of the various aspects of the budget and discover what this Budget means for you.

Taxation

Tax cuts maintained
The income tax cuts announced in last year’s Budget will be maintained. The personal income tax rates for residents (excluding Medicare levy) for the 2010 and 2011 financials years remain as follows:

Tax rates 2009/10

Tax rates 2010/11

Increase in Medicare Levy Low-Income Threshold
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.
The threshold for pensioners below age pension age will increase to $25,299. They will not have to pay the Medicare levy if they do not have an income tax liability.
These increases will apply with effect from 1 July 2008.

Individuals

Paid parental leave
Paid parental leave will be introduced for parents of children born or adopted as from 1 January 2011.  The leave will be paid at the federal minimum wage rate (currently $543.78 per week) for up to 18 weeks. 
Read more

Employee share schemes
The taxation of qualifying shares and options has been significantly amended effective from 12 May 2009.
Read more

First home owners' boost extended
The First Home Owner’s Boost (FHOB) will be extended to 31 December 2009. This provides and extra $7,000 for the purchase of established homes and $14,000 for the purchase of new homes to 30 September 2009. However, the amounts will be halved from 1 October 2009 to 31 December 2009.
The FHOB grants are in addition to the existing $7,000 grant under the First Home Owners Scheme.

Foreign employment income
Australian residents working overseas for 90 days or more will no longer be exempt from Australian tax.
Read more

Private health insurance
From 1 July 2010, three new private health insurance tiers will be introduced that will determine:

	Rate of Medicare levy surcharge (additional tax) for those without private health insurance and
	Rate of private health insurance rebate available to reduce premiums See the full breakdown of the new tiers

Business

PAYG Instalments- Uplift factor reduced
For the 2009/10 income year, the GDP adjustment factor will be reduced from 9% to 2% for calculating quarterly instalments under the GDP adjustment method.
This means that the PAYG instalments will now be based on last year’s income, increased by 2%.

Expansion of eligibility & concession
The Small Business Tax Break is being expanded for small businesses only. It is being extended to give a 150% tax deduction over the life of the asset, and the deadline for ordering the asset has been extended to 31 December 2009. Eligible assets purchased between 13 December 2008 and 31 December 2009 and installed ready for use by 31 December 2010 can now get the 50% tax break. The previously announced 30% and 10% bonuses will continue to apply to all other businesses.
Read more

Tightened access to non commercial business losses
 From 1 July 2009, taxpayers with adjusted taxable incomes exceeding $250,000 will not be able to deduct losses from non-commercial businesses (eg. “hobby farms”) against salary income and other income. The losses will be quarantined and can only be deducted against future income from the business activity.  The existing rules will continue to apply to taxpayers with an adjusted taxable income of $250,000 or less. 

Extension of the TFN withholding arrangements to closely held trusts
The Government will extend the tax file number (TFN) withholding arrangements to closely held trusts, including family trusts, with effect from the 2010 - 11 income year. These trusts will be required to withhold tax at the top marginal rate on distributions to beneficiaries that have not provided the trust with their TFN.  The aim is to ensure that assessable distributions to beneficiaries of closely held trusts align with the amounts included by these beneficiaries in their tax returns. The beneficiary can claim a credit for any tax withheld when they lodge their own tax return. The new measures should not apply to minors and non-residents. We are unsure how this will apply to distributions made to charitable and other income tax exempt entities. 

Entrepreneurs' tax offset - Income test deferred
The Government will defer the application of the income test for the entrepreneurs' tax offset (ETO) announced in the 2008 - 09 Budget for 12 months.

Capital gains tax - Limited roll over for fixed trusts
Effective 31 October 2008, the Government will legislate a limited CGT rollover for “cloning” of fixed trusts with the same beneficiaries.  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.

Annual indexation of ASIC fees
Fees and charges collected by the Australian Securities and Investments Commission (ASIC) will be indexed to the Consumer Price Index from 2010-11.

Repeal of certain unlimited amendment periods in the income tax laws
The Government will look at repealing over 100 provisions in the income tax laws which currently provide the Commissioner with an unlimited period in which to amend an item in a taxpayer’s income tax return.  The Government believes the Commissioner should have sufficient time under the general amendment period provisions to review an assessment.

Uniform capital allowance regime
The Government will make a number of technical amendments to the uniform capital allowance (depreciation) rules to correct badly written law and uncertainties. These will affect low value pools, hire purchase arrangements and definitions of what is a “depreciating asset”.

New R & D tax credit
The existing R&D tax concession has been replaced. The new R&D tax credit system will apply for the 2011 financial year with different rates for companies with turnovers less than and greater than $20m. Read more

Deemed Dividends
Currently, Division 7A captures loans and advances made by private companies to shareholders and their associates and the FBT rules capture benefits provided to employees. Division 7A will be extended from 1 July 2009 to cover use of real property and chattel (use of apartments, cars, boats, etc) by shareholders for free or less than market value.

FIF and CFC
The Foreign Investment Fund (FIF) rules will be repealed and will be replaced with a narrower anti-avoidance rule. The Controlled Foreign Corporation (CFC) rules will be modernised and rewritten. The effective date for these changes is unknown.

Off-market share buybacks
The Government will modify the rules dealing with off-market share buybacks to provide greater certainty. The changes will only apply from the date the relevant legislation receives Royal Assent.

Margin scheme provisions
Treasury will undertake a review of the margin scheme provisions in the GST Act to determine whether the provisions can be simplified.

Superannuation

The concessional contributions cap has been halved to $25,000 for those under age 50 and to $50,000 for those over age 50. This will take effect from 1 July 2009.  From 2012/13 everyone will be subject to the $25,000 annual cap. The non-concessional cap has not been changed and remains at $150,000.
The Government co-contribution has been temporarily reduced from 150% to 100% for the 2009/10 year and the reduction in the minimum pension drawdown has been extended to the 2009/10 year.
Read more

Social security/Centrelink

The base rate of age pension will increase by $30 per week for single age pensioners from 20 September 2009. In addition, the four separate allowances (GST, utilities, telephone/internet and pharmaceuticals) will be combined into the one “pension supplement” and be paid fortnightly.
The Income Test will change meaning that every extra $1 of private income will reduce the Age Pension by 50 cents for singles and couples.
The proposed changes to Seniors Health Care Card have not been implemented.
As the Age Pension has increased, the maximum daily care fee paid by residents of nursing homes and hostels will increase by $3.20 per day from $33.41 to $36.61.
Read more

Published : 13 May 2009