Federal Budget 2009-2010

The Rudd/Swan Labor government handed down their second federal budget on May 12th, 2009 and we summarise the key points below:

• Budget Deficit at an all time record high of $58 Billion or 4.9% of Gross Domestic Product (GDP).
• Net Debt to reach a record $188 Billion by 2012-13. Remember Howard took over a $90 Billion deficit when he came to power. The Treasurer has forecast that this debt will be repaid by 2015-16.
• Unemployment of 8.5% or one million people by 2010-11.
• Concessional Superannuation Contribution Caps Reduced from July 1, 2009.

For individuals aged 50 and over the current limit of tax deductible contributions (or concessional) will be reduced from $100,000 to $50,000 per annum until 2011-12 and then to $25,000 per annum thereafter.

For individuals under age 50 the limit on tax deductible or concessional contributions will drop from July 1, 2009 from $50,000 per annum to $25,000 per annum.

• Non Concessional Superannuation Cap of $150,000 per annum or $450,000 in any 3 year period will remain as it is.

• Superannuation Contribution Splitting – where a contribution is made for one person and then “spilt” into their spouses account will be reduced from the current 80% of the amount of the contribution to a limit of the concessional superannuation contribution caps outlined above.

• Transition to Retirement Strategies have not been specifically altered however the changes to the contribution caps outlined above will make it less advantageous for the wealthy.

• Superannuation Government Co Contribution to be reduced from the current 150% to 100% for 3 years and then gradually increased back to 150% again.

So currently when you put $1,000 of your after tax income into super and your income is below the threshold the government tops up your account with $1,500.

That will change in the 2009/2010 financial year and only a $1,000 top up will apply until 2014-15.

• Minimum Pension Streams from Superannuation have been halved for those on existing pensions or those commencing a new pension during 2009-10.

• Personal Income Tax Rate reductions previously announced were confirmed and are outlined below:

• Private Health Insurance Rebate and Medicare Levy Surcharge changes will basically mean more people pay more.

The changes are outlined below:

• Low Income Medicare Care Levy Threshold will be increased.

For the 2009 financial year and beyond, singles earning $17,794 and families earning $30,025 will not pay the Medicare Levy.

These thresholds increase for every child or dependant student by $2,757. Similarly pensioners below the age pension age earning $25,299 or less will not incur the Medicare Levy.

• First Home Owners Grant Boost will be extended in its current form until September 30, 2009 and then halved until December 31, 2009.

Remember that on top of this “Boost” is the original First Home Owners Grant of $7,000 as well as NSW Government’s New Home Buyers Supplement of $3,000 as well as a stamp duty exemption worth up to $17,990.

• Small Business Tax Break previously announced for business with turnover of less than $2 million to be increased again.

Initially this initiative set a 10% bonus tax deduction for capital expenditure over $1,000 and then increased to 30% for assets acquired between December 13, 2008 to June 30, 2009.

Now the extra tax deduction is 50% of capital expenditure purchased between December 13, 2008 to December 31, 2009 and must be used or installed ready to use by December 31, 2010.

• Large Business Tax Break previously announced for capital expenditure over $10,000 for businesses with turnover over $2 million has also been amended and can be summarized as follows:

• Employee Share Scheme Entitlement changes will now mean that those with an adjusted taxable income above $60,000 will now pay tax on what was once a tax-free $1,000 discount on the shares.

• Foreign Income from Employment will no longer be tax exempt where the work is for 91 consecutive days or more.

Expats who are still residents for Australian taxation purposes will have to return their employment income in their Australian income tax return and receive a tax credit for any foreign employment tax paid. In many overseas countries the rate of tax is between 10-20% and hence a huge amount of additional tax will be payable.

• Non Commercial Business Loss rules on activities like a hobby farm that generates a tax loss will be tightened.

Taxpayers earning over $250,000 will have these losses quarantined to that particular business activity and not be able to be offset the loss against other income.

• Off-Shore Companies and Trusts which are used to accumulate investment income and either defer or avoid Australian tax will be targeted by amending current legislation.

• Aged Pension Age to Increase from 65 years to 67 years for both men and women from 2023. This measure will be phased in from 2017. The current qualifying age of 65 will increase by 6 months every 2 years from 2017.

• Paid Parental Leave will commence from January 1, 2011.

The primary carer will be paid at the adult federal minimum wage (currently $543.78 per week gross) for a period of up to 18 weeks.

The payments will be subject to tax, will effect family assistance payments but  will not be counted as income for income support payments.

The government funded paid parental leave can be taken in conjunction with, or in addition to, employer provided leave.

Primary carers will be eligible if they:

• Earned less than $150,000 in the year prior to the birth or adoption.
• Have worked at least 330 hours over the 10 months preceding the birth or adoption.
• Worked continuously with one or more employers for at least 10 of the 13 months before the expected birth or adoption.

Paid parental leave will also be available to contractors, casual workers and the self employed.

Primary carers such as stay at home mums who do not qualify for the scheme will still have access to the Baby Bonus or Family Tax Benefit B where they meet the eligibility criteria.

Carers who chose to receive the paid parental leave will forgo for the 18 week period the following benefits:

• Family Tax Benefit B
• Dependant Spouse offset
• Child-housekeeper offset
• House keeper offset

Employers will be paid the parental leave who will then make the payments to the employees.

• Age Pension Increase to apply from September 20, 2009 as follows:

Pensioner Income Test to change from September 20, 2009.

Currently once a pensioner earns above the allowable fortnightly limit a 40¢ reduction in the pension applies for each dollar of income above the limit.

From September 20, 2009 this reduction will be 50¢ per dollar above the fortnightly limit.

 • Pension Bonus Scheme to be scrapped from September 20, 2009 and replaced with a pensioner work bonus.

This bonus will allow pensioners to get a maximum of $125 per fortnight in additional pension payment by disregarding half of the first $500 per fortnight of employment income under the income test

• Commonwealth Seniors Health Card eligibility has been changed. The government initially announced earlier in the year that tax free pension income would be included in the income test for the Commonwealth Seniors Health Card from July 1, 2009. The government announced in the budget that this measure would not be introduced.

• Self Funded Retirees will from September 20, 2009 receive the “Senior Supplement”. The Supplement will be $790.40 per annum for singles and $1190.80 per annum for couples.

The payment will be made quarterly and will go to retirees eligible for:

• Commonwealth Seniors Health Card
• Department of Veterans Affairs Gold Card

• Advice – should you or a friend or colleague require some advice on these or any other matter please feel free to make an appointment.