Comments on ATO Media Press Release

By Mark Scott - Scott & Associates Chartered Accountants

On Tuesday night (12th May 2009), the Government introduced its 2nd budget. Whilst not commenting on the political aspects of the budget there are several major items contained in the budget that will affect businesses.

The notable impact points are:

• Increase in Investment Allowance for Small Business (One Senator quipped - it's like a Harvey Norman Sale).
• Superannuation - reduction of concessional contribution cap from 1 July 2009
• Temporary reduction of the Government co-contribution FY'10 - FY'14

Increase in Investment Allowance for Small Business (One Senator quipped - it's like a Harvey Norman Sale)

Small business entities (SBE's - with turnover less than $2,000,000) will be able to claim an increased investment allowance of 50% (instead of the previously announced 30%) of the cost of eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010. This applies to items like cars, computers, machinery etc. Small business entities need to invest a minimum of $1,000 (ex GST) on an individual asset in order to qualify for the 50% investment allowance.

All other businesses will continue to access the investment allowance at 30% for eligible assets contracted for between 13 December 2008 and 30 June 2009 (we are trying to clarify this as only SBE's accessed this), and 10% for eligible assets committed to investing in between 1 July 2009 and 31 December 2009, and installed by 31 December 2010.

Superannuation - reduction of concessional contribution cap from 1 July 2009

The Government will reduce the concessional contributions (CC) cap to $25,000 per annum (indexed) for people less than 50 years old, with effect from 1 July 2009. The transitional concessional contributions cap applicable to individuals aged 50 and over, will be reduced to $50,000 per annum. 'Grandfathering' arrangements will apply to certain members with defined benefit interests as at 12 May 2009 whose notional taxed contributions would otherwise exceed the reduced cap. Similar arrangements were applied when the concessional contributions cap was first introduced. This measure is from 1 July 2009 - it does not affect contributions to 30 June 2009. The annual cap on non-concessional contributions (NCC) is $150,000 per annum for the 2008-09 financial year and will remain at that level in 2009-10.

Next year's cap reduction means employed clients will need to review their salary sacrifice arrangements and self-employed clients their personal deductible super contributions and consider contributing more this financial year.

Temporary reduction of the Government co-contribution FY'10 - FY'14

The Government will temporarily reduce the matching rate and maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions, with effect from 1 July 2009. The amount reduces to $1,000 from 1 July 2009. If you are considering an after tax contribution into your super fund and your taxable income thresholds are below the levels of $58,342, it may be prudent to do so this year at the higher co contribution rate.

Taxation

Announced tax cuts from 1 July 2009

In accordance with the tax cuts announced in last year's budget, the new personal income tax thresholds for the 2009- 2010 year will be as follows (excluding Medicare levy):

Closely held trusts and TFN withholding arrangements from 1 July 2010

This measure ensures that assessable distributions to beneficiaries of closely held trusts (including family trusts) align with amounts declared in tax returns by beneficiaries. This will not apply to income where tax is directly payable by the trustee, such as minors' assessable income. Taxpayers who have tax withheld by trustees will be able to claim a credit for that tax in their tax return.

Private Health Insurance Rebate from 1 July 2010

The government has proposed to means test the 30% private health insurance rebate for middle to high income earners according to age. This is going to be achieved through introducing a three tier system with a parallel increase in the Medicare Levy Surcharge rate to penalise taxpayers who do not have eligible private health insurance.

Tier 1 - Singles with income of more than $75,000 (more than $150,000 for families), the rebate will be reduced to 20%, increasing to 25% at 65 years of age, and to 30% at 70 years. The Medicare Levy Surcharge for not having eligible private health insurance remains at 1%.

Tier 2 - Singles with income of more than $90,000 (more than $180,000 for families), the rebate will be 10%, increasing to 15% at 65 years of age, and to 20% at 70 years. Medicare Levy Surcharge for not taking out eligible private health insurance will be increased to 1.25%.

Tier 3 - No private health insurance rebate for singles with income of more than $120,000 (more than $240,000 for families). The Medicare Levy Surcharge for not taking out eligible private health insurance will be increased to 1.5%.

Changes to income tax exemption for income earned by Australians working overseas from 1 July 2009

From 1 July 2009 foreign employment income derived by certain Australians working overseas for a continuous period of 91 days or more will become taxable in Australia. To avoid double taxation, taxpayers will be entitled to a foreign income tax credit for any foreign tax paid. Currently, foreign employment income derived by Australians working overseas for a continuous period of 91 days or more is exempt from tax in Australia. Importantly, this exemption will continue to apply to income earned as an aid worker, a charitable worker, under certain types of government employment or on projects that are in the national interest.

Modified Pay As You Go (PAYG) instalments relief for small business from 1 July 2009

For the 2009-2010 financial year, the Government will provide cash flow relief by reducing 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 the expected increase in the consumer price index. This reduction will ensure that eligible small businesses, individuals, trusts and small super funds will have additional cash flow by more closely aligning their PAYG instalment amounts with their likely income tax liability for the year.

Social Security

Age pension age to increase to age 67 from 1 July 2017

The qualifying age for the Age Pension and the Commonwealth Seniors Health Card for men and women will increase to 67 years of age from July 2023. The Henry Tax Review report on the retirement income system also recommends aligning the superannuation preservation age with this higher Age Pension age. The qualifying age will begin to increase from July 2017, by six months every two years.

Paid Parental Leave from 1 January 2011

A government funded Paid Parental Leave scheme will be introduced. The parental leave payment will be equal to the federal minimum wage (currently $543.78 per week), and can be for up to 18 weeks. The primary carer must have earned less than $150,000 (income test yet to be defined) for the financial year prior to the child's birth or adoption, and have satisfied a work test. The work test requires the person to have worked at least 330 hours in the preceding 10 months, which equates to one full-time day per week. They must also have worked continuously for 10 out of the 13 months preceding the birth or adoption; therefore the work test cannot be satisfied by only working full-time for two months prior to the birth of a child.

Summary

The above is by no means exhaustive but gives a general overview of the Budget. Additional advice from your Accountant should be sought in regards to how the budget directly impacts upon your business.

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