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The Government measures will reduce the
concessional contribution caps by half from the 2009-10 financial
year from $100,000 to $50,000 for those over 50; and from $50,000 to $25,000
for those under 50.
The change will significantly reduce the amount
which it is attractive for those still in the workforce or
approaching retirement to salary sacrifice into superannuation.
Under the changes:
- The
cap on concessional superannuation contributions for people
under 50 will be reduced from $50,000 to $25,000. The cap will
be indexed.
- The
existing transitional cap for concessional contributions for
those aged 50 years and over will also be reduced, from $100,000
to $50,000. This reduced cap will apply for the 2009-10, 2010-11
and 2011-12 financial years, after which affected persons will
revert to a $25,000 cap (or the applicable indexed amount).
- The
non-concessional contributions cap will remain at $150,000 for the
2009-10 financial year, and will only increase when the new
lower $25,000 cap is increased by indexation.
- The
existing ‘grandfathering’ arrangements that apply to Defined
Benefit schemes will continue.
The Budget contains temporary reductions in the level
of the Superannuation Co-contribution. The Government Superannuation
Co-contribution matching rate will be reduced from 150 per cent to
100 per cent for contributions in 2009-10, 2010-11 and 2011-12, and
to 125 per cent for contributions in 2012-13 and 2013-14 income
years.
The amount of personal contributions on which the
maximum co-contributions is payable will also be reduced accordingly
to $1,000, and to $1,250 for contributions made in the 2012-13 and 2013-14.
The co-contribution matching rate and maximum payable will return to
the current rates in 2014-15.
More expansive changes to superannuation that some
had anticipated have been put off until the Government can digest the
recently released recommendations by the Australia’s Future Tax
System Review Panel into the retirement income system. The panel
recommended:
- Retention
of the 9 per cent superannuation guarantee;
- Increasing
age pension commencement to age 67;
- Reducing
complexity of the interaction between the tax-transfer system
and the pension; and
- Maintaining
current tax assistance while improving access to concessions for
contributions.
It is important that the complexities that were
taken out of the superannuation system by the previous Government are
not reintroduced by stealth under the banner of the Global Financial
Crisis. While there has been some scaling back of the concessions
previously announced the Government has so far resisted the
temptation to radically alter the current superannuation system.
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The Budget introduced changes to reduce the private
health insurance tax rebate, and also increased the Medicare levy
income thresholds.
In its changes to private health insurance, from 1
July 2010, the Government will introduce three new ‘Private Health
Insurance Incentive Tiers’.
Existing arrangements will remain unchanged for
singles with income of less than $75,000 per annum and families with
incomes of less than $150,000 per annum.
Under the new arrangements:
Tier 1 will apply to
singles with income between $75,001 and $90,000 ($150,001 and
$180,000 for families) based on current projections. The private
health insurance rebate will be 20 per cent, increasing to 25 per cent
at 65 years of age, and to 30 per cent at 70 years. The surcharge for
not taking out complying private health insurance will remain at 1
per cent.
Tier 2 will apply to
singles with income between $90,001 and $120,000 ($180,001 and
$240,000 for families). The private health insurance rebate will be
10 per cent, increasing to 15 per cent at 65 years of age, and to 20
per cent at 70 years. The surcharge for not taking out complying
private health insurance will be increased to 1.25 per cent.
Tier 3 will apply to
singles with income of more than $120,000 (more than $240,000 for
families). No private health insurance rebate will be provided. The
surcharge for not taking out complying private health insurance will
be increased to 1.5 per cent.
The measure is forecast to deliver Budget savings
of $1.9 billion over five years and private health insurance coverage
is expected to remain at more than 99 per cent of current levels, the
Government said.
The Government will increase the Medicare levy
low-income thresholds. From the 2008-09 income year, the Medicare
levy low-income threshold will increase to $17,794 (up from $17,309)
for singles and to $30,025 (up from $29,207) for couples.
For families, the additional amount of threshold
for each dependent child or student will also be increased to $2,757
(up from $2,682).
With family payments, the Government announced a
freeze on payments made to families higher up the income scale for
now and in the future, at a saving of $1.4 billion over four years.
The following income thresholds will be maintained
at their current levels for a further three years, with Consumer
Price Index (CPI) indexation resuming on 1 July 2012.
- the
$150,000 primary income earner eligibility threshold for
receiving Family Tax Benefit Part B;
- the
$150,000 income threshold for receiving dependant tax
offsets;
- the
Baby Bonus eligibility threshold of $75,000 family income in the
six months
following birth of the child; and
- the
income threshold for receiving the base rate of Family Tax
Benefit Part A (FTB-A) as well as the additional per child
amount that is added to this threshold for families with more
than one child.
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First
home owner’s boost extended
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The Government announced that it would extend the
First Home Owner’s Boost (FHOB) for an extra six months.
Treasurer Wayne Swan said that in order to ensure
a responsible phasing out of “this highly successful measure”, the
scheme would 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
FHOB would continue to provide $7,000 for the purchase of
established homes and $14,000 for the purchase of new homes.
“This means that including the $7,000 First Home
Owner’s Grant, until 30 September, purchasers of new homes will
continue to be eligible for $21,000 of assistance, and purchasers
of existing homes will continue to be eligible for $14,000 of
assistance,” the Treasurer said.
Between 1 October 2009 and 31 December 2009 the FHOB grants would
be $3,500 for the purchase of established homes and $7,000 for the
purchase of new homes.
This meant that including the $7,000 First Home
Owner’s Grant, from 1 October until 31 December, purchasers of new
homes would be eligible for $14,000 of assistance, and purchasers
of existing homes would be eligible for $10,500 of assistance.
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Income
tax rules for high income earners tightened
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The Government announced in the Budget the tightening
of rules applying to income tax arrangements, mainly affecting
high income earners.
The tougher rules target:
- Deductions for hobby
farms and other investments
- Tax-free benefits to
company shareholders
- Trust distributions; and
Family Tax Benefit A payments.
The new measures will raise around $880 million
in extra revenue over the four year forward estimates.
Without any fanfare, the Budget papers refer to
the Government proceeding with the promised cut in personal
income tax rates from 40 per cent to 38 per cent on incomes
between $80,000 and $180,000 in July 2009 and July 2010.
Non-commercial losses
Under the new arrangements the Government will remove the ability
for high income individuals to deduct losses from unprofitable
business activities against their other income by tightening the
rules in the income tax law applying to the use of non-commercial
losses. From 1 July 2009, taxpayers with adjusted taxable incomes
of over $250,000 will only be able to deduct those expenses
against the income from the non-commercial business activity.
Private company benefits
Rules on the taxation of benefits provided by a
private company to its shareholders or their associates will be
tightened to remove the scope for private companies to allow
company assets — such as real estate, cars and boats — to be used
for free, or at less than their arm’s length value without paying
tax.
Both of the above measures will apply from the
beginning of the 2009-10.
Closely-held trusts
From 1 July 2010, closely-held trusts will need to withhold
amounts from trust distributions at the top marginal tax rate
where taxpayers have not provided a tax file number to the
trustee.
Family Tax Benefit Part A
Family Tax Benefit Part A will be indexed to the Consumer Price
Index only. This will maintain the real value of future payments,
but they will not grow by as much as they otherwise would.
Foreign employment income
Tax exemptions for the foreign employment income of Australians
who work overseas for periods of 91 days or more will be limited
to apply only to aid workers (both government and
non-government), charitable workers, some government employees
(such as defence and police) and those employed on overseas
projects approved by the Minister for Trade as being in the
national interest.
Employee share schemes
The option to defer the tax on share discounts on employee share
schemes will be abolished and the availability of the 1,000 ‘up
front’ exemption for discounts will be means tested.
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Paid
maternity leave introduced
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The Government is providing $731 million over
five years to deliver a Paid Parental Leave (PPL) scheme based
primarily on the recommendations of the Productivity Commission’s
Inquiry Report on the issue.
From 1 January 2011, the statutory PPL scheme
will be available to parents for births and adoptions that occur
on or after 1 January 2011.
In most cases the PPL scheme will be delivered
through employers. To avoid cash flow pressures, the Government
will pre-pay statutory PPL amounts to employers, who will then
make payments to their eligible employees.
To be eligible for PPL, parents will need to
meet a work test during the 13 months before the expected birth.
The eligible primary carer will receive
payments at the weekly rate of the prevailing Federal Minimum
Wage — currently $543.78 — for a continuous period of up to 18
weeks.
Parents will not be eligible for Family Tax
Benefit Part B, dependent spouse, child-housekeeper and
housekeeper tax offsets during the period in which PPL payments
are received.
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Boost
to pensions, carers
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Pensioners who receive the Age Pension,
Disability Support Pension, and Carer Payment, Veterans’
Service Pension, Income Support Supplement, War Widow/ers
Pension, Bereavement Allowance, Wife Pension, and Widow B Pension
will all benefit from pension reform.
Under the new arrangements pensioners will receive an
additional:
- $32.49 a week for
single pensioners on the full rate of pension, amounting
to $1,689 a year; and
- $10.14 a week for
pensioner couples (combined) on the full rate of pension.
The pension changes are the Government’s much
anticipated response to the Harmer pensions’ review announced
in last year’s Budget.
Announcing the new arrangements the
Government said it “will deliver a new system with increased
payments, incentives for workforce participation, and new
pension income eligibility arrangements to ensure
affordability.
“The key finding of the Harmer review was
that the rate of payment to single pensioners is too low. In
response, the Government will increase the total value of the
pension for singles by up to $1,689 per annum — an increase of
$32.49 per week. “
The Government also announced:
- that age and service
pensioners will be able to keep more of the money they
earn through part time work
- A new Work Bonus will
treat age and service pensioners’ earned income more
generously.
- Only half of the first
$500 of employment income earned per fortnight will be
assessed under the income test. This will enable up to
$250 of earnings a fortnight to be excluded from means
testing.
- Pensioners who do some
part time work could get an extra benefit of $125 per
fortnight, on top of any pension increase.
The Government announced it will close the
Pension Bonus Scheme to new entrants from 20 September
2009. People already registered in the Scheme before 20
September will be able to remain in the Scheme and claim a
pension and their Bonus when they finish working.
The Budget includes a new payment for 500,000
carers, with the introduction of a Carer Supplement of $600 per
annum for Carer Payment recipients. There will also be an
additional $600 per annum for Carer Allowance recipients for
each eligible person in their care.
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Other
measures to assist small business
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A new Small Business Support Line and
referral service will be established at a cost of $10 million
over two years to assist small businesses affected by the
global financial crisis. This service will link to
Business Enterprise Centres and will provide advice on such
matters as obtaining finance and cash flow management.
Increasing cash flow for small business has
been assisted by providing relief to PAYG instalments in
2008-09 and 2009-10. This reduction will provide cash
flow benefits to around 1.5 million eligible small businesses
and others by ensuring that their PAYG instalment amounts for
the 2009-10 income year more closely approximate their actual
income tax liability for that income year.
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Tax
compliance costs reduced
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The Budget unveiled a range of measures
which the Government said will improve the operation of the
tax law and cut compliance costs for business.
Key measures include:
- reform of GST
administration in response to a Board of Taxation
review;
- the repeal of
unlimited amendment periods and a review of elections
in the tax law;
- a review into
anti-avoidance provisions to ensure the integrity of
the tax law; and
- amendments to the
off-market share buyback provisions in response to a
Board of Taxation review.
The Government foreshadowed steps to
streamline and improve the legal framework for the
administration of the GST by implementing most of the
recommendations from the Board of Taxation.
It said the reforms will reduce the
compliance costs of the GST and achieve greater
standardisation between the GST and income tax
regimes.
In addition, reviews are being undertaken
by Treasury of the GST margin scheme provisions and the GST
financial services provisions to consider simplifying their
operation while maintaining the current policy.
With the aim of simplifying tax law, the
Government said it would move to repeal numerous provisions
in the income tax laws that currently provide the Tax
Commissioner with an unlimited period in which to amend an
item in a taxpayer’s income tax return.
The Government will allow greater use of
private sector experts in the tax design process as
recommended by the Tax Design Review Panel.
The Government will provide Treasury with additional
funding to fund private sector expert input on the
practical and commercial issues arising from proposed tax
changes which will lead to improved tax legislation.
The Government also released a discussion
paper to progress the Panel’s recommendation that
consideration be given to whether or not the Tax
Commissioner should be given further power to modify the
tax law to give relief to taxpayers.
It said it would also shortly release for
public comment a discussion paper proposing guidelines for
the design of election provisions in the income tax law
with a view to increasing consistency and reducing
uncertainty in relation to these provisions.
It will also shortly release a discussion
paper canvassing options to consolidate, streamline and
improve the operation of provisions designed to counter tax
avoidance.
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