Budget 2010
Overview
The Federal Government issued a safe and no frills 2010/2011 budget on Tuesday 11 May 2010.
The budget outlook and the funding of many of the measures are based on the stronger performance of the Australian economy than was projected in the last budget - in particular the resources sector.
The budget confirms the previously announced Resource Super Profits Tax, Superannuation changes, Company tax rate reductions and small business depreciation measures that formed part of the Government's response to the Henry Review of the Australian Taxation system. It also set out a range of other tax measures aimed at small business and individual taxpayers.
The changes proposed have various commencement dates with some not due to be implemented for two or more years.
From an individual perspective, the key new announcements in this budget are the introduction of a standard personal tax return deduction and a 50% discount on the first $1,000 of eligible interest income.
For Australian business, a number of technical tax consolidation measures were announced along with several changes recommended by the Johnson Report aimed at building Australia's credentials as financial services centre.
The Economics
The budget forecasts a deficit of $40.8 billion, some $16.3 billion lower than forecast in the last budget. Further, the Government is projecting that the economy will grow at a rate of 3.25% to June 2011 and 4% in the 2012 financial year. Unemployment is also expected to drop from a current rate of 5.38% to 4.75% over the same period. Possibly, the boldest claim in the budget is the return to surplus in 3 years, 3 years ahead of the previously forecasted timeframe. This budget is fully funded in that all expense and revenue measures largely offset each other in dollar terms. As a result, should the revenue measures not pass through Parliament, the tax sweeteners will most likely not be implemented.
There are also spending measures in the key areas of health services ($2.2 billion), reductions in payments under the pharmaceutical benefits scheme ($1.78 billion), delayed implementation of an emissions trading scheme (saving $652 million which has been allocated to a renewable energy fund), border protection ($1.2 billion), skills training program ($661 million), rail freight ($1 billion), resource infrastructure ($5.6 billion) and an e-health program ($460 million).
Personal Taxation
A 50% interest income discount for individuals
From 1 July 2011, individuals will be entitled to a discount of 50% on the first $1,000 of interest income (including interest income earned indirectly via a trust or managed investment schemes). This announcement was in direct response to the Henry Review, which recommended a 40% discount on interest income.
A standard deduction for work-related expenses and the cost of managing tax affairs
From 1 July 2012, individual taxpayers will be entitled to an optional standard deduction of $500 for work-related expenses and the cost of managing tax affairs. This will rise to $1,000 from 1 July 2013 and gives rise to the concept of tick and flick tax returns for an estimated 4.6 million tax payers in 2011 and 6.4 million taxpayers in 2012 and onwards.
Taxpayers with relevant expenses in excess of the standard deduction will continue to be able to claim those expenses under the existing rules.
The medical expenses rebate threshold
From 1 July 2010, the threshold for out of pocket expenditure to qualify for the rebate will increase to $2,000 (up from $1,500)
Family Tax Benefit and Child Care Rebate
The Child Care Rebate will be capped from 1 July 2010 at $7,500, with indexation of the cap frozen for four years. Changes to the Family Tax Benefit ('FTB') system will assist FTB recipients that do not lodge income tax returns
No change to the previously announced personal tax rate reductions
The currently legislated personal income tax rates have not been altered, applicable rates and thresholds are set in the table below:
|
Current |
From 1 July 2010 |
||
|
Taxable Income |
Rate (%) |
Taxable Income |
Rate (%) |
|
0 - 6,000 |
0 |
0 - 6,000 |
0 |
|
6,001 - 35,000 |
15 |
6,001 - 37,000 |
15 |
|
35,001 - 80,000 |
30 |
37,001 - 80,000 |
30 |
|
80,001 - 180,000 |
38 |
80,001 - 180,000 |
37 |
|
180,000+ |
45 |
180,000+ |
45 |
The Low income tax offset
The offset will rise from $1,350 to $1,500 meaning that the effective tax free unearned income threshold for minors will be $3,000 for the 2010 year and $3,333 for the 2011 year while for adult taxpayers earning less than $30,000 no tax will be payable on income up to $15,000 in 2010 and $16,000 in 2011.
Medicare Levy Thresholds
Medicare Levy low-income thresholds will increase from 1 July 2010 as follows:
|
Singles |
from $17,794 to $18,488 |
|
Families |
from $30,025 to $31,196 |
|
Pensioners (below Age Pension age) |
from $25,299 to $27,697 |
Business Taxation
CGT Treatment from earnout arrangements
From the date of assent of legislation to enact the new provisions, all payments under a qualifying earnout arrangement will be treated as relating to the underlying business asset (currently these rights are taxed as separate CGT assets).
40% Resource Super Profits Tax
As previously announced, a tax will be levied on profits from non-renewable resource projects from 1 July 2012, with a credit allowed for State Government royalties and a new resource exploration rebate will be introduced from 1 July 2011.
Reduction in company tax rate to 28% confirmed
From 1 July 2012 the company tax rate will drop to 28% for small business companies. For other companies the rate will drop to 29% from 1 July 2013 and to 28% from 1 July 2014
Small business asset write-off
From 1 July 2012, small business will be able to immediately write-off business assets costing less than $5,000 (up from $1,000). All other assets (other than buildings) will be written off in a single depreciation pool at a rate of 30%
Non-commercial loan rules refined
The changes to the non-commercial loan rules for the private use of company owned assets will not apply where the asset is used as a main residence of the shareholder or associate. This will apply from 1 July 2009 when the proposed new laws (which are not yet final) were to start.
Technical Consolidation Changes
A number of measures have been either confirmed or announced, addressing perceived inconsistencies in the way current consolidation provisions operate and designed primarily to ensure all consolidated groups are treated equitably. Many of the measures discussed in the budget are contained in legislation currently before Parliament.
Increased funding for ATO
The ATO will receive an additional $108 million over four years to expand data matching programs, aimed primarily at small business operators who operate in cash industries
Superannuation
Excess Contributions Tax
The Commissioner will be allowed to exercise discretion in relation to excess contributions tax, prior to issuing an assessment. Currently these requests must wait until after an assessment is issued.
Superannuation Guarantee Limit
The Super Guarantee age limit will be increased from 70 to 75 from 1 July 2013
Superannuation Contribution Cap
The $50,000 concession contributions cap will be kept in place from 1 July 2012 for those aged over 50 with super balances below $500,000 - the general reduction to $25,000 from 1 July 2012 will stay.
Superannuation Guarantee rate
From 1 July 2013, the Super Guarantee rate will be gradually increased to 12% (up from 9%) by 30 June 2020
Superannuation Co-contribution
The co-contribution will be set at a maximum of 100% and there will be no change to eligibility thresholds
Goods & Services Tax
GST and financial supplies
Changes to the financial supply rules that are designed to reduce compliance costs for small business, have been announced. Input tax credits on assets acquired under hire purchase agreements will be able to be claimed up front for taxpayers that account for GST on both a cash and non-cash basis so there will no longer be a need to use chattel mortgages. These changes will apply from 1 July 2012. The financial acquisitions threshold has also been increased from $50,000 to $150,000, effective 1 July 2012.
GST Margin Scheme
The margin scheme rules will be restructured to simplify the provisions and exceptions.
GST exemption for taxes, fees and charges
The current rules determining the GST status for various taxes, fees and charges will be amended to remove the specific list of exemptions and replace it with broad principles governing to determine those taxes, fees and charges that will be exempt.
ATO GST Compliance Funding
The ATO will receive an additional $338 million over four years to fund GST compliance activities targeting fraudulent GST refunds and incorrect reporting of GST liabilities, non-lodgment of GST returns and payment of outstanding GST debts. The increase in activity is projected to generate up to an additional $2.7 billion in revenue over the life of the program.
