Federal Budget 2010

Here is an overview of some of the changes announced in this year’s Federal Budget handed down by Treasurer, Wayne Swan on 11 May 2010.

1.              Medicare levy low income thresholds

The 2009/10 Medicare Levy low-income thresholds will be as follows:

• Individuals      $18,488           (previously $17,794)
• Families          $31,196           (previously $30,025)

The additional amount of threshold for each dependent child or student will also be increased to $2,865 (previously $2,757).

 2.            Increase in the net medical expenses tax offset claim threshold

 From 1 July 2010, the Govt will increase the threshold above which a taxpayer may claim the 20% net medical expenses tax offset from $1,500 to $2,000, and will commence annually indexing the threshold to the CPI. The first indexation adjustment will take place on 1 July 2011.

 3.            50% discount on tax on interest income

 From 1 July 2011, individual taxpayers will be provided with a 50% tax discount on up to $1,000 of interest earned, including interest earned on deposits held in authorised deposit taking institutions, bonds, debentures and annuity products.

The discount will be available for interest income earned directly as well as indirectly, such as through a trust or managed investment scheme.

Taxpayers claiming the discount for interest income will have reduced adjusted taxable income for the purposes of determining eligibility for transfer payments and other concessions. This will result in some individuals and families becoming eligible for transfer payments or eligible for a larger transfer payment.

4.            Standard deduction for work-related expenses

From 1 July 2012, individual taxpayers will be provided with the choice of claiming a $500 standard deduction to replace deductions for their work-related expenses and the cost of managing their tax affairs. This will increase to $1,000 from 1 July 2013. Taxpayers with higher deductible expenses or more complex tax affairs can continue to claim their higher expenses (in lieu of the standard deduction).

The standard deduction will reduce individuals’ and families’ adjusted taxable income for the purpose of determining their eligibility for transfer payments and other concessions. This will make some individuals and families eligible for transfer payments or eligible for a larger transfer payment.

Note: The Treasurer stated that this “is a key step towards a ‘tick and flick’ system of pre-filled tax returns...”

5.            Changes to First Home Saver Accounts

The First Home Saver (‘FHS’) initiative will be made more flexible, particularly for people who buy their first home earlier than the current four year qualifying period for maintaining an FHS account.

Currently, an FHS account holder is required to keep their savings in an FHS account for four financial years before they are able to use those savings to buy a home. If the account holder buys a home prior to the end of that four year period, the balance of their FHS account must be transferred to their superannuation so that remains in a concessionally taxed environment.

In order to increase the flexibility of FHS accounts and to help Australians buy their first home sooner, the Government will allow savings in an FSH account to be paid into an approved mortgage after the end of a minimum qualifying period, rather than requiring it to be paid to a superannuation account. 

  6.            Superannuation co-contribution – pause to the indexation of the income threshold for two years

The income threshold for the superannuation co-contribution (above which the maximum superannuation co-contributions begins to phase-out) will be frozen for 2010/11 and 2011/12 (i.e., it will not be indexed). In 2009/10, the maximum co-contribution (of up to $1,000) is available to people with incomes of up to $31,920 (with the amount available phasing-out for incomes up to $61,920). This measure will freeze these thresholds at $31,920 and $61,920 for two years. 

7.             Other Budget announcements

Further key initiatives announced in the 2010 Federal Budget include the following:

(a)  Cash Economy - $107.9 million will be provided over four years to the ATO to address the unfair competitive advantages that arise where small businesses avoid their tax obligations by conducting some or all of their business in the cash economy.

(b)  GST compliance program - $337.5 million will be provided over four years to the ATO for GST compliance. This measure will address issues relating to fraudulent GST refunds, systematic under-reporting of GST liabilities, non-lodgement of GST returns and non-payment of GST debts.

(c)  Superannuation co-contribution - $16 million will be provided over five years to the ATO to enhance the administration of the existing eligibility requirements for the superannuation co-contribution program (including $1.1 million in 2009/10).

I hope you find this budget overview relevant to you. Please feel free to contact me should you wish to discuss any of the changes listed above and how they could impact on your business or tax affairs.

Kind regards

Anthony Erasmus