News & Commentary

Budget eclipsed by regulatory reviews 26 May 10

In Australian politics, the federal Budget is usually the most important annual event, with genuine surprises emerging on Budget Day itself.

But more recently, with a Mid-Year Economic and Fiscal Outlook (MYEFO) statement in November, the Budget’s importance has lessened.

This year, with the government releasing the report of Treasury Secretary Ken Henry’s review of the nation’s tax system – and its initial response to that report – barely a week before Budget Day, the result was a damp squib: a Budget that had had most of its best lines stolen.

Beyond the headlines of deficits and surplus, of the Resources Super Profit Tax (RSPT), many measures included in this year’s Budget were already legislated, such as the cuts to personal tax rates and increase to the tax-free threshold that take effect on 1 July; or announced earlier in May in the government’s response to the release of the Henry Tax Review.

For instance, it has been known for two years that the tax rate for someone earning between $80,001 and $180,000 will drop on July 1, from 38 per cent to 37 per cent. Simultaneously, the threshold for the 30 per cent tax bracket increases from $35,001 to $37,001.

Changes resulting from the Governments response to the Henry review include:

• An increase in the Superannuation Guarantee (SG) levy, from 9 per cent to 12 per cent, starting from 1 July 2013, and reaching 12 per cent by 2019-20.
• From 2012 workers aged over 50 with superannuation balances lower than $500,000 will be able to make concessional contributions of up to $50,000.
• A cut in the company tax rate: the 30 per cent rate drops to 29 per cent in 2013-14 and then to 28 per cent from 2014-15. Small businesses get the tax cut a year earlier.
• Small business tax write-off: small businesses gain an immediate write-off for assets costing less than $5,000 (up from the current limit of $1,000).
• Interest savings tax discount: from 1 July 2011, the Government will provide individuals with a 50 per cent tax discount on up to $1,000 of interest earned by individuals, including interest earned on savings accounts, bonds, debentures and annuity products
• Simplified tax returns: from 2012, taxpayers will be able to abandon the current form of tax return, opting instead for a $500 ‘standard deduction’ to cover work-related expenses, saving them the cost of an accountant. The standard deduction will increase to $1000 the following year. According to the Treasurer, the simplified ‘no tax returns’ system will be available to 6.4 million taxpayers, saving them an average $192 each year. (But what the government did not say was that at present, the average tax deduction claimed by an individual taxpayer is $3,311, according to the latest statistics from the Australian Taxation Office.)

For individual taxpayers, most attention is likely to fall on the excess superannuation contributions tax: the contribution limits were altered last year, and change again this year. In particular, people who are salary-sacrificing, or who have multiple jobs, or have recently renegotiated their salary package will need to check their super contributions to ensure that they are not inadvertently contributing too much.

This is critical, given that the excess contributions tax can add up to 93 per cent. If a super fund member exceeds the concessional contributions cap, they are taxed at 31.5 per cent, on top of the 15 per cent tax rate on the super fund. Any amount contributed over the concessional cap then counts towards the member’s non-concessional contributions cap, which will incur a 46.5 per cent tax if exceeded.

Also kicking in for the first time in the 2009-10 tax returns is the extended definition of income: from 1 July, a taxpayer’s assessable income for Centrelink and the Family Assistance Office purposes will also include reportable superannuation contributions and total net losses from rental property or investment income. This will affect a range of entitlements, for example family tax benefit, and it will also affect people with obligations, such as child support.

On offer for the second year is the Education Tax Refund (ETR), under which parents entitled to Family Tax Benefit (FTB) Part A – which means those with a combined income of no more than $101,045 if they have one child under 17, up to $161,902 if they have three or more children under 17 – can claim as a refund half of the cost of educating children, as part of their 2009-10 tax return. According to the ATO, about 1.3 million families are eligible for this refund.

Parents of high school children can claim 50 per cent of up to $1,559 worth of expenses for children at secondary school; parents of primary school children will be able to claim half of up to $780 worth of expenses of primary school children.

Interestingly, the ATO has ruled that Apple’s new iPad – which goes on sale in Australia on May 28 – will be considered a “laptop computer” for ETR purposes. That should help Apple’s Australian sales of the device handily!



* James Dunn is a financial journalist and media consultant. The views expressed are those of James Dunn, not necessarily those of Vanguard.

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