Taking in the post-Budget landscape

TThe 2009 Federal Budget includes a number of changes to taxation, superannuation and social security benefits. In particular, there is a focus on tax concessions for superannuation contributions, eligibility for and amount of age pension benefits, reducing the private health insurance rebate, introducing paid parental leave and offering tax breaks for small business.

Superannuation

Reduction of concessional contribution cap from July 1, 2009

The Government will reduce the concessional contributions cap to $25,000 per annum (indexed) from July 1, 2009. The transitional concessional contributions cap (applicable to individuals aged 50 and over for the 2009-10, 2010-11 and 2011-12 financial years) will be reduced to $50,000 per annum. ‘Grandfathering’ arrangements will apply to certain members with defined benefit interests as at May 12, 2009, whose notional taxed contributions would otherwise exceed the reduced cap.

The annual cap on non-concessional contributions will remain at $150,000 for 2009-10. In future, the non-concessional cap will be calculated as six times the level of the (indexed) concessional contributions cap. There has also been no change to the bring-forward rule, which will be capped at $450,000 for 2009-10.

Temporary reduction of the Government co-contribution from July 1, 2009, to June 30, 2014

The maximum co-contribution and contribution matching rate payable on an individual’s eligible personal non-concessional superannuation will be temporarily reduced from July 1, 2009, as shown in Table 1. The potential level of co-contribution for given income levels is shown in Table 2.

Extension of 50 per cent minimum pension draw down relief from July 1, 2009

The Government will extend the halving of minimum account-based pension payment amounts to 2009-10. The minimum annual income payment for an account-based pension is calculated as a minimum percentage of the account balance as shown in Table 3.

New Zealand retirement savings portability scheme

The Government has agreed in principle to the signing of a memorandum of understanding with New Zealand to establish a trans-Tasman retirement savings portability scheme. This scheme will permit transfers of superannuation savings between certain Australian superannuation funds and New Zealand KiwiSaver funds.

Taxation

Additional business tax breaks from December 13, 2008

The Government will expand the small business and general business tax break announced in February. Small businesses will now be entitled to a bonus deduction of 50 per cent where they acquire an eligible asset between December 13, 2008, and December 31, 2009, and install it ready for use by December 31, 2010. The previously announced 30 per cent and 10 per cent bonuses will continue to apply for all other businesses.

Modified PAYG instalments relief from July 1, 2009

For the 2009-10 financial year, the Government will provide cash flow relief by reducing pay as you go instalments for all taxpayers who pay quarterly instalments based on their previous year’s tax adjusted by gross domestic product growth. From next year, the adjustment factor for calculating quarterly instalments will be reduced from 9 per cent to 2 per cent.

Changes to income tax exemption for income earned by Australians working overseas

From July 1, 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. The current exemption from Australian tax of such income will continue to apply to income earned as an aid worker or a charitable worker under certain types of government employment, or on projects that are in the national interest.

Tightening access to non-commercial business losses from July 1, 2009

From the 2009-10 financial year, where taxpayers with adjusted taxable income of over $250,000 incur excess deductions from non-commercial business activities, those excess deductions will be quarantined to that business activity. The existing rules will continue to apply for taxpayers with adjusted taxable income of $250,000 or less.

Taxation of special disability trusts

Two key changes to the taxation of special disability trusts have been announced:

• from 2008-09, any unexpended income of a special disability trust will be taxed at the beneficiary’s personal income tax rates rather than at the top marginal rate; and

• from 2009-10, the capital gains tax main residence exemption will be extended to include a main residence owned by a special disability trust and used by the relevant beneficiary as their main residence.

Small business CGT concessions

The Government will make several changes to the small business capital gains tax (CGT) concessions provisions so that they operate flexibly and as intended, including extending the concessions from July 1, 2006, to cover assets that have passed to a testamentary trust where the individual would have been able to access the concessions at the time of their death.

Employee share scheme eligibility from May 31, 2009

This proposed measure will:

• remove the existing election and access to discounts provided on shares or rights in the financial year they are acquired; and

• limit access to the existing upfront concessions to employees with an adjusted taxable income of less than $60,000 per year.

Closely held trusts and TFN withholding arrangements from July 1, 2010

This measure will require trustees to withhold tax from distributions at the top marginal tax rate if a tax file number is not provided by a beneficiary. 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.

MIT taxation from July 1, 2008

Australian managed investment trusts (MITs) (except those taxed as companies) will be able to make an irrevocable election to apply the capital gains tax (CGT) regime as the primary code for taxing certain disposals of assets. This confirms the approach taken by the majority of Australian managed funds.

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

The qualifying age for the age pension and the Commonwealth Seniors Health Card for both men and women will increase to 67 years of age from July 2023, as shown in Table 4. The Henry Tax Review report on the retirement income system also recommends aligning the superannuation preservation age with this higher age pension age.

Increase in government support pension amount

From September 20, 2009, the base pension and a new pension supplement (an amalgamation of the goods and services tax pension allowance, pharmaceutical allowance, utilities allowance and telephone allowance) will be increased by:

• $32.49 per week for single pensioners on the full rate of pension; and

• $10.14 per week (combined) for pensioner couples on the full rate of pension.

Increase in pension taper rate from September 20, 2009

The income test taper will increase from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents in the dollar for each member of a couple above the allowable income-free thresholds. Existing part pensioners affected by the income test changes will not have their entitlements reduced by this change and will receive an increase of $10.14 per week for singles or couples combined.

Paid parental leave from January 1, 2011

A government funded paid parental leave scheme will be introduced. The taxable parental leave payment will be equal to the federal minimum wage (currently $543.78 per week) and can be for up to 18 weeks. Eligibility for paid parental leave will be based on:

• an income test — the primary carer must have earned less than $150,000 for the financial year prior to the child’s birth or adoption; and

• a work test — the primary carer must have worked at least 330 hours in the preceding 10 months and have worked continuously for 10 out of the 13 months preceding the birth or adoption.

A client claiming paid parental leave will not be eligible for the baby bonus, Family Tax Benefit Part B, dependent spouse, child housekeeper or housekeeper tax offsets for the period of payment of the paid parental leave.

Pension Bonus Scheme closed to new entrants from September 20, 2009

The Pension Bonus Scheme will be closed to new entrants. Clients registered prior to closure will continue accruing entitlements as previously. To compensate for the closure of the scheme, a new pension income test concession will be introduced for people of age pension age. The concession will mean only 50 per cent of the first $500 of employment income per fortnight will be counted for income test purposes.

Clients may need to evaluate whether the pension bonus or the concession is more beneficial to them. This may depend on the number of years for which a person intends to stay in employment, the amount of years they have already accrued, or the percentage of pension bonus to which they will be entitled.

Commonwealth Seniors Health Card — income test

Gross superannuation pension income and super lump sum withdrawals will be removed from the proposed amendment to the definition of income used for determining eligibility to the Commonwealth Seniors Health Card (CSHC).

The Government will proceed with the inclusion of salary sacrifice and personal deductible super contributions and net financial investment losses in the income definition.

Private Health Insurance Rebate from July 1, 2010

The Government has proposed to means test the 30 per cent private health insurance rebate for middle to high-income earners. This is going to be achieved by introducing an income-based three-tier system with a parallel increase in the Medicare Levy Surcharge rate to penalise taxpayers who do not have eligible private health insurance, as shown in Table 5.

The definition of income for this purpose will be adjusted taxable income as used for the Medicare Levy Surcharge.

Deborah Wixted is a senior technical services manager at Colonial First State.