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Welcome to the special federal budget edition of E-Link

It’s that time of the year again – the government’s federal budget has taken over newspaper headlines across the country. Treasurer Wayne Swan has announced changes to taxation, superannuation and social security benefits in the 2010 federal budget. Some areas can be quite confusing, so in this E-Link edition we summarise the main points of the budget that affect our clients.

Should you wish to discuss your personal circumstances or the budget contents in more detail, please contact us.

Economic summary

Despite global economic volatility, the Australian economy is expected to rebound powerfully from the recent downturn. According to federal budget estimates:

  • real GDP growth should reach 3.25% in 2010-2011 and 4% in 2011-2012.
  • unemployment should peak at 5.25% this financial year, and fall to 4.75% in 2011-2012.
  • the inflation rate should reach 2.25% this financial year, rising to 2.5% next year.
  • the budget deficit should reach $41billion in 2010-2011, which is $16billion less than the figure expected one year ago.

Against this background, the federal treasurer has announced a conservative budget that will return Australia to surplus by 2012-2013, three years ahead of previous forecasts.

The Henry tax review

As expected, the federal budget confirmed the Australian Government’s response to the Henry Review of the tax system. For a summary of the key recommendations to be implemented in the first phase, please click on the link below.

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Spending on health

The health system has been prioritised in the Budget, with plans for extensive spending on primary health. Please click on the link below for a summary of the proposed changes, and how the Government plans to meet these costs.

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New tax rates from 1 July 2010

The federal government confirmed changes to the marginal tax rates announced in its 2008 budget. Please click on the link below for the tax rates that will apply for the 2010-2011 year.

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Savings discount for interest income

From 1 July 2011, a new 50% tax discount will apply to the first $1,000 of interest earned by individuals from banks, building societies, and credit unions, as well as bonds, debentures, and annuity products. Click on the link below for more details about this benefit.

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Simplified tax returns

The Australian Government plans to allow a standard deduction for work-related expenses and the cost of managing tax affairs from 1 July 2012. This will simplify the process of lodging tax returns for many Australians. Click on the link below for further details.

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Medical expenses tax offset

The federal government has announced an increase in the threshold above which taxpayers may claim the net medical expenses tax offset. It will also index this threshold to inflation. Click on the link below for more information.

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Childcare rebate capped

Currently, the annual Child Care Rebate for eligible families is capped at $7,778 per child and is indexed each year. The Australian Government plans to cap the rebate at $7,500, and freeze the indexation for four years. The changes will take effect from 1 July 2010.

Reduction to the super co-contribution

The previous federal budget announced a temporary reduction in the superannuation co-contribution matching rate, with a staggered return to the original level by 2015. The federal government will now set the maximum rate of co-contribution at 100% of a person’s eligible non-concessional super contributions, up to $1,000. The income thresholds for the co-contribution will also remain frozen for the next two years.

Interest rate change for capital protected borrowings

The Australian Government has announced an increase in the benchmark interest rate that applies to capital protected borrowings. The new rate will be the Reserve Bank of Australia indicator rate for standard variable housing loans plus 100 basis points. This will improve the deductibility of borrowings, making capital protected products more attractive.

Low- income tax offset to increase

From 1 July 2010, the low income tax offset will rise from $1,350 to $1,500, effectively increasing the tax-free amount that can be earned to $16,000.

As a consequence of the increases, eligible senior Australians will have no tax liability until their incomes reach the following levels:

  • $29,867 for singles and $25,680 for each member of a couple in the 2009-10 income year.
  • $30,685 for singles and $26,680 for each member of a couple in the 2010-11 income year.

ATO to exercise discretion on excess contributions

Minor federal budget amendments allow the Tax Commissioner to exercise discretion where a taxpayer has inadvertently breached the Superannuation Caps or where the caps have been breached due to unforeseen circumstances. The discretion needs to be applied for prior to a tax assessment for excess contributions being issued. Where you are concerned that you may have an excess contribution issue, please contact your Adviser to discuss your options.

GST compliance - extra funding for ATO

The Government has stated that an extra $337.5m will be provided to the Tax Office over the next four years to fund activities promoting voluntary GST compliance and a level playing field for Australian businesses. The funding will also address issues relating to fraudulent GSTrefunds, systematic under-reporting of GST liabilities, non-lodgment of GST returns and non-payment of GST debts.