Tax
Several of the tax measures outlined below have already been announced as part of the Government’s response to the Henry Tax Review on 2 May 2010.
Company tax rate
The Government has confirmed that it will cut the company tax rate to 29% from the 2013/14 financial year. It will then be cut further, to 28%, from the 2014/15 financial year.
In a bid to assist small business companies the Government has announced that it will be eligible for 28% company tax rate from the 2012/13 financial year.
What does this mean for you and your clients?
It is expected that reducing the company tax rate will increase investment and therefore production across all sectors of the economy.
The Government has also announced that it will allow small businesses to immediately write-off assets valued under $5,000, up from $1,000 currently. In addition, small businesses will be able to write-off other assets (except buildings) in a single depreciation pool at a rate of 30%.
What does this mean for you and your clients?
The increased write-off value will effectively increase the cash-flow of small businesses by deferring their tax liabilities. While the changes to the depreciation rules will reduce compliance costs by removing the requirement to calculate depreciation allowances and track assets for depreciation, it will also make asset ownership more attractive than leasing or debt financing.
Introduction of resource super profits tax
The Government has confirmed that the mining sector will be subject to a new 40% tax on their profits made from the exploitation of Australia’s non-renewable resources, with effect from 1 July 2012. This will replace the current royalty tax which is volume based. The Government believes this change is necessary to ensure that non-renewable resources remain available over the long term.
What does this mean for you and your clients?
This change is likely to have an impact on the expected profitability of mining companies, at least over the medium term, and may impact their share prices.
The following measures were announced in earlier budgets and have already been legislated.
Increase to low income tax offset
The low income tax offset will be increased to $1,500 from 1 July 2010, up from $1,350.
What does this mean for you and your clients?
This increase will effectively provide a tax-free threshold of $16,000 for those on incomes of $30,000 or less.
Changes to marginal tax rates
The final raft of changes to the tax thresholds and rates will take effect from 1 July 2010. These include increasing the $35,000 threshold to $37,000 and decreasing the 38% tax to 37%.
| Threshold | Marginal Tax Rate* |
|---|---|
| First $6,000 | Nil |
| $6,001 to $37,000 | 15% |
| $37,001 to $80,000 | 30% |
| $80,001 to $180,000 | 37% |
| $180,001 + | 45% |
What does this mean for you and your clients?
These changes present marginal tax savings, with someone on $80,000 per annum saving $300 per annum in tax.
The amount of income a senior Australian eligible for the senior Australians tax offset (SATO) can earn before they pay income tax or the Medicare Levy will increase from $29,867 to $30,685 for singles, and from $25,680 to $26,680 for each member of a couple.
The following are new measures announced in this Budget.
Interest bearing accounts/annuities
The Government has announced that from 1 July 2011 taxpayers will be eligible for a 50% discount on the first $1,000 of interest earned per annum on deposits, bonds, debentures and annuity products. There will be consultation on the exact meaning of ‘interest’. The discount is expected to benefit around 5.7 million taxpayers in the 2011/12 financial year.
| What does this mean for you and your clients? $500 per annum will be exempt from tax, with any additional tax saving for your client dependent on their marginal tax rate as illustrated in the table below. |
|
|---|---|
| Marginal tax rate | Tax saving per annum* |
| 15% | $75 |
| 30% | $150 |
| 37% | $185 |
| 45% | $225 |
Increase to Medicare Levy low income threshold
The Medicare Levy low income threshold will increase to $18,488 (up from $17,794) for singles, and to $31,196 (up from $30,025) for couples.
What does this mean for you and your clients?
Singles or couples with incomes in the 2009/10 financial year below these new thresholds will be exempt from the Medicare Levy.
Lodgement of tax returns
The Government has announced that from the 2012/13 financial year, taxpayers will be able to choose between a $500 standard deduction to replace deductions for their work-related expenses and the cost of managing their tax affairs. This amount will increase to $1,000 from the 2013/14 financial year.
It should be noted that taxpayers with expenses above the standard deduction will still be able to claim those expenses when lodging their tax return under the existing rules.
What does this mean for you and your clients?
For many clients this will mean a greater deduction than they otherwise would be entitled. Everyone will still need to lodge a tax return, but it will be easier to complete and fewer people will need to incur the cost of a tax agent.
Increase to medical rebate threshold
The Government has announced that from 1 July 2010 the Medical rebate threshold will increase from $1,500 to $2,000. It is only medical expenses above this amount that are eligible for the 20% tax offset.
What does this mean for you and your clients?
The increase in the threshold not only makes it harder to qualify for the tax offset but also means that those that do qualify will be $100 worse-off per annum as a result ($500 increase x 20%).
Australian Government commences consultation on an investment manager regime
The Government has announced that it will begin consultation on measures to reform and expand Australia’s managed funds industry by removing impediments to international investment. To this end it has also released a consultation paper.
The reforms will give consideration to the recommendations made by the Johnson Report, which recommended that the Government introduce an Investment Management Regime of wide application and the Board of Taxation review the scope for providing a broader range of tax flow through collective investment vehicles.
What does this mean for you and your clients?
The objective is to ensure that non-resident investors in managed investment schemes don’t pay Australian tax if the scheme invests outside Australia. For example, a non-resident investor in an Asian share fund should not pay any Australian tax. For a variety of technical reasons this is not always the case at the moment.
The purpose is to make it easier for Australian fund managers to market their products offshore. It should also create high-paying jobs in Australia.
Interest withholding tax
The Government has announced that it will progressively reduce the interest withholding tax (IWT) rate incurred by financial institutions on most interest paid on offshore borrowings.
This measure will phase down the IWT rate applying to foreign bank branches from the current 5% to 2.5% in 2013/14 and to zero from 2014/15. The IWT rate for other financial institutions will be reduced from 10% to 7.5% in 2013/14 and to 5% from 2014/15, with a target rate of zero.
It should be noted that the IWT phase down will not apply to interest paid on non-residential retail deposits held in Australia and as such will remain at 10%. The Government has not clarified whether the reduction will apply to distributions from managed investment schemes, although the implication is that it will not. The measure aims to make it more economical for onshore banks to borrow from offshore banks.
What does this mean for you and your clients?
It is hoped that these proposals will help support banking competition and put downward pressure on interest rate margins.
First Home Saver Accounts
The Government has announced changes to First Home Saver (FHS) Accounts to provide for more flexibility. It has proposed that rather than require an individual who has not satisfied the minimum four-year qualifying period to pay the balance into a superannuation account, the person will be allowed to pay it into an approved mortgage. To do this they have to meet a shorter qualifying period, which has not yet been defined.
The Government will release draft amendments for consultation over the coming months.
It should be noted that FHS Accounts will still offer all the existing concessions, which include:
- The Government contributes 17% on the first $5,000 (indexed) of individual contributions made each year. This means an individual who makes a contribution of $5,000 to their FHS Account will be eligible for a Government contribution of $850.
- There is a cap of $75,000 (indexed) on the overall FHS Account balance. If an individual reaches the cap, no further individual contributions can be made by the FHS Account holder.
- However, the FHS Account interest earnings and outstanding government contributions will still be credited to the FHS Account after this time, allowing the account to continue to grow.
- Individuals who are members of a couple will be able to pool their FHS Accounts to purchase a home together.
- Earnings are to be taxed at 15% and withdrawals will be tax free where they are used to purchase a first home.
What does this mean for you and your clients?
FHS may become the norm for young Australians saving for their first home as they now have the flexibility they were so dearly missing.
Increase to benchmark interest rate for capital protected borrowings
The Government has announced that it will increase the benchmark interest rate that applies to capital protected borrowings by 1%. The proposed indicator rate is now the standard variable housing loan plus 1% instead of just the indicator rate for standard housing loans.
This measure will apply to capital protected borrowings entered into from budget night 2008.
What does this mean for you and your clients?
For many clients who are invested in capital protected loans they will benefit from being able to claim an increased amount of their interest cost as a tax deduction.
Clarification of tax treatment of instalment warrants
As already announced in a media release issued on 10 March 2010, the Government will amend the income tax treatment of qualifying instalment warrants to provide certainty for investors by treating them as the owner of the underlying asset for income tax purposes, with effect from 1 July 2007.
This has been seen as necessary, as currently a technical interpretation of the law does not support the accepted practice with respect to the income tax treatment of instalment warrants.
The Government calls borrowings by superannuation funds ‘instalment warrants’.
What does this mean for you and your clients?
This provides clarity around the tax treatment of some instalment warrants. The law is being changed to reflect the treatment that is already being applied to these instruments. This is therefore a reduction in compliance risk, rather than a change in the investor’s tax outcome.
Income is assessable to the investor and there is no capital gains tax triggered upon final payment to the warrant provider (and subsequent change of legal ownership).
Cap to the child care rebate
The Government has announced that there will be no further indexation of the current annual cap to the child care rebate of $7,778 per child for the next four years from 1 July 2010. It should be noted that this will not reduce the percentage of out-of-pocket expenses and will remain at 50% (up to the annual cap).
What does this mean for your clients?
This will effectively reduce the value of the child care rebate as costs will continue to increase each year.
Click here to go back to the article.
