Federal Budget 2010/11
The Economics
The budget forecasts a deficit of $40.8 billion, some $16.3 billion lower than at the time of the last budget. Further, the Government is projecting that the economy will grow at a rate of 3.25% to June 2011 and 4% in the 2012 financial year. Unemployment is also expected to drop from a current rate of 5.38% to 4.75% over the same period.
The boldest claim in the budget is the return to surplus in 3 years, 3 years ahead of the timeframe predicted at the time of last year’s budget. The budget is fully funded in that all expense and revenue measures basically offset each other in dollar terms. As a result, if the revenue measures do not pass through Parliament, then the tax sweeteners will most likely not be implemented.
There are also spending measures in the key areas of health services ($2.2 billion), reductions in payments under the pharmaceutical benefits scheme ($1.78 billion), delayed implementation of an emissions trading scheme (saving $652 million which has been allocated to a renewable energy fund), border protection ($1.2 billion), skills training program ($661 million), rail freight ($1 billion), resource infrastructure ($5.6 billion) and an e-health program ($460 million).
Significant Budget Measures
Major budget measures included:
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A 50% interest income discount for individuals - from 1 July 2011, individuals will be entitled to a discount of 50% on the first $1,000 of interest income (including interest income earned indirectly via a trust or managed investment schemes);
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A standard deduction for work-related expenses and the cost of managing tax affairs – from 1 July 2012, individual taxpayers will get a standard deduction of $500 for work-related expenses and the cost of managing tax affairs. This will rise to $1,000 from 1 July 2013 and gives rise to the concept of tick and flick tax returns for an estimated 4.6 million tax payers in 2011 and 6.4 million taxpayers in 2012 and onwards;
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The medical expenses rebate threshold – from 1 July 2010, the threshold for out of pocket expenditure to qualify for the rebate will increase to $2,000 (up from $1,500);
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Earnout arrangements – from the date of assent of legislation to enact the new provisions, all payments under a qualifying earnout arrangement will be treated as relating to the underlying business asset (currently these rights are taxed as separate assets).
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Increased funding for ATO - the ATO will receive additional funding so it can undertake additional GST compliance based activities and to target small business operators who operate in cash industries and avoid tax;
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Super co-contributions – The co-contribution will be set at a maximum of 100% and there will be no change to eligibility thresholds;
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A 40% Resource Super Profits Tax - on profits from non-renewable resource projects from 1 July 2012 , with a credit allowed for State Government royalties, and a new resource exploration rebate will be introduced from 1 July 2011;
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A reduction in company tax rate to 28% - from 1 July 2012 the company tax rate will drop to 28% for small business companies. For other companies that rate will drop to 29% from 1 July 2013 and to 28% from 1 July 2014;
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Small business asset write-off - from 1 July 2012, small business will be able to immediately write-off business assets costing less than $5,000 (up from $1,000). All other assets (other than buildings) will be written off in a single depreciation pool at a rate of 30%;
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The Superannuation Guarantee rate – from 1 July 2013, the Super Guarantee rate will be gradually increased to 12% (up from 9%) by 30 June 2020;
Other Budget Measures
Some of the other changes contained in the budget include:
- The changes to the non-commercial loan rules for the private use of company owned assets will not apply where the asset is used as a main residence of the shareholder or associate – this applies from 1 July 2009 when the proposed new laws (which are not yet final) were to start
- Assets acquired under HP agreements will be entitled to GST credits up front – so no longer a need to use chattel mortgages – from 1 July 2012
- Simplification of the margin scheme GST provisions and simplification and an increase in the threshold to $150,000 for financial supplies for GST – both from 1 July 2012
- Changes to the Family Tax Benefit and Child Care Rebate – the Child Care Rebate will be capped -from 1 July 2010
- No change to the previously announced personal tax rate reductions – the threshold for the 30% rate applying rises from $35,000 to $37,000, and the 38% rate that applies for incomes between $80,000 and $180,000 drops to 37% - both from 1 July 2010
- The Low income tax offset rises to $1,500 – meaning that the tax free income for minors will be $3,000 for the 2010 year and $3,333 for the 2011 year. For adult taxpayers, the effective tax free amount they can earn less than and pay no tax rises from $15,000 in 2010 to $16,000 in 2011.
- Increase the Super Guarantee age limit from 70 to 75 – from 1 July 2013
- Keep the $50,000 concession contributions cap in place from 1 July 2012 for those over 50 with super balances below $500,000 – it generally reduces to $25,000 from 1 July 2012
- Minor changes to the tax consolidation regime
- Changes to film tax offsets
Should you wish to discuss any of these measures, please do not hesitate to contact one of our tax advisers:
Sydney - Tina Louras, Tax Principal : Email Tina
Newcastle - Darren Shone, Tax Principal : Email Darren
