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14 May 2008
 Given
all the leaks that preceded it, the 2008/09
Federal Budget was a fairly uneventful document
and relatively well received by most analysts.
It delivered the foreshadowed mix of spending
restraint and tax integrity measures and
is clearly designed to rein in inflation
and keep a lid on interest rates. The bottom
line is a projected budget surplus of $21.7bn
in the 2008/09 financial year with modest
economic growth of 2.75%.
From a business perspective, there were
fairly few significant measures although
that may change once the Government completes
its proposed 'comprehensive review of the
tax system.' This review is expected to
be finalised by the end of 2009.
Personal income tax cuts
From 1 July 2008, the income threshold for
the 30% tax rate will rise from $30,001
to $34,001, the 40% threshold will be lifted
from from $75,001 to $80,001, and the 45%
threshold will go up from $150,001 to $180,001.
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Current Rates
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From 1 July 2008
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Income $
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%
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Income $
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%
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0 - 6,000
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0
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0 - 6,000
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0
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6,001 - 30,000
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15
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6,001 - 34,000
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15
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30,001 - 75,000
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30
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34,001 - 80,000
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30
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75,001 - 150,000
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40
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80,001 - 180,000
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40
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150,000 +
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45
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180,000
+ |
45
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Low Income Tax Offset
(LITO)
The low income tax offset will increase
from $750 to $1,200 from 1 July 2008. This
means that those who are eligible for the
full LITO will have an effective tax-free
threshold of $14,000 in 2008/09.
Senior Australians Tax Offset (SATO)
The amount of income that a senior Australian
can earn and still be eligible for SATO
will be increased from $25,867 to $28,867
for singles and from $21,680 to $24,680
for each member of a couple.
Therefore retirees who are eligible for
both SATO and LITO will be able to earn
taxable income of $28,867 per annum if they
are single or a combined $49,360 per annum
for couples.
Medicare levy surcharge
The Medicare levy surcharge income threshold
will rise on 1 July 2008 from $50,000 to
$100,000 for singles and $100,000 to $150,000
for families.
Capital
Gains Tax
The Goverment has announced several measures
that will improve the operation of capital
gains tax as it applies to investors and
business owners.
- Interests in widely
held companies and trusts. The law
will be changed to allow investors in
these entities whose shares or units are
cancelled or surrendered to calculate
their capital gain or loss using the actual
proceeds rather than the market value
as presently required.
- CGT small business
concessions. The Government will extend
access to the CGT small business concessions
to taxpayers who own a CGT asset that
is used in a business but is legally held
by a related entity and for partners that
own a CGT asset used in the partnership
business.
- Scrip for scrip
rollovers. Amendments
will be made to the scrip-for-scrip CGT
rollover relief rules so that the cost
base of the shares acquired in the target
entity will reflect the tax cost of the
target company's net assets.
Fringe benefits tax
The Government has outlined a number of
measures to restrict FBT concessions including
-
- tighter rules for
exempt work items such as laptop computers
and PDAs;
- restricting the ability
to gain concessions under salary sacrifice
arrangements for jointly-held assets;
and
- the exemption applying
to rules consumed on an employer's premises.
Goods & Services
Tax
The Government has announced
important changes to the sale of real property
under the margin scheme and restrictions
on GST refunds.
Family Trust elections
The Government will change the definition
of 'family member' so that it only includes
direct lineal children and grandchildren
of the test individual or their spouse.
The ability to
make a one-off variation of the test individual
will also be removed except where this is
required due to a marriage breakdown.
Franking credits from testamentary trusts
At present, testamentary trusts cannot distribute
certain dividend franking credits to their
income beneficiaries unless they make a
family trust election. The Government has
announced plans to tackle these difficulties
but the legislative changes are not expected
to be introduced before 2009.
Depreciation of computer software
The period over which in-house computer
software can be depreciated will be increased
from 2.5 years to 4 years for expenditures
incurred after 13 May 2008.
Managed fund distributions to non-residents
The rate of Australian withholding tax applicable
to managed fund distributions to non-residents
will be progressively reduced from 30% to
7.5% over the next four years. However this
only applies to countries which have an
effective exchange of information (EOI)
with Australia.
Superannuation
- Superannuation
Clearing House. The Government is
proposing to introduce a superannuation
contribution clearing house to allow employers
to make one contribution payment and have
the clearing house distribute the money
to the relevant superannuation fund.
- Salary sacrifice
and co-contributions. From 1 July
2009, the definition of income used to
determine the eligibility for the governement
co-contribution will be expanded to include
salary sacrificed income. Taxpayers who
have implemented a salary sacrifice strategy
and make non-concessional contributions
to get the co-contribution may want to
review the appropriateness of this strategy.
- Tax free lump
sums for persons who are terminally ill.
The Government has announced that it will
back date to 1 July 2007 the previously
announced measures to allow tax-free superannuation
lump sums for people suffering a terminal
medical condition.
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