Federal Budget 2009
The 2009/10 Federal Budget is characterised by a $57.6 billion deficit, with the Government expecting to see the budget return to a surplus position in 2015/16. The focus of spending is on infrastructure and building projects in an effort to limit the increase in unemployment (tipped to reach 8.5 per cent in 2010/11) and to ‘build for the future’.
From a financial planning perspective, the impact of the Budget is not as great as those we have seen in the last few years.
While there were no significant tax changes announced, it is important to note that the tax cuts announced in last year’s Budget have not been wound back.
Concessional contribution caps will be halved from 1 July 2009, but the widely-rumoured changes to transition to retirement income streams did not eventuate. The 50 per cent reduction in minimum drawdowns for account-based pensions will continue for the next financial year.
The co-contribution matching rate is reduced from 150 per cent to 100 per cent for three years, but there is no change to the eligibility requirements.
One of the more significant changes for retirees is to the income testing of pensions, with the income test to increase from 40 cents in the dollar to 50 cents in the dollar. The impact of this change is reduced by the increases in the pension rates and transitional provisions to minimise the impact on existing pensioners.
Taxation
1. Private health insurance rebate and Medicare levy surcharge
- High income earners will receive a lower tax rebate for their private health insurance premiums.
- The Medicare levy surcharge will increase for high income earners who opt out of private health insurance.
From 1 July 2010, the Government will introduce three new Private Health Insurance Tiers, as shown in the following table.
| Tier 1 | Tier 2 | Tier 3 | |
| Annual income (single) | $75,001 - $90,000 | $90,000 - $120,000 | More than $120,000 |
| Annual income (couple) | $150,001 - $180,000 | $180,001 - $240,000 | More than $240,000 |
| Rebate | No rebate available | ||
| Medicare levy surcharge if individual opts out | 1 per cent | 1.25 per cent | 1.5 per cent |
Existing arrangements will remain unchanged for single people with income of less than $75,000 per annum and families with income of less than $150,000 per annum.
2. Medicare levy thresholds
For the 2008/09 financial year, the Medicare levy low-income threshold will increase to $17,794 (up from $17,309) for singles and to $30,025 (up from $29,207) for couples. For families, the additional amount of threshold for each dependent child or student will also be increased to $2,757 (up from $2,682).
The Medicare levy low-income threshold for pensioners below Age Pension age will be increased to $25,299 (from $22,922). This will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.
3. Non-commercial losses
The Government will remove the ability for high income earners to deduct losses from unprofitable business activities against their own income. In certain circumstances, where expenses exceed income earned from non-commercial business activities (eg hobby farms), salaried employees can reduce their salary income with these excess expenses.
From 1 July 2009, taxpayers with adjusted taxable income of over $250,000 will have excess deductions quarantined to the business activity. Taxpayers will be able to apply to the Taxation Commissioner for relief in special circumstances.
4. Overseas employment income
Currently, Australians working overseas for a continuous period of 91 days or more are eligible for a general exemption which means that they do not pay any Australian income tax on their foreign employment income. This general exemption was provided to ensure that foreign employment income was not double-taxed, first in the country where the income was earned and then again in Australia. However, many foreign countries are lower tax jurisdictions which means some Australians who earn income overseas are paying less tax than if they earned income solely in Australia.
From 1 July 2009, the Government will amend the general exemption to provide an exemption for income earned:
- as an aid or charitable worker employed by a recognised non-government organisation, or
- as a government aid worker, or
- as a specified government employee, eg defence and police force personnel deployed overseas.
Income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt, as provided for by existing rules.
To avoid Australians paying double taxation, a tax offset will be available for any foreign tax paid on foreign employment income.
5. Employee share schemes
Currently, employees who take part in employee share schemes are required to pay tax on any discount on the full value of a share or option they receive from their employer. This is currently the case in relation to both qualifying shares schemes and non-qualifying share schemes.
The legislation currently provides two ways for an employee in a qualifying share scheme to have tax on the discount assessed:
- The employee can elect to be assessed in the financial year in which the shares or options are acquired. If so, the employee can access an upfront tax exemption of up to $1,000 on discounts received each year.
- If an election is not made, taxation of the discount is deferred until a later time (such as when the employee disposes of the shares).
In comparison, if the shares or options are issued under a non-qualifying scheme, the employee is taxed on the discount when he or she acquires the shares or options. This means they do not enjoy the tax benefits associated with qualifying employee share schemes.
Under the new arrangements, all discounts on shares and options provided under an employee share scheme — either qualifying or non-qualifying — will be assessed in the financial year in which they are acquired. That is, employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time.
The Government will also limit access to the $1,000 upfront concession to those employees with a taxable income of less than $60,000 per annum after adjustment for fringe benefits, salary sacrifice and negative gearing losses.
These measures will apply to shares and options acquired after 7.30pm on 12 May 2009.
6. Rollover relief for fixed trusts
Typically, the transfer of assets from one trust to another is a capital gains tax (CGT) event. However, the Government will provide limited CGT roll-over relief for assets transferred between trusts that have the same beneficiaries with the same entitlements and no material discretionary elements (typically referred to as fixed trusts), with effect from 1 November 2008.
As a result of this measure, trustees of eligible trusts will be able to defer the CGT consequences of the asset transfer until the receiving trust subsequently deals with the asset. This will allow eligible trusts to restructure without immediate CGT consequences.
7. Managed investment trusts — capital gains tax election
The Government will allow Australian managed investment trusts (MITs), except those that are taxed like companies, to make an irrevocable election to apply the CGT regime as the primary code for taxing certain disposals of assets, with effect from the 2008/09 financial year.
This measure will ensure that the taxation treatment of disposals of assets (primarily shares in a company, units in a unit trust and real property investments) by MITs is consistent with the taxation treatment of disposals of similar investments by complying superannuation funds.
Superannuation
1. Reduction in concessional contributions cap
The concessional contributions cap will be reduced from $50,000 to $25,000 with effect from 1 July 2009. This cap will continue to be indexed.
The transitional cap for concessional contributions for those aged 50 years and over will also be reduced, from $100,000 to $50,000. This reduced cap will apply for the 2009/10, 2010/11 and 2011/12 financial years, after which individuals aged 50 and over will revert to the lower $25,000 cap (indexed). The transitional cap is not indexed.
The non-concessional contributions cap will remain at $150,000 for the 2009/10 financial year, and will only increase when the new lower $25,000 concessional cap is increased by indexation. Going forward, the non-concessional contributions cap will be calculated as six times the level of the (indexed) concessional contributions cap. It is expected that the bring-forward provisions will continue to allow eligible individuals to make non-concessional contributions of up to $450,000 over a three-year period.
The existing grandfathering arrangements that apply to certain members of defined benefit schemes in relation to the concessional contributions cap will continue. These arrangements will also be extended to certain persons who were members of defined benefit schemes on 12 May 2009.
2. Temporary reduction in the Government superannuation co-contribution
The Government will temporarily reduce the matching rate and maximum co-contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions, with effect from 1 July 2009.
The superannuation co-contribution matching rate will reduce from 150 per cent to 100 per cent for contributions made in the 2009/10, 2010/11 and 2011/12 financial years, and to 125 per cent for contributions made in the 2012/13 and 2013/14 financial years.
The maximum co-contribution payable will be reduced to $1,000 for contributions made in the 2009/10, 2010/11 and 2011/12 financial years, and to $1,250 for contributions made in the 2012/13 and 2013/14 financial years.
The co-contribution matching rate and maximum co-contribution payable will return to 150 per cent and $1,500 for contributions made in the 2014/15 and later financial years.
The co-contribution income thresholds will continue to be indexed. No changes were announced in relation to other eligibility requirements for the co-contribution.
| Financial years | 2008/09 | 2009/10 - 2011/12 | 2012/13 - 2013/14 | 2014/15 and later |
| Matching rate | 150 per cent | 100 per cent | 125 per cent | 150 per cent |
| Maximum co-contribution | $1,500 | $1,000 | $1,250 | $1,500 |
| Reduction (per dollar of income in excess of the lower threshold | 5 cents | 3.33 cents | 4.167 cents | 5 cents |
3. Minimum drawdown on account-based pensions
The Government will halve the minimum drawdown amounts on account-based pensions for the 2009/10 financial year. This extends the drawdown relief provided by the Government for the second half of 2008/09. This change is intended to assist pension account balances to recover from capital losses associated with the global recession.
4. Small and insoluble superannuation accounts
Superannuation providers will be required to transfer certain lost superannuation accounts to unclaimed monies, with effect from 1 July 2010. Superannuation providers will be required to transfer lost accounts with balances less than $200 (small accounts), and those which have been inactive for a period of five years and have insufficient records to identify the owner of the account (insoluble accounts).
Former account holders will be able to reclaim their money from the Australian Taxation Office at any time.
5. Capital gains tax — extension of capital loss roll-over for complying superannuation fund mergers
The Government has enhanced the optional capital gains tax loss roll-over for complying superannuation fund mergers announced on 23 December 2008. The roll-over will be extended by one year to 30 June 2011 so that superannuation funds will have more time to use the rollover.
The measure will now also apply to mergers involving pooled superannuation trusts where the continuing entity has at least five members and to mergers involving the complying superannuation business of life insurance companies.
The measure will permit merging superannuation entities in a net capital loss position to elect to roll over assets with accrued capital gains as well as assets with accrued capital losses. In addition, the rollover will be expanded to permit the transferring superannuation entity’s previously realised net capital losses to be transferred to the continuing superannuation entity and the rollover or transfer of revenue losses to the continuing entity.
6. Release of the Australia’s Future Tax System Report into retirement incomes
The Government has launched the Australia’s Future Tax System (AFTS) Report on the retirement income system prepared by the AFTS Review Panel. The report found that Australia’s three-pillar retirement income system, consisting of the means tested Age Pension, compulsory saving through the superannuation guarantee scheme and voluntary saving for retirement, should be retained.
The Government has adopted some of these findings in the 2009/10 Federal Budget, reducing the concessional superannuation caps and increasing the Age Pension age.
The Panel has recommended retaining aspects of the current system, with improvements to ensure that key challenges can be met in the longer term. Specific recommendations include:
- the current superannuation guarantee (SG) provides an adequate rate of compulsory saving and should be retained at nine per cent.
- not extending SG to the self-employed and retaining the $450 per month threshold
- preservation age should be gradually increased to 67 years
- improving the fairness of the pension means tests, and improve incentives to work beyond retirement age
- maintaining tax assistance to superannuation but improving the fairness of concessions for contributions, and
- improving the ability of people to use their superannuation to manage longevity risk.
The Panel has deferred final recommendations on other related issues until the December report to enable consideration in the context of the broader tax-transfer system.
7. Superannuation — trans-Tasman 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.
The trans-Tasman portability scheme will permit transfers of superannuation savings between certain Australian superannuation funds and New Zealand KiwiSaver funds.
Families
1. Paid Parental Leave
Government-funded paid parental leave will provide 18 weeks of postnatal leave paid at the Federal minimum wage (currently $543.78 per week).
Primary carers will be eligible for the scheme if they:
- have worked continuously with one or more employers for at least 10 of the 13 months before the expected date of birth or adoption
- have worked at least 330 hours in those 10 months (equivalent to around one full day of work each week) prior to the date of birth or adoption of the child, and
- have an adjusted taxable income of $150,000 or less in the financial year prior to the birth or adoption of the child.
Parents who are eligible for Paid Parental Leave will be able to continue to access employer-funded leave around the time of the birth or adoption of a child. This includes employer-provided maternity leave and recreation leave. Government-funded Paid Parental Leave can be taken in conjunction with, or in addition to, employer-provided paid leave.
Paid Parental Leave will be available to contractors, casual workers and the self-employed, many of whom have no access to employer-provided paid parental leave entitlements.
In some cases, Paid Parental Leave will be able to be transferred to another caregiver if the primary carer returns to work before the end of the 18-week period.
Payments made under the scheme will be taxable. Parents who receive paid parental leave will not receive the Baby Bonus (except in the case of twins or multiple births), or Family Tax Benefit Part B during the 18-week Paid Parental Leave period.
Mothers and primary carers not in full-time paid work will continue to receive the current forms of family assistance (including the Baby Bonus) if they meet the relevant eligibility requirements.
The Government scheme will be available to parents for births and adoptions that occur on or after 1 January 2011. Parents will be able to lodge claims from 1 October 2010.
Superannuation payments will not initially be introduced for the Government’s Paid Parental Leave. The introduction will be considered as part of a comprehensive review of the scheme, within three years of the scheme’s implementation.
2. Reform of Family Payments
Higher income thresholds for family payments will be fixed at current levels for three years until July 2012.
From 1 July 2009 for a period of three years:
- the Family Tax Benefit (FTB) Part B primary earner income threshold will remain at $150,000
- the income threshold for receiving dependency tax offsets will remain at $150,000
- the Baby Bonus eligibility threshold will remain at $75,000 of family income in the six months following the birth or adoption of a child (equivalent to $150,000 a year), and
- the higher income free area of FTB Part A will remain constant.
The FTB Part A lower income free threshold (currently $42,559) and the FTB Part B secondary earner income threshold (currently $4,526) will continue to be indexed annually in line with increases in the costs of living.
Payment rates for FTB (Parts A and B) and the Baby Bonus will also continue to be indexed every year.
Consistent with indexation of other family assistance payment rates, from 1 July 2009, maximum rates of Family Tax Benefit Part A for children under 16 years will be indexed by movements in the Consumer Price Index only, instead of being linked to male total average weekly earnings (MTAWE) through the combined couple rate of pension.
Aged Care
1. Changes to basic daily care fees
The Government will share the base pension rise between aged care providers (70 per cent) and pensioners (30 per cent). This ensures that pensioners in aged care homes are able to benefit from the pension increases, while at the same time recognising that care providers also need additional funding to contribute to the costs of services such as nursing care, food and cleaning.
Full pensioners in aged care will receive an additional $10.09 per week in their pockets.
Furthermore, as the maximum daily care fee is linked to the rate of the single pension, the remainder of the pension increase will go to the aged care facility in the form of a higher basic daily care fee. The Government will amend the Aged Care Act 1997 to reset the basic daily fee from 85 per cent to 84 per cent of the single age pension base rate.
As a result of this change, the maximum basic daily fee will rise from $233.87 per week to $256.27 per week.
Special arrangements will be put in place for part pensioners and self-funded retirees currently in aged care who do not benefit from the full pension rise to protect them from any increase in the basic daily fee. These residents will not face any fee increase while in care.
New entrants from 20 September 2009 who also do not benefit from the full pension increase will have special transitional arrangements for a period of four years. These new residents will initially pay the same level of fees as is currently paid by existing residents. Over the next four years their fees will gradually increase until they are paying 84 per cent of the base pension.
During this transitional period, aged care providers will be compensated for any difference between the actual fee paid by new part pensioners and self-funded retirees, and the basic daily fee paid by maximum rate pensioners.
2. Fairer income testing
The Government will apply the income test for residential aged care from the day of entry, removing the current 28-day delay. This will align the residential income-tested fee with other aged care fees payable from the day of entry into the aged care facility.
Other
1. First Home Owners Boost (FHOB) extension
The Government has announced an extension of the existing first buyers boost for an extra six months until 31 December 2009. The boost will be reduced by half for the last three months of the extension period.
Between 1 July 2009 and 30 September 2009, the FHOB will be:
- $7,000 for the purchase of established homes, and
- $14,000 for the purchase of new homes.
Between 1 October 2009 and 31 December 2009, the FHOB will be:
- $3,500 for the purchase of established homes, and
- $7,000 for the purchase of new homes.
The FHOB grants are in addition to the existing $7,000 grant under the First Home Owners Scheme.
Here are some other useful tools:
Social Security
1. Increase in Age Pension age
The qualifying age for the Age Pension and the Commonwealth Seniors Health Card will be increased for men and women to 67 years of age from 2023. The qualifying age will be increased by six months every two years, commencing from 1 July 2017 and reaching 67 on 1 July 2023, as shown in the following table.
The qualifying age for the Veterans’ Service Pension will remain unchanged.
2. Increase in maximum pension rate
From 20 September 2009, eligible pensioners will receive an increase in the maximum rate of pension. Singles will receive an increase of $32.49 per week, comprising:
Couples will receive an additional $10.14 per week (combined) in the form of a pension supplement, paid fortnightly.
From 20 September 2009, the maximum payment for single pensioners will increase from $304.19 per week to $336.68 per week and for pensioner couples from $497.36 per week to $507.50 per week.
These increases apply to pensioners receiving:
The Australian Bureau of Statistics (ABS) will develop a new Pensioner and Beneficiary Living Cost Index which will be used indexing the base rate of income support pensions paid by the Government.
From 20 September 2009, the single rate of pension will be indexed at by the greater of:
3. Change to income test taper rate for pensions
From 20 September 2009, the income test taper rate on each dollar of income above the income test free area will increase from 40 cents to 50 cents for single pensioners and 20 cents to 25 cents for each member of a couple.
The pension income free area is currently $138 per fortnight for singles, and $240 per fortnight for couples (combined). Pensioners with income below these amounts will not be affected by these changes.
Under the new rules, the pension will be paid to new pensioners with income of up to $38,693 for singles, and $59,228 for couples (combined).
Transitional arrangements will apply for existing part pensioners affected by the movement of the income test taper rate from 40 cents to 50 cents. Individuals who are worse off under the new arrangements will continue to be assessed at the 40 cent taper rate on the reduced base rate of pension (pre-20 September 2009 rate), until they are better off under the new rules.
4. Pension supplement
From 20 September 2009, the following payments will be combined into a new pension supplement:
The fortnightly pension supplement will include an additional $2.49 per week for singles, and $10.14 per week for couples (combined).
From 1 July 2010, pensioners can choose to receive half of the pension supplement on a quarterly basis.
5. Seniors Supplement
From 20 September 2009, the Seniors Supplement will be available to self-funded retirees who are eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold card with current Seniors Concession Allowance. It incorporates existing payments of Seniors Concession Allowance and Telephone Allowance.
For singles, the new supplement will increase payments by $129 a year, bringing their rate of payment to two-thirds of that received by couples combined. The Seniors Supplement will be $790.40 per year for singles and $1190.80 per year for couples (combined). Payments will be made quarterly.
6. Commonwealth Seniors Health Card – income definition
The Government will not proceed with the 2008/09 Federal Budget initiative that proposed to include non-assessable non-exempt lump sum withdrawals and gross pension payments from superannuation funds in adjusted taxable income, which is used to determine eligibility for the Commonwealth Seniors Health Card.
However it will proceed with the inclusion of salary sacrifice contributions in several income tests that are used to determine eligibility for various social security programmes from 1 July 2009. For example, salary sacrifice contributions will be included in adjusted taxable income to determine eligibility for the Commonwealth Seniors Health Card.
7. Special Disability Trusts – unexpended income and CGT main residence exemption
From the 2008/09 financial year, the unexpended income of a Special Disability Trust (SDT) will be taxed at the relevant beneficiary’s personal income tax rates rather than automatically at the top marginal tax rate plus the Medicare levy. Furthermore, from the 2009/10 financial year, the CGT main residence exemption will be extended to include a main residence that is owned by an SDT and is used by the relevant beneficiary as their main residence.
8. Annual payment to carers
Previous ad-hoc bonuses to carers will be replaced by a legislated annual supplement. This new supplement will be ongoing and non-taxable.
The new supplement will provide:
People who receive both Carer Payment and Carer Allowance will be eligible for both payments.
The existing Child Disability Assistance Payment of $1,000 per year for carers who are paid Carer Allowance (child) will continue.
The first payment of the new Carer Supplement will be made to carers before July 2009. The regular payment will be made from 1 July 2010 onwards.
9. Pension Bonus Scheme
From 20 September 2009, the Pension Bonus Scheme (PBS) will be closed to new entrants. Individuals who are already registered in the PBS before 20 September 2009 will be able to remain in the scheme, accrue entitlements and claim a pension and their bonus when they finish working.
The PBS will be replaced by a new Work Bonus, which will treat Age and Service pensioners’ earned income more generously. From 20 September 2009, only half of the first $500 of employment income earned per fortnight will be assessed under the income test. This will enable up to $250 of earnings a fortnight to be excluded from means testing.
Pensioners who do some part-time work could get an extra benefit of $125 per fortnight, on top of any pension increase. A pensioner’s earnings will now also be assessed on a fortnightly basis, bringing more consistency to pensions, and making income testing easier to understand.
10. Social security agreements with Czech Republic, Slovak Republic and Latvia
The Government has finalised negotiations with the Czech Republic, the Slovak Republic and Latvia to introduce social security agreements. These agreements are expected to be in place from 1 January 2011.
Under these agreements, residents who have spent part of their adult lives in both Australia and these countries will be able to receive part pensions from both countries.
It will also remove the requirement for compulsory contributions to be paid into both countries' superannuation and pension systems for temporarily seconded workers. The employer’s superannuation (or social security) obligation will instead remain in the employee’s home country.