'Budget Updates'

Personal income tax threshold increases

This Federal Budget introduces a further round of tax cuts.  From 1 July 2007, the threshold for the 30% tax rate increases to $30,000. From 1 July 2008, the 40% and 45% thresholds increase to $80,000 and $180,000, respectively. The increase in the top marginal tax rate threshold to $180,000 should mean that only around 2% of taxpayers will be on the highest tax rate.

The table below provides a summary of the changes in marginal tax rates and thresholds.

Increase in the low income tax offset

The low income tax offset will increase from $600 to $750 from 1 July 2007. In addition, it will not begin to phase out until a taxpayer’s annual taxable income exceeds $30,000(up from $25,000). This increase will mean that those eligible for a full low income tax offset will not pay tax until their income exceeds $11,000 (up from $10,000).

A partial low income tax offset will be available for taxable incomes above $30,000 and below $48,750.

Tax Payable and potential tax savings

To illustrate the impact of the changes to the personal income tax offset, the following table shows the amount of tax payable in 2006/2007 and 2007/2008 for a range of taxable incomes. It also shows the tax saved when compared to the current financial year.

*Does not include the Medicare Levy, or tax offsets other than the low income tax offset.

Low income tax offset for minors

The increase in the low income tax offset will be of an advantage to resident minors with unearned income.

Currently they could earn $1,333 annually before incurring tax by combining their zero tax threshold with the low income tax offset.  As of 1 July 2007, this amount will increase to $1,667.

Low income tax offset for senior Australians

Those eligible for the senior Australian tax offset as well as the low income tax offset will also benefit from the increase in the low income tax offset.
They can currently combine the two offsets to not pay tax until an annual income of up to $24,867 for singles and $41,360 for couples is earned. From 1 July 2007, this will increase to $25,867 for singles and $43,360 for couples. The Medicare levy thresholds for senior Australians will also increase so that the Medicare levy is not paid until an income tax liability is incurred.

Note: The above income limits are in addition to the tax-free superannuation benefits senior Australians may receive from taxed superannuation schemes on or after 1 July 2007.

Increase in Medicare Levy thresholds

In conjunction with the aforementioned changes, the Medicare levy low-income thresholds and threshold for pensioners of less than pension age have been increased from1 July 2006. This will ensure low-income individuals and families are exempt from paying the Medicare levy.
The thresholds are based on taxable income (excluding any Post 1983 tax portion of an ETP included in the taxpayer’s or their spouse’s taxable income that falls within the Post 1983 low rate threshold) and are shown below.

*The low income threshold is increased by this amount for each dependant child.

** This applies to taxpayers below Age Pension age receiving certain taxable Government pensions and allowances.

Tax returns made easy

The Australian Taxation Office (ATO) will make it easier for approximately 9 million taxpayers who lodge returns electronically, either personally or through an agent. The ATO will make available electronically a pre populated return for individuals. This will include:-

• details of wage, salary and allowances where the employer has electronically lodged the employee’s payment summary with the ATO,
• interest and dividends,
• distributions from Managed Funds,
• Medicare out-of-pocket expenses,
• information on private health cover,
• any government benefits, including family tax benefits,
• Higher Education Contribution scheme and Higher Education Loan programme details.

The Treasurer said that individuals may add to the pre-populated information where necessary.  It is anticipated that these details would only be available by mid-August.

Superannuation Changes

Additional Government co-contribution for 2005/2006

As a one-off benefit, the government is doubling the amount of co-contribution to a maximum of $3000 for those who qualified in 2005/06.
Currently, those qualifying for the superannuation co-contribution receive up to $1.50 for each $1 of personal after-tax contributions up to a maximum co-contribution of $1,500. The full co-contribution is available to those with assessable income plus reportable fringe benefits up to $28,000, shades out beyond this level and is not available to those earning in excess of $58,000. These amounts and thresholds are unchanged.

Please Note: As this initiative relates to 2005/06 only, those people who did not make any undeducted contribution in that year will not qualify for the additional
co-contribution.

Family Law CGT relief for small super funds

Law will be introduced to allow one spouse in a marriage breakdown to transfer their entire in specie interest in a small superannuation fund to another complying superannuation fund without invoking immediate CGT consequences.

The change will extend the current treatment which only allows CGT rollover of assets of small funds on marriage breakdown to the spouse who benefits from a payment split and only to those assets subject to the payment split and then only to another small super fund.
The change will provide greater choice of fund to the departing spouse and by allowing the rollover of the entire in specie interests, recognises their own contributions in the fund.

Abolition of participating employer agreements

Effective 1 July 2007, public offer funds will be prevented from requiring that new employers sign ‘participating employer’ agreements before accepting contributions on behalf of fund members. The measure will allow employees to choose to remain in a fund following a change of employer, rather than having contributions paid to another fund.

Changes to the Public Sector Superannuation Scheme (PSS) and the Commonwealth Superannuation Scheme (CSS)

A range of changes is being introduced to members of PSS and CSS to align their superannuation schemes with private sector funds.  These include:

• mandatory member contributions abolished from 1 July 2008
• Superannuation Choice for members of PSS from 1 July 2008.

Family Benefits

Child care tax rebate paid directly to families

From 1 July 2007, families receiving the Child Care Tax Rebate (CCTR) will receive this payment as a direct credit from Centrelink soon after the financial year in which the child care costs are incurred. The CCTR payment covers 30% of out of pocket child care costs up to a maximum of $4,000 (plus indexation). The benefit of this change is that families with insufficient tax liabilities will now receive the full benefit of the rebate.

The FAO is in the process of introducing a new system (the ‘child care management system’) that will standardise and simplify the calculation of the child care benefit, bring forward the calculation of the CCTR and enable earlier direct payment.

Child care benefit increased

Families entitled to the Child Care Benefit will receive a 10% increase in the payment rate from 1 July 2007. Combined with the effect of indexation of the benefit, the maximum increase is $20.50 per child per week.

Social Security Measures

Seniors bonus payment and carer payments

The Government will provide a bonus of $500 to individuals eligible to receive either the Utilities Allowance or the Seniors Concession Allowance as of Budget night. The Utilities Allowance is paid to those of Age Pension or Age Service Pension age who are in receipt of income support payments. The Seniors Concession Allowance is paid to those who hold a Commonwealth Seniors Health Card (i.e. Age Pension age and with income in defined limits).

Recipients of the Carer Payment will receive a one-off bonus payment of $1,000. Those who receive the Carer Allowance will receive a bonus of $600. The $1,000 will also be paid to those who receive both the Carer Allowance and either Wife Pension or DVA Partner Service Pension.

These will be paid by 30 June 2007.

Payments to veterans increased

From 1 July 2007, the Government will increase the rate of the Special Rate Disability Pension and the Intermediate Rate Pension paid to war veterans. In addition, the Government will make one-off payments to Australians who were prisoners of war in Europe, or to their surviving widows.

Funeral bonds assets test exemption improved

The assets test exemption threshold for funeral bonds will increase from $5,000 to $10,000 per person in recognition of the increased cost of funerals since the threshold was first introduced. This measure will apply to bonds purchased from 1 January 2008 and, from that date, to existing bods valued between $5,000 and $10,000.

Pension Bonus Scheme (PBS) changes

From 1 January 2008, it is proposed that PBS recipients benefit from the following enhancements to the scheme:

• Allowing the surviving partner of a deceased PBS member to receive the unclaimed accrued bonus of their deceased partner.
• Allowing PBS members who take long service, unpaid or recreation leave to continue in the scheme as non-accruing members for up to 26 weeks without failing the PBS work test. This means they can continue to accrue a bonus after taking their leave should they choose to.  Under current rules this may have resulted in them failing the work test whilst on leave and losing their accrued entitlement.
• Allowing a ‘top up’ bonus where a person’s rate of pension was increases in the 13 weeks after it was granted, due to their assessable income or assets decreasing within this period.  This may assist members who claim their pension and bonus before their finances are properly settled.
• Broadening the existing discretionary powers of Centrelink and DVA to extend the period in which a person must claim their bonus after failing the work test. Discretion may apply in special circumstances such as the serious illness of a close family member.

Changes for small business

Measures introduced to reduce compliance burden on small business include an increase in the turnover threshold from $50,000 to $75,000 before a business needs to register for the GST. Businesses who voluntarily register have the option to report and pay GST annually, instead of on a quarterly basis, and would only need to lodge a Business Activity Statement once a year.