2009-2010 Federal Budget

Personal Income Tax

The Government will deliver in full the tax cuts it announced during the 2007 election campaign.

As previously announced, the amendments raise the 30% threshold for residents and non-residents:

• from $34,001 to $35,001 from 1 July 2009; and
• to $37,001 from 1 July 2010.

The amendments also reduce the second highest marginal tax rate for residents and non-residents:

• from 40% to 38% from 1 July 2009; and
• to 37% from 1 July 2010.

The table below outlines the new tax thresholds for residents from 1 July 2009 and 1 July 2010 in full.

Date of effect: 1 July 2009

Medicare Levy Threshold Increase

The Government will increase certain Medicare levy low-income thresholds for the 2008/09 year to:

• $17,794 for individuals (up from $17,310);
• $30,025 for individuals in families (up from $29,207);
• Incremental $2,757 for each dependent child or student (up from $2,682); and
• $25,299 for pensioners below Age Pension age (up from $22,922).

Date of effect: 1 July 2008

First Home Owner's Boost Extended

The First Home Owner’s Boost (FHOB) will be extended for an extra six months and will be reduced by half for the last three months of the extension period.

For eligible first home buyers entering into contracts between 1 July 2009 and 30 September 2009 (inclusive) the FHOB will continue to provide $7,000 for the purchase of established homes and $14,000 for the purchase of new homes. This means that including the $7,000 First Home Owner’s Grant, until 30 September 2009, purchasers of new homes will continue to be eligible for $21,000 of assistance, and purchasers of existing homes will continue to be eligible for $14,000 of assistance.

Between 1 October 2009 and 31 December 2009 the FHOB grants will be $3,500 for the purchase of established homes and $7,000 for the purchase of new homes. This means that including the $7,000 First Home Owner’s Grant, from 1 October 2009 until 31 December, 2009 purchasers of new homes will be eligible for $14,000 of assistance, and purchasers of existing homes will be eligible for $10,500 of assistance.

The FHOB grants are in addition to the existing $7,000 grant under the First Home Owners Scheme

Date of effect: 12 May 2009

Private Health Insurance Rebate Changes

From 1 July 2010, the Government will introduce three new 'Private Health Insurance Tiers' based on an individual’s or family’s income.

Tier 1: for singles earning over $75,001 (couples over $150,001), the Private Health Insurance Rebate will be 20% for those up to 65 years (25% for those over 65 years, and 30% for those over 70 years). The surcharge for avoiding private health insurance will remain at 1%.

Tier 2: for singles earning over $90,001 (couples over $180,001), the Private Health Insurance Rebate will be 10%, for those up to 65 years (15% for those over 65, and 20% for those over 70 years). The surcharge for avoiding private health insurance will be increased to 1.25%.

Tier 3: for singles earning over $120,001 (couples over $240,001), no Private Health Insurance Rebate will be provided. The surcharge for avoiding private health insurance will be increased to 1.5%.

For low and middle-income earners, the existing 30%, 35% or 40% Private Health Insurance rebates will remain in place.

Date of effect: 1 July 2010

Superannuation

The Government has made its first rollback of the simpler superannuation reforms, reducing the concessional contributions caps from the start of the 2009-10 income year. The concessional contributions cap has been halved to $25,000 a year from its current limit of $50,000. The Government will introduce special concessions for persons who are defined benefit fund members on 12 May 2009.

Superannuation Co-contribution Decreased

The superannuation co-contribution scheme will be reduced to 100% of eligible contributions for the 2009-10, 2010-11 and 2011-12 income years, with the rate increasing to 125% of contributions for the 2012-13 and 2013-14 years and returning to its former level of 150% for the 2014-15 year.

The adjusted superannuation co-contribution rates from 1 July 2009 will be:

• 100% for 2009-10, 2010-11 and 2011-12, with a maximum co-contribution of $1,000, reduced by 3.333 cents for each dollar by which the person’s total income exceeds the shade-out threshold for receiving the full co-contribution;
• 125% for 2012-13 and 2013-14, with a maximum co-contribution of $1,250, reduced by 4.167 cents for each dollar of total income above the shade-out threshold; and
• 150% from 2014-15 onwards, with a maximum co-contribution of $1,500, reduced by 5 cents for each dollar of total income above the shade-out threshold.

Pension Age to be Increased to 67

The Age Pension age will be gradually increased to 67 years of age. The new pension age changes will apply to new pension entrants from 1 July 2017, which will mean that it applies to people who are 57 years of age or younger on July 2009.

The following table indicates the new age pension ages:

New Work Bonus for Age Pensioners

The Government has announced a new Work Bonus for age and service pensioners that will enable them to keep more of the money they earn through part-time work.

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 the means testing.  

Small Business Tax Break Extended

The Small Business and General Business Tax Break will be expanded to allow a bonus deduction of 50% to small businesses with a turnover of less than $2 million that acquire an eligible asset between 13 December 2008 and 31 December 2009 and install it ready for use by 31 December 2010.

The previously announced 30% and 10% bonuses will continue to apply to all other businesses.

Paid Parental Leave Scheme

The Government has announced that it will introduce a Paid Parental Leave scheme for parents in respect of births and adoptions that occur on or after 1 January 2011. Parents will be able to lodge claims from 1 October 2010. The scheme will provide 18 weeks postnatal leave paid at the federal minimum wage (currently $543.78 per week).

To be eligible for the scheme, a parent in paid work:

• must have worked continuously with one or more employers for at least 10 of the 13 months before the expected date of birth or adoption;
• must have worked at least 330 hours in those 10 months (equivalent to around one full day of work each week); and;
• must have an adjusted taxable income of $150,000 or less in the financial year prior to the date of birth or adoption of the child.

Parents who are eligible for Paid Parental Leave will be able to continue to access employer funded leave (maternity leave and recreation leave) around the time of the birth or adoption of a child.

Paid Parental Leave will be available to contractors, casual workers and the self-employed. 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 FTB-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.

Should you wish to discuss any of these, or other matters that arose out of the Federal Budget, please contact us on +61 2 6279 5400.

The contents of this Bulletin are general in nature. We therefore accept no responsibility to persons acting on the information herein without first consulting us.