2008 2009 Federal Budget
In December 2008 the Rudd Government announced that it would introduce a 10% temporary investment allowance to encourage business owners to acquire plant and equipment. On 3 February, 2009 the Government announced that it would expand and increase the temporary investment allowance to 30%. In the May Federal Budget the tax break was increased to 50%.
In summary, a taxpayer may be entitled to an additional tax deduction of up to 50% of the cost of new depreciating assets (or new investment in an existing asset), acquired between 13 December 2008 and 31 December 2009. Depending when the depreciating asset was acquired, the additional tax deduction will be either 50%, 30% or 10% of the cost of the asset. This deduction is in addition to the normal tax claim for depreciation.
To qualify for the tax break the depreciating asset must have been acquired by the taxpayer between certain dates, used or installed ready for use by certain dates and cost a certain amount. The table below summarises the relevant dates and cost thresholds.
|Small Businesses (Turnover of $2 million a year or less)|
|Cost of Asset (GST Exclusive)||Date of Acquisition||Installed Before||Investment Allowance|
|$1000+||13 Dec 2008 to 31 Dec 2009||31 Dec 2010||50%|
|Other Businesses (Turnover greater than $2 million a year)|
|Cost of Asset (GST Exclusive)||Date of Acquisition||Installed Before:||Investment Allowance|
|$10,000+||13 Dec 2008 to 30 June 2009||30 June 2010||30%|
|$10,000+||1 July 2009 to 31 Dec 2009||31 Dec 2010
The thresholds of $1,000 and $10,000 must be satisfied on a per asset basis, however, multiple investments in the same asset can be consolidated for the purposes of meeting the threshold.
The tax break generally only applies to the acquisition of new assets. Although the acquisition of a second hand asset will not qualify for the tax break, new investment in an existing asset can qualify. A new asset is one that has never been installed ready for use before either by the taxpayer or another entity for any purpose, anywhere prior to 12 December 2008. Thus the acquisition of a second hand asset is not eligible for the tax break.
However, an asset will still be considered to be a new asset and therefore eligible for the tax break, if it has only been used for the purpose of reasonable testing and trialling by any entity. Thus, a demonstrator car can be eligible for the tax break.
Cars can qualify for the Tax Break, except where the taxpayer uses the cents per kilometre method to claim their car expense deductions. Land and trading stock are specifically excluded from the definition of depreciating assets and will not qualify for the Tax Break. Capital works expenditure for which a deduction is available under Division 43 of the ITAA is also not eligible for the Tax Break and all intangible assets including software are ineligible.
Claiming the Tax Break
- When a taxpayer first starts to use an eligible asset it must be reasonable to conclude that the asset will be used principally in Australia for the principal purpose of carrying on a business.
- The deduction will be claimed by the taxpayer who holds the asset for the purposes of Division 40 of the ITAA that is, the same person who claims capital allowance deductions in relation to the asset
- The bonus deduction is on top of the usual capital allowance deduction for an asset’s decline in value claimed under Division 40 of the ITAA
- The deduction is claimable in the income year the asset is first used or installed ready for use
Personal Income Tax Cuts
The reduction in personal income tax rates outlined in previous budgets continue to be phased in including the low income earnerand senior Australian tax offsets. These have already been legislated.
| INCOME TAX THRESHOLDS
|$0 - $6000
||0||$0 - $6000||0
|$6001 - $34,000
||15||$6001 - $35,000||15
|$34,001 - $80,000
||30||$35,001 - $80,000||30
|$80,001 - $180,000
||40||$80,001 - $180,000||38
- Personal tax rates – the top marginal tax rate of 45% applies to taxable income over $180,000.
- Low income earner tax offset (LITO) – in the 2009/10 financial year, an individual with no other offset entitlements will not pay tax until their income exceeds $15,000, while a child under 18 years old will be able to receive ‘unearned’ income of $3,000 and pay no tax.
- Senior Australian Tax Offset (SATO) – From 1 July 2009, Australians eligible for the SATO and the LITO will not pay tax until they reach an annual income of $29,867 for singles and up to $51,360 for couples. Medicare Levy Low-Income Thresholds & Surcharge
- With effect from 1 July 2008, the Medicare levy low-income thresholds are $17,794 for individuals and $30,025 for families. The thresholds will increase by an additional amount of $2,757 for each dependent child or student.
- For pensioners below Age Pension age, the Medicare levy threshold has increased to $25,299 with effect from 1 July 2008. This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.
- The Medicare levy surcharge thresholds will remain at $70,000 for singles and $140,000 for families for the 2009/10 financial year.
Private Health Insurance Rebate (PHIR)
Three new ‘Private Health Insurance Tiers’ to better balance the mix of incentives for people to take out private health insurance will apply from 1 July 2010. The existing 30% through to 40% PHIR arrangements will remain in place for singles with income of less than $75,000 per annum and families with income of less than $150,000 per annum.
- Tier 1 applies to singles with income of more than $75,000 (more than $150,000 for families). The PHIR will be 20 per cent if under 65, increasing to 25 per cent from age 65 and 30 per cent from age 70. The surcharge for not taking out private health insurance will remain at 1 per cent.
- Tier 2 applies to singles with income of more than $90,000 (more than $180,000 for families). The PHIR will be 10 percent if under 65, increasing to 15 per cent from age 65 and 20 per cent from age 70. The surcharge for not taking out private health insurance will increase to 1.25 per cent.
- Tier 3 applies to singles with income of more than $120,000 (more than $240,000 for families). There will be no PHIR. The surcharge for not taking out private health insurance will be increased to 1.5 per cent.
Employee Share Schemes
From Budget night all discounts on shares and rights under an employee share scheme will be assessed in the year they are
acquired. The current rules allowing the discount to be taxed at a later time will be removed.
Tightening Access to Non-Commercial Business Loans
Effective from the 2009/10 income year, the Government will tighten the application of rules on the use of non-commercial losses to prevent high income individuals from offsetting excess deductions from ‘non-commercial business activities’ against salary and other income. The measure will ensure excess deductions from unprofitable business activities cannot be used to reduce salary and wage income of high income earners.
Taxpayers with an adjusted taxable income of over $250,000 will instead have excess deductions quarantined to the business activity. The new test for taxpayers with an adjusted taxable income greater than $250,000 will restrict the ability of such taxpayers to claim losses for non-commercial activities that are more likely to be in the nature of lifestyle choices or hobbies.
Social Secuity & Aged Care
Indexation of Family Tax Benefit Part A
From 1 July 2009, Family Tax Benefit Part A (FTB-A) payment rates will be indexed by the CPI, consistent with other family payments such as Family Tax Benefit Part B and the Baby Bonus.
Paid Parental Leave
The Government will introduce a Paid Parental Leave scheme from 1 January 2011. It will provide eligible parents with up to 18 weeks of leave at the minimum federal wage, currently $543.78 per week. These payments will be treated as taxable income and will affect entitlement to family assistance payments, but will not be counted as income for income support payments. People who elect not to receive Paid Parental Leave or who do not qualify will continue to receive the Baby Bonus and other family payments, where they meet eligibility requirements.
Reduction in Concessional Contribution Caps
The Government will reduce the concessional contributions cap to $25,000 per annum (indexed), with effect from the 2009-10 financial year. The transitional concessional contributions cap (applicable to individuals aged 50 and over for the 2009/10, 2010/11 and 2011/12 financial years) will be reduced to $50,000 per annum. The annual cap on non-concessional contributions is $150,000 per annum for the 2008/09 financial year and will remain at that level in 2009/10. In the future, the cap will be calculated as six times the level of the (indexed) concessional contributions cap.
Temporary Reduction in the Government Co-Contribution
The Government will temporarily reduce the matching rate and maximum co-contribution payable on an individual's eligible personal non-concessional superannuation contributions, with effect to contributions made from 1 July 2009.
Under this measure, the matching rate will be:
- 100 per cent 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 per cent 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 per cent 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.
|IMPORTANT DISCLAIMER: This article is published as a guide to clients and for their private information. This article does not constitute advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.|