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June Bulletin – Federal Budget 2009 Announcements

Investment Tax Break

The tax break for small business (less than $2m aggregated turnover) was increased from 30% to 50% of the cost of eligible expenditure and the last date for small business to acquire equipment to access the higher deduction has been extended from 30 June 2009 to 31 December 2009.

To be eligible for the tax break in the current financial year, the equipment acquired must generally be installed ready for use by no later than 30 June 2009. Equipment that is committed to ie ordered before this date but not installed and ready for use until after 30 June 2009 will still be eligible for the 50% tax break but the claim will be deferred until the 2010 financial year.

For small business, the minimum expenditure threshold is $1,000.

For larger businesses (turnover greater than $2m), the original rules still apply ie the minimum expenditure threshold is $10,000 and for equipment ordered after 12 December 2008 and installed ready for use by 30 June 2009, the tax break will be 30% of the eligible expenditure. If equipment is committed to after 30 June 2009 and before 31 December 2009, the tax break will be 10% of the eligible expenditure.

In summary:

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Superannuation Contribution Deductions

The maximum annual deductible superannuation contribution per person has been halved from 1 July 2009. The new maximum will be $25,000 pa for taxpayers under the age of 50, or $50,000 pa until 2012 for taxpayers over 50.

For eligible taxpayers, the window for making larger tax deductible contributions to super closes as of 30 June 2009. If you would like to check your eligibility to make super contributions before 30 June, please contact us as soon as possible.

Non Commercial Losses

In recent years there have been rules preventing losses from certain business activities such as hobby farms from being offset against other income. The losses have been quarantined to be offset against future income from the business activity. These rules do not apply to business activities with significant gross income or asset value.

From 1 July 2009, losses will also be quarantined for taxpayers with adjusted taxable income in excess of $250,000. Adjusted taxable income includes reportable fringe benefits and superannuation contributions in excess of 9%. For these taxpayers, it appears that losses will be quarantined regardless of gross income or asset value, unless the losses are due to exceptional circumstances.

Use of Non Business Assets by Private Company Shareholders

From 1 July 2009, private use of company assets by shareholders and associates that is not otherwise subject to fringe benefits tax will be deemed to be a taxable dividend unless the shareholder or associates pay equivalent market value to the company for the use of the assets. This will have a significant impact on clients with pleasure assets owned by companies, eg holiday homes, yachts, cars etc.

The detailed rules will be determined after consultation with the tax profession. It is not known whether the rules will also apply to use of similar assets owned by trusts if the trust owes money to the company.

Private Health Insurance Rebate

Currently all persons are entitled to a 30% rebate on their private health insurance premiums. Usually, this is simply claimed by the health fund directly from the Government on behalf of the member. From 1 July 2009 the rebate will depend on the individual or family income. There will be no rebate for individuals with income greater than $120,000 (for families $240,000), a 10% rebate for individuals with income $90,000 to $120,000 (for families $180,000 to $240,000), a 20% rebate for individuals with income $75,000 to $90,000 (for families $150,000 to $180,000), and a 30% rebate for all others. A minimum rebate of 30% will apply for persons over 70, and 25% for persons aged 65 to 69.

It is likely that these changes will prevent health funds from claiming the rebate directly from the government as the income levels on which the rebate % will be determined will only become known once a taxpayer lodges their income tax return. The implication is that taxpayers may be required to fund the full cost of health insurance up front and have to wait until their tax return is lodged and assessed before receiving the benefit of the rebate.

Research & Development

The Government has indicated that a new Research & Development Scheme will operate from 1 July 2010. It will replace the current research and development tax concession to include an expanded tax credit that will reward firms for research and development activities. The new scheme will provide tax credits at a rate of 45% on eligible research and development expenditure for firms with an annual turnover of less than $20m. For businesses with turnover more than $20m the tax credit will be 40%. The Government has also announced that, as a transitional measure for 2009/10, the maximum expenditure that can be undertaken for access to the present tax offset rules will be increased from $1m to $2m.

Australians Who Work Overseas

The Government has also announced that from 1 July 2009, where an Australian works overseas for more than 90 consecutive days he or she will no longer be eligible for a general exemption from Australian income tax on their foreign income. The general exemption will only apply to charity or aid workers. Specific government employees, such as soldiers, police or individuals working on projects for the “national interest “, will also be able to claim the general tax exemption. All other expatriates will have to claim a tax offset from the Government against any foreign tax paid on their foreign employment income to avoid double taxation.

Employee Share Schemes

The Government intends to change the rules effective from 12 May 2009 so that employees who buy shares or options under Qualifying Employee Share Schemes will no longer be able to defer payment of tax on the discount that they have benefited from in the share buying transaction.

Industry pressures have already seen the Government amend the proposed taxable income threshold for individuals to whom these changes will apply from $60,000 to $150,000. Further changes are anticipated before the measures become law.