THOMSON WEEKLY TAX BULLETIN

13 MAY 2008

Issue 20

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2008 FEDERAL BUDGET REPORT

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EXECUTIVE SUMMARY

TAX SYSTEM REVIEW

TAX MEASURES ANNOUNCED BUT NOT ENACTED

PERSONAL TAXATION

BUSINESS TAXATION

GST MEASURES

FBT MEASURES

SUPERANNUATION

OTHER BUDGET MEASURES

On Tuesday, 13 May 2008, the Federal Treasurer, the Hon Wayne Swan MP, handed down the 2008-09 Federal Budget, his 1st Budget. From a taxation point of view, this Budget detailed a wide range of tax changes (although it must be said that many have been previously announced), plus it reiterated the Government's intention to deliver its 2007 election campaign tax cuts (already in a Bill that has all but passed through Parliament - see para [729] of this Bulletin).

Revenue measures announced

In summary, the many revenue measures announced in the 2008 Federal Budget include:

• tax system review: further details announced of the proposed review of the tax system;
• TOFA: stages 3 and 4 have been deferred until 1 July 2009, plus other amendments announced;
• family trusts: Government confirms reversal of family trust changes;
• company losses: Government to proceed with changes to company loss recoupment rules;
• simplified imputation: Government to complete the simplified imputation system;
• employee share schemes: changes re elections and removal of double taxation;
• consolidation: Government confirms it will proceed with modifications to the consolidation regime, including CGT scrip-for-scrip roll-over for corporate restructures;
• CGT: extension of CGT small business concessions re related entities and partnerships;
• capital protected borrowings: change to benchmark interest rate;
• GST: several measures eg re charities, international communications, sale of real property;
• FBT: tightening of work-related exemption, amendments re jointly held assets, tightening of meal exemption;
• legislation by press release: the Government has proposed what it believes is a way of more effectively dealing with previously announced tax changes;
• valuations and private rulings: Government releases draft regs;
• depreciation on in-house computer software: increasing the write-off period to 4 years;
• Medicare levy: thresholds for levy and surcharge increased;
• First Home Saver accounts: substantial changes announced.

More information on the tax and related announcements is also contained in a number of press releases - see the Treasurer's Website and the Assistant Treasurer's Website.

Budget economic snap-shot

In the lead-up to the Budget, the Prime Minister and the Treasurer both repeatedly promised a "strong surplus" and an economically responsible Budget. In fact, almost on Budget eve, the Treasurer reiterated that the Government's objective is to have strong growth with low inflation. 'And you won't get strong growth and low inflation unless you rein in spending and deal with interest rates', he said.

In the wash-up, the Treasurer announced in the Budget a forecast surplus in 2008-09 of $21.7bn, 1.8% of GDP, with projections for the surplus to be $19.7bn in 2009-10, $19bn in 2010-11 and $18.9bn in 2011-12. Mr Swan said the Government expects to see growth in the economy moderate to 2.75% in 2008-09, but then step up to 3% for the following 3 years.

Where to get Budget documents

On the Web

The Budget Papers are available at any of the following Websites:

• Federal Government
• Parliament of Australia
• Australian Taxation Office
• Department of Finance and Deregulation

Those Websites also link to previous years' Federal Budget papers going back to 1996-97.

Print copies

The 2008-09 Commonwealth Budget Papers are also available for sale from the CanPrint Communications Pty Limited shopfront in Canberra at 16 Nyrang St, Fyshwick (tel: 1300 889 873), and during business hours from 14 May 2008 in the following cities:

• Sydney - Salmat Bookshop Services - tel: 1300 656 986;
• Melbourne - Information Victoria - tel: 1300 366 356;
• Brisbane - SDS Publications - tel: (07) 3118 6900;
• Perth - State Law Publisher - tel: (08) 9321 7688;
• Adelaide - Service SA - tel: 13 23 24;
• Hobart - Printing Applied Technology Pty Ltd - tel: (03) 6233 3289.

Full details of purchase options are on the Federal Budget Website.

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

Although announced just before the Budget, the Government released further details in the 2008 Budget Papers of its proposed comprehensive inquiry into the tax system. The Treasurer said the review will examine Federal, State and local government taxes ie it will be a comprehensive review of the relationship between all of those.

The review follows the recent 2020 Summit, which proposed a comprehensive review of State and Federal taxes to consider measures to harmonise and simplify taxes, reduce inefficient taxes, ensure a progressive system and address negative interaction with the welfare system.

In the Budget, the Government announced that the review will encompass Australian Government and State taxes, except the GST, and interactions with the transfer system, and will consider:

• the balance of taxes on work, investment and consumption and the role for environmental taxes;
• further improvements to the tax and transfer system facing individuals, families and retirees;
• the taxation of savings, assets and investments, including the role and structure of company taxation;
• the taxation of consumption and property and other state taxes;
• simplifying the tax system, including the interactions between federal, state and local government taxes; and
• interrelationships between the elements of the tax system, as well as the proposed emission trading system.

The Treasurer said that, "in doing so the review will reflect the Government's policy not to increase the rate or broaden the base of the GST; preserve tax-free superannuation payments for the over 60s; and the Government's announced aspirational goals for personal income tax".

The review panel will be chaired by the Secretary to the Treasury, Dr Ken Henry AC and will also comprise Mr Greg Smith (Australian Catholic University), Dr Jeff Harmer (Secretary of FaHCSIA), Heather Ridout (Australian Industry Group), and Professor John Piggott (University of New South Wales).  The review panel will be supported by a working group from within the Treasury, with representation from the Department of Families, Housing, Community Services and Indigenous Affairs, and drawing on other Australian Government and State agencies as appropriate. 

The review panel will consult the public to allow for community and business input. The review will also, where necessary, draw on external expertise and shall have the co-operation of State Governments and their Treasuries as well as relevant COAG working groups. 

The review will be conducted in several stages.  An initial discussion paper will be released by the end of July 2008.  The review panel will provide a final report to the Treasurer by the end of 2009. The Treasurer said the Government would "respond in a timely way to the tax review's recommendations as they are released".

The terms of reference for the review and other information about the review can be found on the Treasury Website under Reviews, Inquiries & Consultations.  The review may be contacted by email at AFTS@treasury.gov.au.

Source: Treasurer's press release, 13 May 2008

In commenting on the need for such a review, the Treasurer said:

'We think a modern economy needs a modern tax system, particularly given our situation in the world. A modern tax system needs to be efficient… internationally competitive … [and] fair. It needs to ensure that everybody pays their fair share, and it needs to be simpler. We think now is the right time to comprehensively review our tax system. There hasn't been a complete review of our tax system in many years. And we will look at everything. We'll look at personal taxation. We'll look at the transfer payment system. We'll look at how that affects individuals, how is affects families, how it affects retirees. We'll look at the company tax system, and we'll also look at all of the implications, say, of an emissions trading system for taxation as well.' ( Source: Treasurer's interview with Laurie Oaks, Sunday Program, Channel Nine, 11 May 2008.)

Thomson note

Many 'seasoned' tax practitioners (and taxpayers) may be overcome by a strong sense of déjà vu - they may even be tempted to say another day, another tax review, but perhaps that's being a little unkind at this early stage! Tax reform means different things to different people, although the announcement of the review certainly presents an opportunity for a wholesale look at all levels of all Australian tax systems. Perhaps it will draw on the already substantial work done in previous reviews. One might also have hoped that the review panel could have included representatives from the tax 'coal face' ie from the tax profession and from business itself (although it is noted that community and business input will be sought).

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

At the time the Federal Parliament was prorogued, on 15 October 2007, the Government said the previous government was still to enact almost 60 announced tax measures. The Government says it has been working its way through this stock of announced but unenacted measures with a view to arriving at a decision on each of them and "eliminating the considerable uncertainty that exists around them in the community". A joint press release by the Treasurer and Assistant Treasurer (entitled "The way forward on tax measures announced, but not enacted, by the previous government") lists in a table the stock of unenacted measures, and the Government's decision on the majority of those measures (note that many have already been included in Bills). 

For those measures the Government has decided should be adopted, the table also outlines an indicative timetable for implementing them, subject to other government priorities and the availability of legislative drafting resources.

Measures which the Government has decided should proceed, but where it proposes to make changes to the announcements by the previous government, were detailed in the Budget. Also detailed in the Budget are those measures the Government has decided should not proceed. 

Given the volume of unenacted measures, and the need to give each measure proper consideration, the Government said final decisions had not yet been reached in relation to some measures.  The Government said it will announce its decision in relation to these remaining measures as soon as possible.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it had released for consultation draft regulations and an explanatory statement for one of the measures previously announced that it believes should proceed. This is to allow the Tax Office to charge for valuations required in the course of issuing private rulings. The draft regulations and explanatory statement are available from the Treasury Website.

Thomson note

The previous Government had announced that regulations would be enacted to outline how the Tax Commissioner may charge an applicant for a private ruling with a valuation component, where a valuer makes or reviews a valuation provided by the applicant: see 2007 WTB 36 [1600].

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The 2008-09 Federal Budget did not announce any changes to the proposed personal income tax rates for the 2008 to 2010 income years, inclusive, that are contained in the soon-to-be-passed Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008. The Bill has been passed by the House of Reps without amendment. It was then referred to the Senate Standing Committee on Economics which has recommended the Bill be passed by the Senate without amendment.

What follows is a reminder of what those rates are proposed to be.

The above Bill was introduced into the House of Reps on 14 February 2008. It implements the Government's election promise to amend the Income Tax Rates Act 1986 to increase the threshold at which the 30% marginal tax rate begins to apply (from $30,001 to $34,001, with effect from 1 July 2008, to $35,001 from 1 July 2009, and to $37,001 from 1 July 2010) and to decrease the 40% marginal rate to 38% (from 1 July 2009) and to 37% (from 1 July 2010). The Bill also amends the ITAA 1936 to increase the maximum amount of low income tax offset (to $1,200 for 2008-09, to $1,350 for 2009-10 and to $1,500 for 2010-11 and later years), and amends the Medicare Levy Act 1986 to increase the income threshold at which the Medicare levy becomes payable for taxpayers who are eligible for the senior Australians tax offset.

Residents

The proposed rates and tax payable from 1 July 2008 for resident taxpayers are as follows:

The current and proposed personal tax rates and thresholds for resident individuals (excluding the 1.5% Medicare levy) are (with key changes highlighted in bold):

Low income tax offset

For the 2008-09 income year, taxpayers will be entitled to the low income tax offset if their taxable income is less than $60,000. For 2009-10, this upper threshold will increase to $63,750, and from 1 July 2010, to $67,500. Those eligible for the full low income tax offset will have an effective tax-free threshold of $14,000 in 2008-09, $15,000 in 2009-10 and $16,000 in 2010-11.

Despite the raising of the $30,000 threshold level over the above years, the low income tax offset will continue to phase out from $30,000 at a rate of 4 cents in the dollar for every dollar of income over $30,000.

As a consequence of the increases in the low income tax offset, the income level above which senior Australians (eligible for the senior Australians tax offset) begin to pay tax will increase. This will mean that eligible senior Australians will have no tax liability until their incomes reach:

• $28,867 for singles and $24,680 for each member of a couple in the 2008-09 income year;
• $29,867 for singles and $25,680 for each member of a couple in the 2009-10 income year; and
• $30,685 for singles and $26,680 for each member of a couple in the 2010-11 income year.

Medicare levy

The Medicare levy threshold amount for individuals eligible for the senior Australians tax offset will increase:

• from 1 July 2008, from $25,867 to $28,867;
• from 1 July 2009, from $28,867 to $29,867; and
• from 1 July 2010, from $29,867 to $30,685.

The Medicare levy threshold amount for certain couples eligible for the senior Australians tax offset, where the threshold for single senior Australians is not sufficient to ensure that they incur no Medicare levy liability until they incur an income tax liability, will increase:

• from 1 July 2008, from $37,950 to $42,000;
• from 1 July 2009, from $42,000 to $43,500; and
• from 1 July 2010, from $43,500 to $44,500.

The Medicare levy phase-in limit for individuals eligible for the senior Australians tax offset will also increase:

• from 1 July 2008 from $30,431 to $33,961;
• from 1 July 2009 from $33,961 to $35,137; and
• from 1 July 2010 from $35,137 to $36,100.

The Medicare levy phase-in limit that applies to certain couples eligible for the senior Australians tax offset, will also increase:

• from 1 July 2008, from $44,647 to $49,412;
• from 1 July 2009, from $49,412 to $51,177; and
• from 1 July 2010, from $51,177 to $52,353.

Non-residents

The current and proposed personal tax rates and thresholds for non-resident individuals are:

Date of effect

Increases in the 30% threshold will apply to assessments for the 2008-09, 2009-10, 2010-11 and later income years. Reduction of the 40% marginal tax rate will apply to assessments for the 2009-10 income year and the 2010-11 and later income years. Amendments to the low income tax offset and consequential amendments to the Medicare levy for senior Australians will apply to assessments for the 2008-09 income year, the 2009-10 income year and the 2010-11 and later income years.

Previous announcement

These measures were originally announced during the 2007 Federal Election campaign: see 2007 WTB 44 [1945] and 2007 WTB 50 [2192].

Government's "aspirational" goals for 2013-14

The Government's "aspirational" tax rate goals were announced on 18 October 2007 in its " A Tax Plan for Australia's Future" policy. There, Labor set a 6-year goal to have a personal tax rate scale of 15%, 30% and 40% from 1 July 2013. Labor said that, subject to "national and international economic conditions and maintaining, as a general economic principle, budget surpluses of around 1% of GDP", this long-term goal includes reducing the top marginal tax rate to 40% for those individuals earning more than $180,000 and cutting the current 40% rate (which by 2010-11 would have been reduced to 37%) to 30%.

In the 2008-09 Budget papers (Budget Paper No 2 [p 15]), the Government reiterated this 3 tax rate goal (although did not specify the taxable income ranges to which they would apply) and said:

"This goal is dependent on national and international economic conditions and maintaining, as a general principle, sound budget surpluses. Provision of $6bn in 2011-12 has been made in the forward estimates in preparation for the next step in achieving the Government's tax aspiration".

FBT rate

Under the "aspirational" plan, as any reduction in the top marginal rate has been deferred until 1 July 2013, the FBT rate would only be reduced in line with this "aspirational" reduction in the top marginal rate, so that (including Medicare levy) it will be 41.5% from 1 April 2013 if these "aspirational" rates are achieved.

by Terry Hayes and Stuart Jones

ThomsonTax.Newsroom@thomson.com

In the 2008-09 Federal Budget, the Government announced that a taxpayer will be required to make an election to access the tax concessions available when receiving qualifying shares or rights under an employee share scheme: see 2008 WTB 18 [639].

Currently, a taxpayer can elect to be taxed upfront or defer the tax payable until a later time, such as when restrictions on the shares or rights are lifted.

This measure will ensure that the value of the discount (where it exceeds $1,000) is included in the assessable income of a taxpayer who has elected to be taxed upfront. If the amount is not included in the taxpayer's tax return, he or she will be taxed under the deferral option. The Commissioner retains the discretion to allow a taxpayer an extension of time to make the election.

The Treasurer has stated that this change will improve the integrity of the law by ensuring taxpayers appropriately report income in their tax returns. No further details were provided.

Budget Paper No 2 [p 20]; Treasurer's press release, 13 May 2008

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The Government has announced that it will remove double taxation that arises in relation to certain employee share schemes (ESS) that use employee share trusts.

Currently, there is no CGT relief for a trustee (or a beneficiary) of an employee share trust on the transfer of shares to an employee because shares acquired by the employee as a result of exercising ESS rights are not ESS shares. Double taxation arises because the capital gains made by the trustee while the shares are held in the trust are also assessable to the employee either under the ESS provisions or the CGT provisions.

The measure is intended to provide CGT relief.

The Treasurer has stated that this change will improve flexibility in the manner shares or rights can be provided to employees under an employee share scheme.

Date of effect

The measure will apply in relation to CGT events occurring from 7.30 pm (AEST) on 13 May 2008. 

Budget Paper No 2 [p 21]; Treasurer's press release, 13 May 2008

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The Treasurer announced that the 1% Medicare levy surcharge threshold for singles would increase from $50,000 to $100,000, and for a family, from $100,000 to $150,000, with effect from 1 July 2008.

Source: Budget Paper No 2 [p 33]; Treasurer's press release, 13 May 2008

Thomson note

In explaining the rationale for the increase, the Treasurer said they had not been changed since 1997. Mr Swan said that, previously, up to 2m Australians had been 'caught in a tax trap'. Mr Swan said that when the Medicare levy surcharge was originally introduced, 'it was supposed to be a surcharge on high income earners. And the previous government simply did not adjust those thresholds. All we have done is adjust those thresholds. We think the decision that we have taken is fair. We are supporters of private health insurance and the private health insurance industry…'.

The Treasurer said that, over time, people will make a choice about whether they stay in private health insurance, but that the Government has bolstered the public health system in measures outlined in the Budget. 

Background

A 1% Medicare levy surcharge applies in addition to the ordinary Medicare levy if the taxpayer, taxpayer's spouse and all dependants are not covered by health insurance for private patient hospital cover and single or combined taxable income and reportable fringe benefits (as appropriate) exceeds the above thresholds.

The surcharge is imposed on a pro rata basis according to the number of days during the year that the taxpayer, taxpayer's spouse and all dependants were not covered as required. Pro rata calculations on a number of days basis are also required if the taxpayer's marital status changes or a single taxpayer without dependants acquires dependants.

Lump sum payments in arrears receive concessional tax treatment in determining a taxpayer's liability for the Medicare levy surcharge. This means that certain taxpayers who are eligible for the lump sum payments in arrears tax offset under Subdiv 61-L of the ITAA 1997 and have a Medicare levy surcharge liability may receive a reduction in their surcharge liability. A person is not covered by an insurance policy that provides private patient hospital cover where the annual front end deductible (FED) is greater than $500 (singles) or $1,000 (families/couples).

Based on the Government's Budget announcement (which did not announce any changes to the extra child amount), the proposed Medicare levy surcharge thresholds from 1 July 2008 would be as follows:

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

From the 2007-08 income year, the Medicare levy low-income thresholds will be increased for singles to $17,309 (up from $16,740) and to $29,207 for those who are members of a family (up from $28,247 for 2006-07).

The additional amount of threshold for each dependent child or student will also be increased to $2,682 (from $2,594).

The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2007 to $22,922 (from $21,637). This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy while they do not have an income tax liability.

The Government has also announced changes to the Medicare levy surcharge thresholds from 1 July 2008: see para [732] of this Bulletin.

Date of effect

The measure applies from 1 July 2007.

Source: Treasurer's press release, 13 May 2008; 2008-09 Budget Paper No 2 [p 32]

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Government announced that it will provide an income tax exemption of up to $1,000 to apprentices who receive early completion bonuses in skill shortage occupations from the Queensland Government.

Previous announcement

This measure is contained in Taw Laws Amendment (2008 Measures No 2) Bill 2008, which was introduced in the House of Reps on 20 March 2008: see 2008 WTB 13 [442]. The measure was also announced by the previous Government: see 2007 WTB 45 [1995].

Date of effect

The measure will apply to bonuses received from 1 July 2008. (Note: The No 2 Bill states that the measure will apply to early completion bonuses received in the 2007-08 and later income years, which is inconsistent with the Budget announcement.)

Budget Paper No 2 [p 33]

by Eugene Ng

The Government will introduce an income threshold of $150,000 for the claimant to determine eligibility for the dependent spouse, housekeeper, child housekeeper, invalid relative and parent/parent-in-law tax offsets, with effect from 1 July 2008. This threshold will be indexed.

In addition, from 1 July 2009, the Government will align the definition of income for the purposes of the dependant offsets with that applying to family assistance payments: see para [738] of this Bulletin. The new definition will apply to both the claimant and the dependant (ie for working out the dependant's separate net income).

The Government said that this measure is designed to align the eligibility criteria for the dependant tax offsets more closely with those applying to family assistance.

Budget Paper No 2 [p 34]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government has confirmed that it will introduce a refundable tax offset (the Education Tax Refund), to help with the costs of education. The offset will be claimed through the tax system on lodgment of an income tax return.

Eligible families will be able to claim a 50% refund every year for key education expenses up to:

• $750 for each child undertaking primary studies (maximum refundable tax offset of $375 per child, per year); and
• $1500 for each child undertaking secondary studies (maximum refundable tax offset of $750 per child, per year). 

Families receiving Family Tax Benefit (Part A) with children undertaking primary or secondary studies will be eligible for the Education Tax Refund. Families whose children receive any of the following payments or allowances will also be eligible: Youth Allowance, Disability Support Pension and ABSTUDY and payments or allowances under the Veterans' Children Education Scheme, the Student Financial Supplement Scheme and the scheme under s 258 of the Military Rehabilitation and Compensation Act 2004.

Eligible families will be able to recoup the cost of items such as laptops, home computers, home internet connection, printers, education software, trade tools for use at school, school text books and stationery.

Date of effect

The Education Tax Refund will apply to expenses incurred from 1 July 2008.

Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government will provide an income tax exemption for the Carer Adjustment Payment (CAP), with effect from 1 July 2007. The CAP provides financial assistance to families who have a child, aged up to 6 years, who has suffered a catastrophic event at some point after 1 January 2007. Providing an income tax exemption for the CAP is consistent with the tax treatment of other one-off payments made to carers in previous income years.

Budget Paper No 2 [p 37]

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

Salary sacrificed superannuation

The Government will expand the definition of "income" that is used to determine eligibility for Government support programs, to include certain "salary sacrificed" contributions to superannuation, with effect from 1 July 2009.

The measure seeks to resolve an inconsistency in the treatment of "non-wage" remuneration in the income tax and transfer system that allows individuals and families to access more Government support payments than would be possible if their salary sacrificed contributions were paid as salary or wage income. The Treasurer said the changes will mean, for the purpose of means tested benefits, individuals who have access to salary sacrifice to reduce their taxable income will be treated on an equivalent basis to those who do not have access to salary sacrifice arrangements.

The measure affects government support programs such as income support payments for people below Age Pension age, family assistance, child support, superannuation co-contributions and financial and retirement savings assistance delivered through the tax system.

Net losses from investments

The Government will also expand the definitions of income used to determine eligibility for particular government support programs to include net financial investment losses, and net rental property losses where appropriate, with effect from 1 July 2009.

Currently, net rental property losses are included in adjusted taxable income definitions used for the purposes of family assistance programs, some parental income tests, the Commonwealth Seniors Health Card, child support and loan repayment obligations under the Higher Education Loan Program.

Net financial investment losses are not included in the definition of income for any program, although some financial investment losses would be captured by income definitions that include a concept of net passive business losses.

The measure will expand the adjusted taxable income definitions to include net financial investment losses. The measure will also expand the definition of income used for particular tax programs to include net rental property losses and net financial investment losses. Affected tax programs include the Senior Australians Tax Offset, Medicare levy surcharge and dependency tax offsets.

Reportable fringe benefits

The Government will expand the definitions of income used to determine eligibility for certain tax offsets to include reportable fringe benefits, with effect from 1 July 2009.

Currently, the senior Australians tax offset and pensioner tax offset use taxable income in their income definition. Eligibility for the dependency tax offsets is determined on the basis of the dependant's income.

The measure will expand the income definitions used for the dependency tax offsets, senior Australians tax offset and pensioner tax offset to include reportable fringe benefits.

The Government will provide the Tax Office with additional funding of $1.1m over the forward estimates period to implement this measure.

Date of effect

These measures will apply from 1 July 2009.

Source: 2008-09 Budget Paper No 2 [pp 29-31]; Treasurer's press release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Government will provide a tax exemption for rent assistance paid to Austudy recipients, with effect from 1 July 2007.

Rent assistance has been payable to Austudy recipients from 1 January 2008. This measure will ensure that Austudy recipients will not be required to pay tax on rent assistance amounts. Providing an income tax exemption for rent assistance paid to Austudy recipients is consistent with the tax treatment of rent assistance paid to Youth Allowance, Newstart Allowance and ABSTUDY recipients.

Budget Paper No 2 [p 32]

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would reduce the scope for family trusts to be used to lower income tax by utilising losses, as follows:

• the definition of "family" in the family trust election rules will be changed to limit lineal descendants to children or grandchildren of the test individual or of the test individual's spouse. This will have effect from 1 July 2008;
• amendments will also be made to preclude family trusts making a once-off variation to the test individual specified in a family trust election (other than in relation to a marriage breakdown). This will have effect from the 2007-08 income year.

The Government said these changes will implement its election commitment.

Thomson note

The Government's election commitment was to the effect that it would "reverse the changes to Family Trusts introduced ... in Tax Laws Amendment (2007 Measures No 4) Act 2007": see 2007 WTB 49 [2150] and 2007 WTB 51 [2236].

Source: Budget paper No 2 [p 12]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would proceed with Taxation of Financial Arrangements (TOFA) Stages 3 and 4. However, it said it would amend and reintroduce the Stages 3 and 4 measures, with effect from 1 July 2009. The amendments lapsed when Federal Parliament was prorogued in October 2007. Stages 3 and 4 will introduce new tax rules for accruals/realisation, fair value, retranslation, reliance on financial reports and hedging. 

Date of effect

As noted above, the legislation will apply for income years commencing on or after 1 July 2009.  The Government said the elective commencement date of 1 July 2008 contained in Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (the 2007 TOFA Bill) will not apply. 

The Government considers that a commencement date of 1 July 2009 will give taxpayers time to plan for the commencement of the measures and to raise issues in consultation with the Treasury.  This period will allow appropriate adjustments to be made, including interactions with other parts of the tax law, prior to the commencement date. The legislation will be finalised in consultation with interested parties. 

Debt/equity: Upper tier 2 hybrid instruments

The Government also announced that it would proceed with measures that clarify the tax treatment of certain Upper Tier 2 and similar capital instruments.

Specifically, regulations will be made to facilitate debt tax treatment for certain Upper Tier 2 and similar capital instruments issued by:

• authorised deposit-taking institutions (ADIs) that are banks and their Australian Prudential Regulations Authority (APRA) regulated subsidiaries;
• ADIs that are non-mutual building societies and their APRA regulated subsidiaries;
• any entity that has undertaken to comply with APRA's prudential standards dealing with capital adequacy and any of its subsidiaries covered by the undertaking;
• a foreign ADI that is a bank and is regulated for prudential purposes by a foreign prudential regulator that has a regulatory role comparable to that of APRA, and under ADI capital requirements comparable to those of APRA.

The Government said it will extend the debt/equity transitional arrangements under the income tax law to 1 July 2008 to ensure that the law preceding the debt/equity tax rules continues to apply for Upper Tier 2 instruments. Consultation on the draft regulations, which will have effect for returns made on or after 1 July 2001, will be undertaken prior to their finalisation.

Foreign currency amendments

In the Budget, the Government announced that it would proceed with amendments to the foreign currency provisions of the income tax law to extend the scope of a number of compliance cost saving measures in the law, and to make technical amendments to ensure that the provisions operate as intended.

Since their introduction, the Government said a number of issues concerning their operation have been raised by industry and professional bodies. The Government said the amendments will address many of the concerns by extending the scope of compliance cost saving measures in the provisions and ensuring that the provisions operate as intended. The amendments, which will have effect from 1 July 2003, will be developed in consultation with interested parties.

Source: Budget Paper No 2 [pp 37-38]; Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would proceed with modifications to the consolidation regime. These changes are designed to clarify the operation of the consolidation regime and improve interactions with other parts of the law. The modifications will:

• amend the tax cost setting rules to ensure the tax cost allocated to an asset is used to work out the amount that is assessable income or allowed as a deduction under other parts of the law;
• treat rights to future income as retained cost base assets with a tax cost setting amount equal to the terminating value for the rights at the joining time;
• modify the allocable cost amount for a joining entity to ensure an amount is taken into account only once;
• change the pre-CGT factor rules so that, subject to certain integrity rules, the proportion of pre-CGT membership interests in an entity that joins a consolidated group is preserved when the entity leaves the group;
• clarify the adjustment to the allocable cost amount for a joining entity where there has been a pre-joining time CGT roll-over;
• ensure that, if an entity joins a consolidated group with a nil available fraction and transfers losses to the group, the capital gain that arises under CGT event L5 when the entity leaves the group is reduced in certain circumstances;
• modify the mechanism for working out the taxable income of consolidated groups that have life insurance company members where there are intra-group transactions;
• ensure that, subject to certain integrity rules, consolidated groups can convert to multiple entry consolidated groups (MEC groups), and vice versa, with minimal tax consequences - this change will apply to conversion events that happen on or after 27 October 2006;
• clarify the accounting principles that must be used to determine certain elements of the allocable cost amount;
• clarify that, where the value of liabilities for a joining entity that is determined for tax cost setting purposes is reduced by future income tax deductions, the amount of the reduction cannot be added back under another provision;
• ensure that the tax cost setting rules apply appropriately in respect of liabilities that an entity takes with it when it leaves a consolidated group;
• limit intra-group liabilities owed to a leaving entity in step 3 of the exit allocable cost amount to accounting liabilities;
• modify the operation of the tax cost setting rules when a general insurance company joins or leaves a consolidated group;
• change the tax cost setting rules so that units held in a cash management trust that have a market value equal to their face value are retained cost base assets;
• ensure the tax cost setting rules apply appropriately to inherited deductions for expenditure on certain assets acquired on or before 13 May 1997;
• modify the over-depreciation adjustment to the tax cost setting rules so that a joining entity only needs to look at the 5 years of dividend history immediately prior to the joining time - this change will apply to entities that join a consolidated group after 8 May 2007;
• for the period between 1 July 2002 and 8 May 2007, ensure CGT event L7 will not apply to amounts that are recognised under another provision of the income tax law and, with effect from 8 May 2007, repeal CGT event L7;
• allow the head company of a consolidated group to reduce a capital gain arising under CGT event L3 by the value of doubtful debts held by a joining entity at the joining time - this change will apply from 8 May 2007;
• ensure that, if an entity enters into a contract that causes a CGT event to arise and, before the contract is settled, the entity joins or leaves a consolidated group, then the entity that receives the capital proceeds will include the capital gain or loss in its taxable income - this change will apply from 8 May 2007;
• extend the single entity rule to shareholders who dispose of shares in the head company of a consolidated group, for the purposes of the CGT discount rules and CGT event K6 - this change will apply from 8 May 2007;
• modify the operation of the loss multiplication rules so that widely-held companies do not need to make adjustments under those rules unless a controlling stakeholder in a loss company has an equity interest in the entity, the loss company's losses are reflected in that interest, and the reflected losses are recognised for Australian tax purposes;
• ensure that beneficiaries of a trust that joins or leaves a consolidated group part way though an income year are taxed on an appropriate share of the trust's net income - this change will apply from the 2007-08 income year;
• extend certain transitional concessions to consolidated groups that have substituted accounting periods and formed on a day that was not the first day of the group's income year;
• clarify that the CGT provisions relating to blackhole expenditure that apply to consolidated groups also apply to MEC groups - this change will apply from 1 July 2005; and
• ensure the entry history rule applies to determine the time that depreciating assets of a joining entity are acquired by the head company of a consolidated group - this change will apply from 8 May 2007.

Date of effect

Unless otherwise specified, the amendments will apply from 1 July 2002 ie from the commencement of the consolidation regime.  However, the Government says the application dates and the need for appropriate transitional rules will be reviewed as part on the ongoing consultation process with business and professional groups during the development of legislation to implement these changes. Some of these measures may also be reviewed as part of that consultation process.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government will modify the CGT scrip for scrip roll-over provisions to ensure that, for corporate restructures, the acquiring entity's cost base of shares in the target entity reflects the tax costs of the target entity's net assets, with effect from 7.30 pm (AEST) on 13 May 2008. This cost base will also be used in determining the value of the target entity's assets in consolidation if the target entity subsequently joins the acquiring entity's consolidated group.

Under the current provisions, the acquiring entity obtains a market value cost base for the shares it acquires in the target entity. This can result in significant unintended tax benefits arising if, for example, the target entity subsequently joins the acquiring entity's consolidated group. The measure seeks to prevent companies from obtaining unintended tax benefits if they restructure.

The Assistant Treasurer said the measure will replace the former Government's announced changes to the consolidation rules following certain CGT roll-overs, which caused significant disruption to the operation of Australia's capital markets. Further consultation with the private sector will be conducted during the development of legislation to implement this proposal, the Assistant Treasurer said.

Scrip for scrip CGT roll-over

In particular, the operation of the scrip for scrip CGT roll-over provisions will be modified if:

• an entity (the acquiring entity) acquires membership interests of another entity (the target entity);
• one or more shareholders dispose of their membership interests in the target entity and receive similar interests, or an entitlement to similar interests, in the acquiring entity (or its holding company);
• the existing integrity rules in the scrip for scrip CGT roll-over provisions do not apply in respect of these membership interests; and
• the arrangement is taken to be a restructure.

An arrangement will be taken to be a restructure if, under the arrangement, the market value of the net assets of the acquiring entity immediately before the arrangement is less than 20% of the market value of its net assets immediately after the completion of the arrangement. 

If the net assets of the acquiring entity immediately before the arrangement include membership interests in the acquiring entity that were subject to a previous application of this rule, the market value of the net assets of the acquiring entity immediately before the arrangement must be reduced by the market value of those membership interests.

To reduce compliance costs, the Assistant Treasurer said consideration will be given to proxies that may be used to determine the market value of a company for these circumstances.  For example, for listed companies, the quoted price of shares on a stock exchange may be a suitable proxy for market value in some circumstances.

If the acquiring entity acquires the membership interests of two or more target entities simultaneously under an arrangement, then the target entities will be taken to be acquired sequentially, in the order elected by the acquiring entity.

If an arrangement is taken to be, in substance, a restructure, the first element of the cost base and reduced cost base of the shares that the acquiring entity acquires in the target entity under the arrangement, other than shares acquired for cash, will be worked out having regard to the total of the cost bases of the target entity's assets less its liabilities in respect of those assets rather than the market value of the shares.

Alternatively, the acquiring entity can make an election to prevent a scrip for scrip CGT roll-over from being available to original shareholders of the target entity who exchange their shares for shares in the acquiring entity (or its holding company).  The election can be made without the acquiring entity determining whether an arrangement would otherwise be taken to be a restructure.

If the acquiring entity makes an election, the first element of the cost base and reduced cost base of the shares that it acquires in the target entity under the arrangement will be determined by applying the normal cost base rules.

Date of effect

If an arrangement involves a listed company, the measure will apply where an intention to undertake a corporate action by takeover bid or scheme of arrangement is announced by either party to an approved stock exchange after 7.30 pm (AEST) on 13 May 2008.

If an arrangement involves an unlisted company, the measure will apply to a corporate action by takeover bid or scheme of arrangement that is made to shareholders of the target company after 7.30 pm (AEST) on 13 May 2008.

Further information

Treasury contact: Paul McMahon

Tel: (02) 6263 3385

Source: 2008-09 Budget Paper No 2 [p 18]; Assistant Treasurer's press release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

In the 2008 Federal Budget, the Government announced that it would proceed with 3 changes to improve the operation of the company loss recoupment rules and to remove uncertainty:

1. Changes will be made to help ensure that companies do not fail the continuity of ownership test (COT) because of having multiple classes of shares on issue, or because of having special arrangements in place to make distributions of dividends and capital returns.  Date of effect: This change will apply from 1 July 2002, the date coinciding with the measure relaxing the COT tracing rules and introduction of the consolidation regime.
2. The meaning of "voting power" in the context of the COT where the company's shares do not all have the same voting rights for all matters affecting the company will be clarified. The change will ensure that, in these circumstances, the meaning of voting power will look at the power to vote on a poll for the election of a director to a company. Failing that, the meaning of voting power will look to the power to change the company's constitution.  Date of effect: This change will apply from 1 July 2007.
3. Changes will be made to ensure that the entry history rule in the consolidation regime is disregarded in applying the same business test.  Date of effect: This change will apply from 1 July 2002, the date coinciding with introduction of the consolidation regime. 

The Government said that business and professional groups will be consulted during the development of legislation to implement these changes.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would finalise the implementation of the simplified imputation system.

The simplified imputation system commenced from 1 July 2002 and has been gradually implemented since 2002 in a rolling program of legislation. The system is now largely complete. The primary element that remains outstanding is the franking credit trading rules (ie the holding period and related payment rules). The Government said a modification will be made to these rules to ensure that income beneficiaries of testamentary trusts are not prevented from accessing franking credits because of the operation of these rules. Other minor technical amendments will also be finalised. 

Business and professional groups will be consulted during the development of legislation to implement the final elements of the simplified imputation system.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government will increase access to the CGT small business concessions via the $2m aggregated turnover test for taxpayers owning a CGT asset used in a business by a related entity and for partners owning a CGT asset used in the partnership business, with effect from the 2007-08 income year.

Currently, the small business entity test does not cover business structures where the CGT asset is owned by an entity but is used in a related entity which carries on the business. In addition, for partnerships, the small business entity test requires the taxpayer making a capital gain to be a partner in the partnership and for the asset to be an asset of the partnership. This measure will allow these structures and assets to qualify for the CGT small business concessions.

Date of effect

The 2007-08 income year. Legislation expected to be introduced in Winter or Spring 2008. 

Further information

Treasury contact: Paul McMahon

Tel: 02 6263 3385

Source: 2008-09 Budget Paper No 2 [p 17]; Treasurer and Assistant Treasurer, joint press release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The depreciation period for expenditure on "in-house computer software" which is capital in nature will be increased from 2.5 years to 4 years. A 4-year depreciation period for expenditure on in-house computer software is the same period as the Commissioner's effective life determination for computer hardware.

Expenditure on in-house computer software is expenditure by a taxpayer on acquiring, developing or having someone else develop computer software that is mainly used by the taxpayer in performing functions for which the software was developed (ie not for resale). This includes off-the-shelf software acquired for use by a taxpayer.

Expenditure on in-house computer software will continue to be depreciated on a straight line basis.

Date of effect

This measure will apply to expenditure on in-house computer software incurred on or after 7.30 pm (AEST) on 13 May 2008.

Budget Paper No 2 [p 20]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government has announced that it will introduce a new withholding tax regime on certain distributions from Australian managed investment trusts (MITs) to foreign resident investors. This was an ALP election commitment.

The new withholding tax regime will apply to fund payments that are distributions of Australian source net income (other than dividends, interest and royalties) of Australian MITs to foreign residents. It will cover distributions made directly from MITs to foreign residents, as well as distributions made through other intermediaries (including custodians). Distributions of dividends, interest and royalties will continue to be covered by the existing final withholding tax arrangements.

The nature of the new withholding tax regime will vary depending on whether the foreign investor is resident in a jurisdiction with which Australia has effective exchange of information (EOI) arrangements on tax matters. The list of jurisdictions with which Australia has effective EOI will be specified in regulations. Residents of such jurisdictions will be subject to:

• a 22.5% non-final withholding tax for fund payments of the first income year after the enabling legislation receives Royal Assent; 
• a 15% final withholding tax for fund payments of the second income year; and
• a 7.5% final withholding tax for fund payments of the third and later income years.

For the first income year, as an interim measure, investors resident in EOI jurisdictions will be eligible to claim a deduction for expenses relating to fund payments. The net amount will be subject to tax at a new rate of 22.5%.  

Residents of non-EOI jurisdictions will be subject to a 30% final withholding tax, with effect for fund payments of the first income year in which the enabling legislation receives Royal Assent.

Date of effect

These measures will apply with effect from the first income year after the date of Royal Assent of the enabling legislation.

Source: Budget Paper No 2 [p 13]; Treasurer's and Assistant Treasurer's joint media release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government will introduce a family income test for the entrepreneurs' tax offset. The family income test will limit access to the offset by restricting eligibility for singles from $70,000 and families from $120,000 adjusted taxable income per year.

The entrepreneurs' tax offset presently provides a 25% tax offset on the income tax liability of small businesses that have an annual turnover of $75,000 or less, phasing out from a turnover of $50,000. The government said that the entrepreneurs' tax offset is claimed by many taxpayers for whom business is not a primary source of income and who have other, more significant, forms of income. The family income test will restrict access to the offset for businesses with high alternative sources of household income. 

Date of effect

This measure will apply from 1 July 2008.

Budget Paper No 2 [p 21]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government will amend the rules dealing with the taxation of capital protected borrowing arrangements entered into from 7.30 pm (AEST) on 13 May 2008. The benchmark interest rate in the capital protected borrowing rules will be changed to the Reserve Bank of Australia's indicator variable rate for standard housing loans. Interest expense on a capital protected borrowing in excess of this level will be treated as the cost of capital protection and not deductible if on capital account.

A typical capital protected borrowing is a limited recourse loan facility to fund the purchase of listed shares. Under such an arrangement, the investor is protected from a fall in the price of the shares by a capital protection feature. This feature gives the investor the right to transfer the shares back to the lender for the amount outstanding on the loan if the value of the shares falls below that amount. The benchmark interest rate is used to determine how much of the the interest on the borrowing is attributable to the cost of this capital protection.

According to the Treasurer, the amendment will effectively increase the capital component of the overall expense and provide a more appropriate basis for apportioning the expense in capital protected borrowings between interest on a borrowing without capital protection and the cost of capital protection.

The current law, which applies the RBA's indicator variable rate for personal unsecured loans to determine the cost of capital protection, will continue to apply to existing capital protected borrowing arrangements for a period of 5 years or the life of the product, whichever is the shorter. 

The measure is expected to have an ongoing gain to revenue estimated to be $70m over the forward estimates period.

Date of effect

The amendment will apply to capital protected borrowing arrangements entered into after 7.30 pm (AEST) on 13 May 2008.

Source: Treasurer's press release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Government has announced that it will amend the GST law to ensure that the GST refund provisions apply even if a transaction for which tax was paid is found not to be a supply. Further, the Government will restore the intended 4 years time limit on refunds and liabilities for indirect taxes: see 2008 WTB 19 [684], [685] and [686].

The Budget Paper stated that the GST refund provisions are intended to ensure that businesses cannot obtain a refund of overpaid GST unless they have reimbursed affected consumers. Similarly, overpaid GST is not generally refundable in business to business transactions if the purchasing business is entitled to input tax credits for the overpaid GST.

Note: The measures are subject to the unanimous agreement of the States.

Date of effect

The measures will have effect from 1 July 2008.

Budget Paper No [p 27]

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The Government has deferred for 12 months until 1 July 2009 the measure to align the pay as you go (PAYG) instalments and GST payment and reporting requirements for taxpayers who are voluntarily registered for GST. These taxpayers report and pay GST on an annual basis. Under this measure, which was due to start on 1 July 2008, they will also be able to meet their PAYG obligations on an annual basis.

Budget Paper No 2 [p 31]

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that the rate of the Luxury Car Tax (LCT) would increase from 25% to 33% with effect from 1 July 2008. The Government said there would be no changes to the luxury car tax threshold, currently $57,123.

The Government expects this change to raise $555m over 4 years.

The Government said the rate change will result in a car with a current price of $100,000 (inclusive of GST and luxury car tax) being subject to an additional $2,541 in luxury car tax. 

Source: Budget Paper No 2 [p 26]; Treasurer's press release, 13 May 2008

Why the increase?

In confirming the increase just 2 days before the Budget, the Treasurer said: 'We've got to rein in that reckless spending to put downward pressure on inflation and therefore, downward pressure on interest rates. ….We [the Government] don't think it's unreasonable that people who've done well in recent years, particularly from government decisions in terms of top end tax cuts, just pay a little more for a luxury car. What we're dealing with here is perhaps about 10% of cars, most of them are imported, and say, for an S-type Jaguar, it's about $2,600 additional. So, we think it's only fair that these people who can afford these cars make a small contribution to that savings effort'.

Strong industry reaction

The Federal Chamber of Automotive Industries (FCAI) expressed concern at the increase in the rate. FCAI Chief Executive Andrew McKellar, said the tax is unnecessary and discriminatory and 'should be abolished altogether, certainly not increased'. He said that many family cars, both locally made and imported, will now fall into this so-called 'luxury' category because the threshold has not kept pace with past changes in vehicle pricing.

The Australian Automobile Association (AAA) seriously questioned the desirability of an increase in the LCT. AAA said it had a number of concerns about the tax itself and the increased tax would impact on inclusion of vehicle safety features. The Association said the move comes prior to the outcome of the Bracks' Inquiry into the Australian Automotive Industry, which is still taking submissions, and the increase will add to the already substantial costs of motoring.

AAA Director of Research & Policy, John Metcalfe, said the Association had a number of concerns:

• It claimed the LCT was a tax on safety - he said by setting a threshold price, manufacturers will work to keep vehicles under that price and this may mean that safety features like electronic Stability Control may not be included;
• The LCT was a remnant of the old tax system when a higher rate of sales tax was applied to a range of luxury items.

The Australian Automobile Dealers Association expressed disappointment at the increase in the LCT rate. The Association said LCT is an 'inherently unfair and discriminatory tax' and should be abolished.

Thomson note

Background to LCT

Luxury car tax is a tax imposed on 'luxury' cars. A 'luxury' car is a car with a GST-inclusive value above the luxury car tax threshold, currently $57,123. It is generally payable when a car is sold or imported at the retail level. It is in addition to any GST payable. Cars with a GST-inclusive value above the threshold may be subject to luxury car tax on the portion of their value exceeding that figure.

The LCT threshold is equal to the car limit, which is $57,123 for the 2007-08 financial year. The car limit is an amount determined under tax law for the relevant financial year that is used to calculate depreciation deductions under the income tax law. That limit is indexed annually in line with movements in the motor vehicle purchase sub-group of the CPI.

Under LCT law, a car is a motor vehicle that is designed to carry a load of less than 2 tonnes and fewer than 9 passengers. It includes:

• passenger cars;
• station wagons; and
• 4-wheel drive vehicles.

The term 'car' does not include:

• trucks and vans designed to carry a load of more than 2 tonnes;
• vehicles, such as buses, designed to carry 9 or more passengers;
• motorcycles or similar vehicles; or
• racing and rally cars that are not road vehicles and cannot be registered for use on public roads in any country in the world.

Limousines, regardless of the number of passengers they are designed to carry, are also considered cars under LCT law.

Exceptions

A car with a value above the LCT threshold is not subject to LCT if it:

• was manufactured in Australia more than 2 years before the supply;
• was imported and it was entered for home consumption more than 2 years before the supply;
• is a prescribed emergency vehicle;
• is not GST-free and is specially fitted out for transporting people with a disability who are seated in wheelchairs;
• is a motor home or campervan; or
• is a commercial vehicle (eg a truck or hearse) not designed for the principal purpose of carrying passengers.

Calculation

Taking into account the increased rate, LCT on the supply of a luxury car is calculated as:

(luxury car tax value - luxury car tax threshold) x 10/11 x 33/100

The LCT value is the price of the car, including GST and customs duty, less any LCT included in the supply, and any other Australian tax, fee or charge. The price includes GST and any customs duty, dealer delivery charges, and standard and statutory warranties. Generally, it excludes any other Australian tax, fee or charges (eg stamp duty, transfer fees, registration, compulsory third-party insurance, extended warranties and costs associated with financing the purchase of the car).

Who is liable to pay LCT?

Generally, any entity that is registered or required to be registered for GST and sells a luxury car may be liable for LCT. This includes retailers, wholesalers and manufacturers of cars and any business that sells a luxury car.

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would amend the thin capitalisation regime to accommodate certain impacts arising from the 2005 adoption of Australian equivalents to International Financial Reporting Standards. It said these amendments will allow entities subject to thin capitalisation to depart from the current accounting treatment in relation to certain intangible assets and to exclude both deferred tax assets and liabilities and surpluses and deficits in defined benefit superannuation funds from such calculations. 

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that funding of $2.3bn would be provided to implement a range of climate change measures. These include the Government's election commitments to introduce a domestic emissions trading scheme in 2010 ($68.8m over 5 years), expand the renewable energy target ($15.5m over 5 years) and establish the Department of Climate Change ($21.8m over 4 years).

The Government said it will support households and communities to reduce their greenhouse gas emissions through Green Loans, Solar Hot Water Rebates, the National Solar Schools Plan, the expanded Solar Cities program and rebates to install insulation in rental properties.

The development and use of new clean energy technologies will be assisted through the Government's Energy Innovation Fund ($150m over 4 years), National Clean Coal Fund ($500m over 8 years), Renewable Energy Fund ($500m over 6 years from 2009-10) and Green Car Innovation Fund ($500m over 5 years from 2011-12). These funds are designed to provide industry with support to accelerate the development and deployment of low emission technologies.

Further support to business will be provided through the Clean Business Australia initiative ($240m over 4 years from 2008-09), which will assist businesses reduce their own greenhouse gas emissions and bring to market new products that save energy and water. The Clean Energy Enterprise Connect Centre ($20m over 4 years) is designed to provide business improvement services to small and medium sized clean energy enterprises.

The Government said it will provide $90m over 4 years to establish a Green Building Fund to assist Australian business to implement energy efficient measures. The Fund will subsidise 50% of the cost of retro-fitting and retro-commissioning existing commercial office buildings, up to a maximum of $200,000 per building. Funds will be awarded to organisations on a competitive basis, with priority given to large buildings (over 5,000 square metres).

Source: Budget Paper No 2 [pp 103-111]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the 2008-09 Federal Budget, the Government announced that it will not proceed with a tax integrity measure, which was designed to prevent the interaction of the margin scheme with the GST-free going concern and the GST-free farmland provisions from inappropriately reducing GST revenue. This measure was previously announced in the 2005-06 Federal Budget and then deferred in the 2006-07 Federal Budget.

Instead, the Government says it will introduce a better targeted integrity measure. This revised measure provides that, where the margin scheme is used after a GST free or non-taxable supply, the value added by the registered entity which made the supply is included in determining the GST subsequently payable under the margin scheme. Furthermore, this measure will strengthen the GST anti-avoidance provisions to ensure that they can apply to contrived arrangements entered into to avoid GST.

Note: This measure is subject to the unanimous agreement of the States.

Date of effect

The revised measure will have effect from the date of Royal Assent of the enabling legislation.

Source: Budget Paper No 2 [pp 25-26]

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The Government has announced that it will amend the GST law to ensure certain global roaming telecommunication services would remain GST free. The measure will apply to supplies of mobile global roaming services provided to visitors to Australia, which is consistent with Australia's obligations under the International Telecommunication Regulations: see 2007 WTB 1 [3].

Note: This measure is subject to the unanimous agreement of the States.

Date of effect

The measure will apply with effect from 1 July 2000.

Budget Paper No 2 [p 25]

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The Government has announced that it will not proceed with the package of GST changes for charities and other not-for-profit organisations, which were announced by the previous Government.

The changes would not have been effective in improving integrity, certainty or in reducing regulatory compliance costs to the sector as a whole, the Budget stated.

Budget Paper No [p 24]

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

The FBT exemption for eligible work-related items such as laptop computers and mobile phones will be limited.

The list of eligible work-related items currently includes laptops or similar portable computers, computer software, electronic diaries, personal digital assistants or similar items, certain portable printers, calculators, mobile phones, briefcases, tools of trade and protective clothing. The government has announced that the FBT exemption will only apply where these items are used primarily for work purposes and will be limited to one item of each type per employee, per FBT year unless it is a replacement item. With the exception of mobile phones, computer software and protective clothing, the current FBT exemption for work-related items is available without any requirement that their actual use be work-related.

The list of FBT-exempt work-related items will also be clarified to deal with advances in technology. The exemption will be extended to all work-related portable electronic devices, including those with multiple functions (eg a mobile phone that also has email, internet, diary, photographic and GPS functionality).

Depreciation denied

The government has also announced that the income tax law will be amended to disallow employees from claiming depreciation for the work-related percentage of FBT-exempt items. This will prevent taxpayers claiming depreciation in these circumstances from obtaining a double benefit.

Date of effect

The changes to the FBT exemption for work-related items will apply to items purchased after 7.30 pm (AEST) on 13 May 2008.

The changes that disallow depreciation for FBT-exempt items will take effect as follows:

• for items purchased after 7.30 pm (AEST) on 13 May 2008, this measure will take effect from that time;
• for items purchased before 7.30 pm (AEST) on 13 May 2008, employees will be denied depreciation for the 2008-09 and later income years.

Budget Paper No 2 [pp 22-23]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government has announced that the FBT law will be amended to ensure it applies appropriately where an employer provides an employee and their associate with a fringe benefit in relation to a jointly held investment asset (for example, a low interest loan or reimbursement of expenses related to a rental property or shares).

In National Australia Bank Ltd v FCT (1993) 26 ATR 503, the Federal Court decided that where an employer provided low interest loans jointly to an employee and their spouse, the employer had no FBT liability arising from the provision of the loan fringe benefit to both the employee and their spouse because the "otherwise deductible rule" applies to reduce the taxable value of the whole benefit. The "otherwise deductible rule" applies to reduce the taxable value of a fringe benefit where the asset provided is an income earning asset and, if not provided as a fringe benefit, where associated expenses such as interest would have been deductible to the employee.

The Federal Court decision resulted in an anomaly in the FBT law which means that if an employer provided the benefit solely to an associate, there would be no reduction in their FBT liability. This anomaly has led to taxpayers entering into arrangements, such as salary sacrificing of expenses related to a jointly held investment property. Under such an arrangement, a spouse with a higher income is able to effectively claim 100% of all the expenses related to a jointly held investment property. 

The Government will amend the FBT law to overcome the NAB decision to ensure that the "otherwise deductible rule" applies appropriately in the case of jointly held assets, ie the rule will not apply to reduce the taxable value of the associate's share of the expenses from that time. The Government said that this measure will re-establish the principle that income and deductions arising from jointly held assets should be allocated between joint owners according to their legal interests and restore equity of treatment between taxpayers who incur expenses on jointly held investment properties.

Date of effect

The measure will take effect as from 7.30 pm (AEST) on 13 May 2008 with respect to new arrangements.

Employees who have already entered into salary sacrifice agreements with their employer involving a reimbursement of expenses related to the investment will be able to utilise current arrangements until 31 March 2009 (ie the end of the FBT year). This will provide time for employers and employees to renegotiate salary packages to avoid incurring an FBT liability.

Transitional arrangements for employees who have entered into a loan arrangement (such as the arrangement that was the subject of the NAB case) with their employer will be the subject of consultation.

Budget Paper No 2 [p 23]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The FBT exemption for private use of business property will be tightened by excluding meals provided as part of a salary sacrifice arrangement.

The existing FBT exemption allows employees with a "meal card" arrangement to purchase meals out of their pre-tax income. Under a "meal card" arrangment, an employer pays for an employee's meals, provided by a third party (for example, a cafe or catering service) located on, or delivered to, the employer's premises. The government said that the FBT exemption for property consumed on an employer's premises was originally intended to exempt benefits provided from an employer to an employee that were modest in amount. This rationale does not apply to "meal card" arrangements.

This measure will not affect subsidised canteens that are provided to all staff and that are not part of a salary sacrifice arrangement.

Date of effect

The changes will take effect from 7.30 pm (AEST) on 13 May 2008. Existing balances on meal cards as at 7.30 pm (AEST) on 13 May 2008 will remain eligible for the FBT exemption provided they are used by 31 March 2009. Any supplementation of existing balances after 7.30 pm (AEST) on 13 May 2008 will be subject to FBT.

Budget Paper No 2 [p 24]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

Despite concerns that the superannuation system might have come in for some attention, the 2008-09 Federal Budget did not announce any substantive changes concerning superannuation. The Simpler Super (or Better Super) regime was not altered. There were no changes to the current contributions regime, tax-free status for most benefits after age 60, transition to retirement pensions or the tax exemption for superannuation fund assets set aside to pay pensions.

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Minister for Superannuation and Corporate Law, Senator Nick Sherry, has announced that the Government will provide funding of $16m over 3 years to set up an optional superannuation clearing.

With the introduction of super fund choice, businesses can be required to make compulsory superannuation contributions into numerous funds.  Where employees can choose their own superannuation fund from the many hundreds available, an employer may be required to pay superannuation into a large number of different funds, a process that can be highly onerous.

Senator Sherry said a superannuation clearing house will allow an employer to pay their contributions to a single location. The clearing house will then distribute them to the relevant superannuation funds as selected by their employees. The optional clearing house facility will manage employers' obligations under Superannuation Choice, including the task of checking details entered on the Choice form and distribution of contributions to the nominated funds.

Senator Sherry said the clearing house facility will be offered free of charge to businesses with less than 20 employees. Businesses that use the clearing house facility will have their legal obligation to make superannuation contributions discharged when payment of the correct amount is made to the clearing house.

Date of effect

The facility will be available from 1 July 2009. Senator Sherry indicated that the Government will consult with industry prior to implementing this measure.

Source: Minister for Superannuation and Corporate Law, press release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Government announced that it will reduce funding for the Choice of Superannuation Fund measure following its successful implementation. The Government said additional implementation funding is not required beyond 30 June 2009 for the Tax Office and the Superannuation Complaints Tribunal (SCT).

Instead, funding at a reduced level of $7.2m for the Tax Office in 2008-09 will support residual implementation issues. Funding for ASIC will continue at a reduced level of $2.7m per annum from 2010-11, to support the Commission in superannuation related enforcement and compliance issues.

The termination of additional funding for the SCT will be matched by a reduction in levies collected by APRA through the financial sector supervisory levy on superannuation funds. The Tribunal receives its resources from Government via the Australian Securities and Investments Commission's appropriation.

This measure is expected to provide savings of $50.5m over 4 years.

Source: 2008-09 Budget Paper No 2 [ p 378]

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Government has announced that the Comcover general insurance fund will manage the small volume of uninsured claims made against the Government in respect of incorrect advice provided in past years about the superannuation eligibility of certain temporary employees. This follows the High Court's decision in the Cornwell superannuation case regarding compensation for incorrect superannuation advice.

The Government says there will be no net budget impact because the estimated costs of $3.1m over the 4 years 2008-09 to 2011-12 will be passed through to the agencies that have inherited the liabilities.

Source: 2008-09 Budget Paper No 2 [ p 185]

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

The Treasurer has announced changes to the proposed First Home Saver Accounts regime after announcing the outcomes of the Government's consideration of the issues raised during consultation on its discussion paper (see 2008 WTB 7 [177]).

Key changes

The Government will now provide a contribution of 17% of the first $5,000 (index) contributed annually for all individuals. Personal contributions will be able to be made to the account until the balance reaches $75,000 (indexed). Earnings on the account will be concessionally taxed at 15%. Tax free withdrawals from the account to purchase or build a first home in which to live can only be made after contributions of at least $1,000 have been made in at least 4 separate financial years.

The Treasurer said the Government has decided not to proceed with its original election policy which proposed to deliver benefits to first home savers that were similar to those for superannuation through salary sacrifice and low tax on earnings. Mr Swan said this decision will provide the Government with greater flexibility around the design of the contribution arrangements, as they no longer need to match the benefits of salary sacrifice.

Instead, the Government's new contribution arrangements will provide increased benefits to all individuals earning up to $80,000 per annum. It will also simplify the operation of the accounts for individuals, account providers and the Tax Office. According to the Treasurer, a couple each earning average incomes both putting aside 10% of their income into individual First Home Saver Accounts would be able to save a deposit of more than $88,000 after 5 years, compared with $85,000 under the arrangements outlined in the discussion paper.

The Treasurer said the Government will commit an additional $150m over the next 4 years to further improve the accounts. Mr Swan said the changes mean the Government will be investing around $1.2bn over 4 years in the First Home Saver Account initiative, including administrative costs.

Date of effect

The Government has also decided to defer the commencement of the policy until 1 October 2008 to enable account providers more time to develop products. However, first home savers will not be disadvantaged by the deferral as they will still be entitled to a Government contribution on the first $5,000 of personal contributions in 2008-09. The Government said it intends to introduce the enabling legislation in the Budget sittings.

Other key changes

The Government said its other key changes will:

• streamline and relax the eligibility criteria to open accounts by removing the $1,000 upfront contribution and the link to residency to open an account;
• increase the attractiveness of accounts and reduce compliance costs for providers by replacing the $10,000 annual contributions cap with one overall account balance cap of $75,000 (indexed), after which no additional personal contributions can be made;
• make the accounts easier to provide, including by clarifying the way the 4-year rule operates so that it is calculated on a financial year basis rather than from the day the account is opened; and
• ensure that potential first home savers have a good understanding of the features of accounts by simplifying the product disclosure requirements and providing for a 14 day cooling-off period in which to change their mind.

The Government estimates that these changes will increase savings in accounts from over $4bn to around $6.5bn after 4 years.

Further detail on the final design features for the accounts, including other changes, are outlined in Treasury fact sheets for account providers and account holders which are available on the Treasury Website.

Other issues

The regulators, ASIC, the Tax Office and APRA will work closely with industry to make First Home Saver Accounts easier to provide.

ASIC has indicated that it will regard First Home Saver Accounts that are deposit accounts offered by banks, building societies and credit unions as tier 2 products for the purposes of training requirements. Account providers will still have to ensure that staff undertake tier 2 training, plus some First Home Saver Account specific training. All other (market-linked) accounts will be regarded as tier 1 products.

The Tax Office is currently meeting with providers to discuss reporting requirements and is endeavouring to use current reporting arrangements as much as possible to reduce the compliance burden.

The product disclosure requirements for First Home Saver Accounts are being developed through the Financial Services Working Group established by the Minister for Superannuation and Corporate Law and will be announced separately.

The Treasurer said the range of other issues raised during the consultation process were considered by Government but will not proceed. According to the Government, they would have resulted in a significantly higher cost to revenue, changed the nature of the accounts or added complexity for the consumer.

In particular, public-offer licensees who choose to offer First Home Saver Accounts will need to offer accounts under a separate trust structure from their existing superannuation trust; and banks, building societies and credit unions will need to calculate the income earned by First Home Saver Accounts separately for taxation purposes and be taxed at the entity level.

The Treasurer said the requirement for a separate trust preserves the integrity of Australians' retirement savings by preventing cross-contamination and cross-subsidisation of First Home Saver Accounts by superannuation - where the funds of superannuation members (many of whom will be ineligible to ever open an account) are used to fund the start-up and operating costs of the accounts.

The Government also considered that changes to the taxing arrangements would mean that consumers could be faced with potentially quite different products depending on the account provider, making it more difficult for them to compare products. 

Source: Treasurer's press release, 13 May 2008; 2008-09 Budget Paper No 2 [p 288]

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would provide additional funding of $256.9m over 4 years from 2008-09 to the Tax Office to allow it to "enhance compliance activities, particularly for large businesses and high wealth individuals". The Government expects this additional investment in ATO activities to increase revenue by $1.98bn over 4 years. The increased resources will help ensure greater equity and confidence in the taxation system and provide for increased and better targeted enforcement activity, the Government said.

Source: Budget Paper No 2 [p 12]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government said it will prospectively remove differential treatment of same-sex couples and their children from Commonwealth laws (except where they rely on the Family Law Act 1975 definitions and presumptions) in the areas of Australian Government (defined benefit) superannuation schemes, social security, veterans' entitlements, workplace relations, workers' compensation, taxation, health (including Medicare, pharmaceutical benefits and hearing services) and immigration and citizenship.

The Government said the majority of the expenditure in 2008-09 will be to implement changes to Centrelink's payment systems.

According to the Government, legislative changes are expected to take effect on 1 July 2009 with the exception of Medicare and Pharmaceutical Benefits Scheme Safety Nets (1 January 2009) and Fringe Benefits Tax (1 April 2009). Amendments to the Australian Government (defined benefit) superannuation schemes will commence on a date to be set by proclamation, with amendments related to superannuation and taxation of death benefit payments having effect from 1 July 2008.

Source: Budget Paper No 2 [pp 87-88]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government will amend and legislate the guidelines relating to prescribed private funds (PPFs). A PPF is a trust to which businesses, families and individuals can make tax deductible donations, for the purpose of disbursing funds to a range of deductible gift recipients.

The changes will, among other things, ensure regular valuation of assets at market rates, increase the size of compulsory distributions and give the Tax Office greater regulatory powers. The details of the changes will be finalised following consultation with relevant stakeholders.

According to the Government, this measure will improve transparency and provide the trustees of PPFs with greater certainty of their philanthropic obligations. It will not impact on the ability of taxpayers to give tax deductible donations directly to a deductible gift recipient.

Date of effect

This measure will apply from 1 July 2009.

Budget Paper No 2 [p 35]; Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government announced that it would remove the current exemption of condensate from crude oil excise, with effect from midnight (AEST) on 13 May 2008. The Government said this measure has an ongoing gain to revenue, which is estimated to be $2.5bn from Budget night and over the forward estimates period. This measure is also estimated to increase net Government expenditure by $69.6m over the same period. The measure abolishes a tax concession and a tax expenditure.

Under the new arrangements, condensate production from petroleum fields located in the North West Shelf project area and onshore Australia will be subject to the same excise rates as those applicable to petroleum fields discovered after 18 September 1975. For example, the maximum rate of excise applicable to production from a field in excess of 800 megalitres (around 5 million barrels) per annum will be 30% of the value of production.

Under the crude oil excise arrangements, the first 4,767 megalitres (30 million barrels) of oil produced from a field is exempt. Past production of condensate from a petroleum field will contribute towards meeting this threshold before crude oil excise becomes payable. This threshold means that certain petroleum fields may not pay any crude oil excise as a result of this measure.

This measure results in a reduction in revenue from the offshore petroleum royalty which is shared between the Australian Government (one third) and the Western Australian Government (two thirds). The Government estimates the loss of royalty revenue to the Western Australian Government from 2007-08 to the end of the forward estimates to be $337.1m.

The Government said it would provide the Western Australian Government with ongoing compensation for the loss of its share of offshore petroleum royalty revenue as a result of the imposition of crude oil excise on condensate, at an estimated cost of $406.6m over the forward estimates period.

Source: Budget Paper No 2 [p 19]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government announced that it will implement 3 minor changes to the Petroleum Resources Rent Tax (PRRT) directed at lowering compliance costs and removing inconsistencies, with effect from 1 July 2008:

• introduce a functional currency rule into the PRRT, similar to the functional currency rule for income tax.  This is designed to reduce compliance costs for PRRT taxpayers;
• introduce a "look-back" rule for exploration expenditure related to a production licence derived from an exploration permit or a retention lease. This change will ensure that all exploration expenditure is deductible for PRRT purposes;
• remove an inconsistency in the PRRT "external petroleum" provisions to address the circumstance where 2 or more petroleum projects are not independent of each other.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The Government has indicated that it will change the Commonwealth Seniors Health Card income test to include gross income from superannuation income streams from a taxed source and include income that is salary sacrificed to superannuation in the income assessment.

The Commonwealth Seniors Health Card provides a range of benefits to people who do not qualify for the Age Pension but have an adjusted taxable income of less than $50,000 (for singles) or $80,000 (for couples combined).

As a result of the proposed changes, all income received by seniors, whether from superannuation or another source such as a managed fund or interest from a bank account, will be treated in the same way.

This measure is expected to result in net savings of $84.8mn over 4 years but is expected to cost $19.4m to administer.

Source: 2008-09 Budget Paper No 2 [ p 381]

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would proceed to codify the existing weekly deferred settlement arrangements for excise and excise-equivalent goods, with an exception to allow small businesses to settle on a monthly cycle. The measure is designed to reduce small business compliance costs under the excise and customs systems.

Customs Duty on imported tobacco

The Government said it would amend the customs legislation to clarify the existing references to "tobacco content" so that the non-stick excise-equivalent customs duty on tobacco is calculated on the total weight of the goods, as intended. The amendment will have effect from the date of Royal Assent of the amending legislation.

Excise-equivalent goods - coverage by TCOs

The Government said it will address an unintended outcome where importers are able to avoid paying excise-equivalent customs duties on certain imported products by obtaining a Tariff Concession Order (TCO). The measure will have effect from the date of registration of the amending regulations.

Excise-equivalent duty is imposed on certain imports to provide consistent treatment with the excise on domestically manufactured goods. Tariff Concession Orders remove the protective tariff from imported goods where no substitutable goods are produced in Australia. Most excise-equivalent goods are currently prevented from being covered by Tariff Concession Orders.

Aligning excise and customs legislation

The Government said it would also proceed with the measure to align the excise and customs legislation to establish consistent eligibility conditions across excise and equivalent customs product classes for taxpayers seeking a refund, remission or drawback of duty. 

The measure will allow all excisable and excise-equivalent imported goods - alcohol (other than wine), tobacco and fuel - to be eligible for a refund of duty where they are returned to a place licensed to receive the good, or they are destroyed with the prior approval of the relevant administering authority. The measure is designjed to reduce business compliance costs under the excise and customs systems.

Source: Joint press release by Treasurer and Assistant Treasurer, 13 May 2008; Budget Paper No 2 [p 6]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would increase passport fees by 4%, with effect from 1 July 2008. The standard adult passport fee will increase from $200 to $208, while the passport fee for children and seniors will increase from $100 to $104. All other categories of passport fees will also increase.

Visa application fees

The Government also announced that it would increase the visa application charge for tourist visas by $25 from $75 to $100 per application overseas, and from $215 to $240 for all related visa extensions in Australia. The Government will also increase visa application charges for temporary residence visas by $60 from $190 to $250, and residents return visas by $120 from $120 to $240. These increases will be implemented on 1 July 2008.

The measure also includes an increase to the fee for certificate of evidence of residency from $70 to $100.

Passenger Movement Charge

The Government will also increase the Passenger Movement Charge from 1 July 2008 by $9, from $38 to $47 per passenger.

Source: Budget Paper No 2 [pp 8 and 10]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The functions of the Financial Literacy Foundation are to be transferred to ASIC from 1 July 2008. As a consequnce, ASIC will play a national leadership role in advancing financial literacy in Australia. The Government added that it recognises the importance of financial literacy in helping families and individuals to secure their financial well being and to plan for the future.

Treasurer's press release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Government has confirmed a number of measures relating to various family payments.

• Family Tax Benefit Part B - from 1 July 2008, an income test will be introduced so that FTB Part B will only be available to families where the annual adjusted taxable income of the principal earner does not exceed $150,000 (before the November 2007 election, the ALP had proposed a $250,000 threshold: see 2007 WTB 49 [2154]). From 1 July 2009, FTB will only be delivered through Centrelink and Medicare, thereby removing claims through the tax system.
• Baby Bonus - from 1 July 2008 the Baby Bonus will be increased to $5,000 (and it will be indexed annually on 1 July). In addition, from 1 January 2009, the Baby Bonus will be paid in fortnightly instalments and an income test will be introduced so that it will only be available where family income does not exceed $150,000 a year.
• Child Care tax offset - this will be increased from 30% to 50% (from 1 July 2008). In addition, the cap on the amount that can be paid will be lifted from $4,354 to $7,500 per child and the offset will be paid quarterly (these are also election commitments: see 2007 WTB 45 [1997]).

From 1 July 2009, there will be changes to the definitions of income for family assistance purposes: see para [738] of this Bulletin.

Budget Paper No 1 [p 35]; Minister for Families' media release, 13 May 2008

by Trevor Snape

ThomsonTax.Newsroom@thomson.com

The Minister for Families, Housing, Community Services and Indigenous Affairs announced the following measures to support carers:

• Carer Bonus - Carer Allowance recipients will receive a $600 tax-free bonus for each eligible care receiver;
• Veterans' Carer Bonus - Recipients of Carer Payments and Department of Veterans' Affairs Carer Service Pensions will each receive $1,000 tax-free. Carer Allowance recipients who receive a Wife Pension or the Department of Veterans' Affairs Partner Service Pensions also receive $1,000;
• eligible carers looking after children with a profound disability - fairer and simpler access to financial support of up to $546.80 per fortnight;
• ageing parents with disabled children - additional supported accommodation for people with disability to help ageing parents who can no longer care for their disabled children at home.

Bonus payments will not be taxable for income tax purposes or treated as income for social security purposes. Bonus payments are expected to be automatically made before the end of June 2008.

Those receiving both payments on 13 May 2008 will receive both lump sum payments. A small number of claimants who are determined by Centrelink after 1 July 2008 to have been eligible for the qualifying payments as at 13 May 2008 will also receive the bonus.

Respite brokerage for older carers

The Government will also provide $2.4m in 2008-09 for respite brokerage services between April 2008 and December 2008 to older carers aged 65 years and over, who are caring for adult children aged 40 years and over with a disability.

The brokerage services will be provided by Centrelink and will help ensure that older carers have better access to respite services. Administration of these services will be transferred to States and Territories under the new Commonwealth State and Territory Disability Agreement, expected to commence on 1 January 2009.

Seniors Bonus

The Government will also provide $1.4bn over 2 years from 2007-08 for a tax-exempt payment of $500 to individuals in receipt of Age Pension, veterans' pensions, Widow B Pension, Wife Pension, Seniors Concession Allowance, Mature Age Allowance, Widows Allowance or Partner Allowance as at 13 May 2008.

A very small number of claimants who, after 1 July 2008 are determined by Centrelink to be eligible for the qualifying payments as at 13 May 2008, will also receive the bonus.

Source: 2008-09 Budget Paper No 2 [pp 176, 178 and 180]; Minister for Families, Housing, Community Services and Indigenous Affairs, media release, 13 May 2008

by Stuart Jones

ThomsonTax.Newsroom@thomson.com

In the Budget, the Government announced that it would provide $14.5m over 3 years to provide up to 12 months of income support payments to eligible farm families in areas for which exceptional circumstances declarations are not extended. The program, commencing from 16 June 2008, will provide income support payments equivalent to NewStart Allowance payments to farm families that have not recovered from the impacts of the prolonged drought and are in need of income support.

Eligibility criteria for assistance will include a similar income test to NewStart Allowance and a limit on the net value of assets of $1.5m. Applicants will also be required to obtain and act on business viability advice and training available through the Australia's Farming Future - Climate Change Adjustment Program.

Source: Budget Paper No 2 [p 81]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

The 2008-09 Budget has stated that the Government will provide income tax, customs duty, GST and other Australian Government tax relief to the Secretariat for the Agreement on the Conservation of Albatrosses and Petrels and the Secretariat non-Australian staff.

The Government said the tax relief is in line with that granted to other international organisations in Australia.

The tax relief will commence from the date of effect of the enabling regulations.

Budget Paper No 2 [p 16]

by Eugene Ng

ThomsonTax.Newsroom@thomson.com

In the 2008-09 Budget, the Government announced that it would  extend the current network of reciprocal social security agreements to include Finland and Poland.

The agreements will ensure that, where eligibility requirements are met, former Australian residents in Finland and Poland will gain access to the Australian Age Pension and former Finnish and Polish residents in Australia will gain access to the Finnish and Polsih age/retirement pensions. Both new agreements are expected to commence on 1 July 2009.

Source: Budget Paper No 2 [p 181]

by Terry Hayes

ThomsonTax.Newsroom@thomson.com

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