Federal Budget - May 2010

The Federal Budget announcement on 11 May 2010 included a raft of changes to individual and company taxation arrangements, including detail on the recommendations that the Government would implement from the long awaited Henry Tax Review.  Steve Crescitelli from the Commonwealth Bank provides a round up of the Federal Budget announcements and what they might mean for you.

Federal Treasurer Wayne Swan has handed down his third Budget promising to return the Budget to surplus in three years. The fiscally conservative Budget reconfirmed the recent announcements by Treasurer Swan in response to the Henry Taxation Review. Here is a brief summary of the major announcements from the Budget;

50% savings discount for interest income from 1 July 2011

The Government plans to provide a 50% tax discount on up to $1,000 of interest earned by individuals, including interest earned on deposits held in authorised deposit taking institutions, bonds, debentures and annuities.

Personal tax rate reductions already legislated from 1 July 2010

In accordance with the tax cuts announced in the 2008 Budget, the personal income tax thresholds for the 2010- 2011 year will be as follows:

Standard tax deduction from 1 July 2012

The Government plans to introduce a standard deduction for work-related expenses and the cost of managing tax affairs. The standard deduction will be $500 for the 2012/13 financial year, and then $1,000 for the 2013/14 and subsequent financial years

Capital protected borrowings – increase to benchmark interest rate from 11 May 2010

The Government has proposed to increase the benchmark interest rate that applies to capital protected borrowings to the Reserve Bank of Australia (RBA) indicator rate for standard variable housing loans plus 100 basis points. Prior to this announcement the benchmark interest rate was set at the RBA indicator rate for standard variable housing loans.

Net medical expenses tax offset from 1 July 2010

The Government plans to increase the threshold above which a taxpayer may claim the net medical expense tax offset (NMETO) from $1,500 to $2,000. This threshold will be indexed to the Consumer Price Index (CPI) on an annual basis.

Super fund deductions for terminal medical conditions benefits from 16 February 2008

The Government has announced that it will be seeking to extend the number of benefits that are deductible for complying super fund and retirement savings account providers to include terminal medical conditions (TMC).

Henry response confirmation

As expected, the 2010 Budget reiterated the Government’s commitment to the following proposals announced in response to the Henry Tax Review:

• Progressively increase the super guarantee contributions rate from 9% to 12%, commencing 1 July 2013.
• Raising the super guarantee contributions maximum eligibility age to 75 from 70.
• Introducing a 15% low income earners Government contribution capped at $500, effectively refunding contributions tax on up to $3,330 of concessional contributions.
• The $50,000 concessional cap for those aged 50 or over who have super balances of less than $500,000.
• Reducing the standard company tax rate to 29% from 1 July 2013 then 28% from 1 July 2014.
• Reducing the small business company tax rate to 28% from 1 July 2012.
• Allowing small businesses to immediately write off assets valued at under $5,000 and other assets in a single 30% rate depreciation pool.

Interpreting these announcements and how they affect your personal circumstances can be complex. For further assistance, please contact a Commonwealth Private Financial Adviser:

SA/NT: Steve Crescitelli on 08 8104 5757 or steven.crescitelli@cba.com.au

QLD: Anthony Pupovac on 07 3237 3792 or antony.pupovac@cba.com.au

VIC / TAS: Malissa Tobias on 03 9675 7135 or malissa.tobias@cba.com.au

WA: Clint McNally on 08 9482 6240 or clint.mcnally@cba.com.au

NSW: Damien Rayner on 02 8292 5450 or damien.rayner@cba.com.au

^{Important information}

^{This article is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy any securities or financial instruments. This articlet has been prepared without taking account of the objectives, financial situation and capacity to bear loss, knowledge, experience or needs of any specific person who may receive this report. All recipients should, before acting on the information in this report, consider the appropriateness and suitability of the information, having regard to their own objectives, financial situation and needs, and, if necessary seek the appropriate professional or financial advice regarding the content of this report. Steve Crescitelli is an authorised representative of Commonwealth Private Limited AFSL 314018 ABN 30 125 238 039.}