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FEDERAL BUDGET 2010
Budget night is like Christmas for us accountants, and each year we can’t wait to see what’s new. With major tax deadlines looming we’ve been very busy, so despite our excitement we had to show some restraint to get the real work done and wait for the weekend to really “enjoy” the budget.
Here’s a summary of what we found to be of most interest for our clients.
Standard Deductions
Standard deductions are a way of simplifying tax returns for individuals, with the ultimate aim of eliminating the need for many salary and wage earners to lodge tax returns. Standard deductions for work related and tax compliance costs will commence at $500 for the year ended 30 June 2013, increasing to $1,000 for subsequent years. This will benefit those who have minimal deductions but, depending on any integrity measures, may also make salary packaging deductible expenses attractive. That is, if the employer pays deductible expenses for the employee, will the employee still be entitled to the standard deduction?
Superannuation Co-contribution
In last year’s Global Financial Crisis budget, the superannuation co-contribution was reduced from 150% to 100%, with an undertaking that it would revert to 150% by 2014/15. This budget reversed that undertaking, and the co-contribution will now permanently stay at 100%.
Interest Discount
From 1 July 2011 you will only pay tax on 50% on interest you earn up to $1,000. Interest in excess of this will be taxed in full. The maximum benefit of this measure is therefore $232.50 (ie $1,000 x 50% x 46.5% - for an individual with a taxable income of over $181,000).
Earnout Payments
If you’ve sold a business with an entitlement to earnout payments you may be entitled to a significant tax refund on amendment of a prior year return. Earnout payments are often included in business sale contracts, and are basically a part of the sale price that depends on subsequent business performance. Because the payments depend on future performance the amounts are not known at the time of sale.
Since 2007, the ATO has required that the value of the “earnout right” be estimated and added to the sale proceeds for calculating the capital gain on sale of the business. The “earnout right” has then been treated as an asset separate to the business, and as such the earnout payments have been ineligible for CGT concessions such as the small business CGT concessions and scrip for scrip rollover relief, and have even missed out on the 50% CGT discount where the payment was received within 12 months of the sale.
Medical Expenses Offset
The threshold for medical expenses offset will be increased from $1,500 to $2,000 from 1 July 2010. That is, you and your family need to spend more than $2,000 before an entitlement to the offset arises.
Capital Protected Borrowings
The amount of interest that is deductible on capital protected loan products has been increased by 1%. This measure is retrospective to 13 May 2008, so if you have a capital protected loan product you may want to amend prior year returns to increase your deduction.
First Home Savings Accounts
The often forgotten First Home Savings Accounts (“FHSA”) becomes a little less restrictive and may now be attractive. FHSA’s have been around for a couple of years now, and subject to eligibility provide the benefit of a 17% government contribution up to a maximum of $850 (ie 17% of savings up to $5,000pa), and a 15% rate of tax on the interest. The current rules contain a 4 year qualifying period before you could access the funds to purchase a home. If you purchased a home in less than 4 years you could not access your savings, and instead they had to be transferred to superannuation or the tax benefits would be lost. The budget proposal allows the savings to instead be transferred to an approved mortgage at the end of the qualifying period.
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