Federal Budget - 2010
This year’s budget contains no great surprises, announced just nine days after the public release of the Henry tax review and the Commonwealth Government’s responses to it. The main focus of this year’s budget is long term savings for all Australians, particularly low income earners.
Outcomes
- It is anticipated that the Australian economy will continue to grow strongly over the next financial year and that the unemployment rate will decline further.
- The Government now expects the Budget to return to surplus three years earlier than anticipated, largely due to the resilience of the Australian economy and continued export demand for resources.
Spending
- Health is arguably the big winner in this year’s new budget with total new investment over five years budgeted at over $7.3 billion.
Major announcements
Increase in superannuation guarantee rate
As announced in its response to the Henry tax review, the Government has confirmed the superannuation guarantee (SG) rate is to be gradually increased from 9% to 12% by 30 June 2020. Increments are planned as follows –
Financial Year |
SG Rate |
2009 to 2013 |
9% |
2013/2014 |
9.25% |
2014/2015 |
9.5% |
2015/2016 |
10% |
2016/2017 |
10.5% |
2017/2018 |
11% |
2018/2019 |
11.5% |
2019/2020 |
12% |
It will be important to regularly review salary sacrifice arrangements to ensure concessional contribution caps are not breached.
Superannuation guarantee age limit to increase from 70 to 75
The Government proposes to raise the superannuation guarantee eligibility limit from 70 to 75 years of age, commencing 1 July 2013. The superannuation guarantee currently only applies to people aged up to 70. A minimum work test will continue to apply for those aged 65 and over.
Superannuation co-contributions
The co-contribution matching rate of 100% will be made permanent for the first $1,000 contributed to superannuation for lower income earners. In addition, the Government proposes to freeze the income threshold at which a co-contribution entitlement phases out for two years. This will mean the current thresholds of $31,920 and $61,920 will be retained for the 2010/11 and 2011/12 financial years.
Superannuation contributions tax - relief for low income earners
Individuals earning less than $37,000 per year will receive a contribution of up to $500 a year from the Government, effective 1 July 2012. This amount is intended to offset the tax paid on contributions.
Concessional contributions cap increase
From 1 July 2012, individuals aged 50 and over who have less than $500,000 in total in superannuation account balances will see their concessional contributions cap increased to $50,000. The concessional contributions cap of $25,000 will remain for all other individuals.
From 1 July 2011, individuals will be entitled to a 50% tax discount on up to $1,000 of interest earned, including interest on deposits held with banks, building societies or credit unions, as well as bonds, debentures or annuity products. This discount can reduce the amount of an individual’s assessable income by up to $500.
Personal income tax
The Government has re-affirmed its election promise of 2007 that personal income tax rates will be lowered. The 30% marginal tax threshold rises from $35,000 to $37,000, while those earning more than $80,000 per year (and up to $180,000) will see their marginal tax rate fall from 38% to 37%. The table below indicates the changes that will take place -
Up to 30 June 2010
|
After 30 June 2010
|
| Up to $6,000 |
Nil |
Up to $6,000 |
Nil |
| $6,001 - $35,000 |
15% |
$6,001 - $37,000 |
15% |
| $35,001 - $80,000 |
30% |
$37,001 - $80,000 |
30% |
| $80,001 - $180,000 |
38% |
$80,001 - $180,000 |
37% |
| Excess of $180,000 |
45% |
Excess of $180,000 |
45% |
In addition, the low income earner’s tax offset will increase to $1,500, meaning an individual can effectively earn $16,000 of taxable income before paying any tax.
Deduction for work related expenditure
From 1 July 2012, individuals will be able to choose a standard deduction for work related expenditure and the cost of managing tax affairs of $500. This amount will rise to $1,000 in subsequent years. Individuals will be able to claim more than this amount where receipts and other documentation can be produced to substantiate their claim.
A word of caution
All of the Government’s Budget and post-Henry review changes are proposals at this stage with the detail of some components yet to be released. All proposals will be subject to passage through the Parliament.