The 2009/10 Federal Budget special edition of our Business Plus+ newsletter is now available for download.

Inside this issue:

- Federal Budget 2009 Issues for SMEs

- Key 2009 Federal Budget Outcomes

- Key Numbers at a Glance

- Budget Initiatives Appealing to SMEs

- Superannuation

- Possible Benefits to SMEs

- Changes to Tax Treatment

- Personal Issues

- Research and Future Projects

Download Business Plus+ Special Budget Edition.

From 1 July 2009, the Government will halve the minimum amounts self-funded retirees have to draw down from their account-based pensions for 2009-10.

This extends the drawdown relief provided by the Government for 2008-09, recognising the impact of the global recession

This change will assist pension account balances to recover from capital losses associated with the global recession.  It will also reduce the need for self-funded retirees to sell assets at a loss in order to meet the minimum withdrawal required in 2009-10.  This measure will cost $27 million over two years.

From 20 September 2009, the Australian Government will provide around 300,000 self-funded retirees with access to the Seniors Supplement.

The Seniors Supplement will be available to self-funded retirees who are eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold card with current Seniors Concession Allowance.  It incorporates existing payments of Seniors Concession Allowance and the higher rate of Telephone Allowance.

For singles, the new supplement will increase payments by $129 a year, brining their rate of payment to two third of that received by couples combined.

The Seniors Supplement will be $790.40 a year for singles and $1190.80 a year for couples combined. Payments will be made quarterly.

The Seniors Supplement is equivalent to the minimum rate of the Pension Supplement to be paid to part pensioners.  This alignment will allow a seamless transition as seniors move from the part pension onto the Commonwealth Seniors Health Card if their income increases.

Eligible seniors will also continue to be eligible for other concessions linked to the Commonwealth Seniors Health Card.

These concessions include a reduction in prescription medicines under the Pharmaceutical Benefits Scheme, a discounted Medicare safety net threshold, and concessional travel on the Great Southern Rail Services.

The Government has also decided not to proceed with proposed changes to include gross tax-free superannuation income in the income test for the Commonwealth Seniors Health Card, which was due to come into effect on 1 July this year.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The  Government will introduce a temporary Training Supplement for Newstart and Parenting Payment recipients to encourage those Australians vulnerable to long term unemployment to undertake training.

The Training Supplement of $41.60 per fortnight will be available to people receiving Newstart and Parenting Payment.

The Training Supplement will be available to people without Year 12 or equivalent qualification, or those who need to undertake training at the Certificate II level or higher to re-skill for the future.

It is estimated that over 50 000 low skilled job seekers take up this measure over the period 1 July 2009 to 30 June 2011.

This commitment builds on the Government’s suite of measures to help the unemployed skill up or re-skill to improve their job prospects when the economy recovers:

- a $1,158 bonus to sign up to training ($950 Training and Learning Bonus plus $208 Education Entry Payment)

- a place to study (711 000 Productivity Places including 319 000 available for job seekers)

- extra income ($41.60 per fortnight, Training Supplement).

Together these measures will provide people on Newstart and Parenting Payment, undertaking a twelve month course, with the equivalent of an additional $43 per week in financial assistance.

The payment will be available for people commencing approved training between the period 1 July 2009 and 30 June 2011. The payment will be available until any approved training commenced in this period is completed.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

As part of the Government’s Secure and Sustainable Pension Reform, in 2017 the qualifying age for the Age Pension will gradually increase from 65 to 67 by 2023.

As Australians are healthier and living longer, the qualifying age for Age Pension for men and women will be increased by six months every two years, commencing from 1 July 2017 and reaching 67 on 1 July 2023.

These changes will not affect current age pensioners. Only new entrants to the pension system from 1 July 2017 will be affected.

The qualifying age for the Veterans’ Service Pension will remain at 60.

It is projected that by 2047 around a quarter of the Australian population, or 7.2 million Australians, will be over the age of 65. This is almost double the current proportion of 13 per cent.

The oldest person affected by this reform will be 57 years old on 1 July 2009, whose pension age will increase by six months to 65 ½.

Everyone born after 1 January 1957 will have an age pension age of 67. They will have at least 12 ½ years to plan their retirement under these new arrangements.

Introducing this reform from 2017 gives a considerable lead time for people to adjust to the change. The phase in of the increased age mirrors the rate of increase of the pension age for women which is currently increasing and will reach 65 years on 1 July 2013.

From 2017-18 it is expected that around 130,000 people per year would face a slightly longer period to qualify for Age Pension.

Many other developed economies have made the decision to increase their pension age. The United States, Germany, Norway and Iceland are progressively increasing their pension age to 67, and the United Kingdom is increasing its pension age to 68.

According to the United Nations, Australia has the fourth-highest life expectancy in the world.

The table below shows how the age pension age will change:

How do you feel about this?

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

Most Budget reporting tends to focus on the money side of things (tax rates, bonus payments). The Budget is also a time when various initiatives, programs and other administrative changes are introduced or altered in some way. For instance, rules about the care of children of separated parents will be more consistent following changes made in the 2009-10 Budget.

Separated parents will now only have to seek one determination recognising their level of care for their children. This determination will then be used by both the child support and family assistance systems.

Currently, the Family Assistance Office (Centrelink and Medicare) and the Child Support Agency use different rules to determine care levels for child support and family assistance. This creates inconsistencies and unnecessary duplication of processes and decision making between both agencies.

For example, a parent can have 42 per cent of care recognised by Centrelink for Family Tax Benefit purposes, but have 38 per cent of care recognised for child support payments, for the same child.

This can put additional strain on separated parents who have to deal with two agencies, and two different sets of rules.

Many separated parents have been frustrated by the repetition of paperwork through these agencies.

From 1 July 2010, separated parents will be able have their initial care determination, or any update to care arrangements, made through one agency, either the Family Assistance Office or the Child Support Agency. The other agency will then simply recognise the change that has already been made.

By aligning the agencies’ rules for determining care levels, the Government aims to reduce objections and appeals which arise from the current arrangements.

The changes will also make it easier for separated parents to notify changes in their care arrangements.

The release of the 2009-10 Federal Budget Tueday night revealed funding for new and existing products and services to assist businesses. Some of the initiatives included in this year’s budget are listed below.

New programs and initiatives

- A Small Business Support Line will be established to help businesses manage better during the global financial downturn.
- A Small Business Online Program will assist small businesses in developing an online presence and taking advantage of e-business opportunities.
- A new R&D Tax Credit will to come into effect from 1 July 2010, to replace the R&D Tax Concessions scheme.
- A Commonwealth Commercialisation Institute will be established to support research commercialisation and early stage company development by small and medium enterprises.
- A number of projects will receive funding under a new Super Science initiative, intended to boost infrastructure and research capacity in space science and astronomy, marine and climate science, and future technology.
- A Clean Energy Initiative will assist in encouraging innovation in clean energy generation and low emissions technologies.
- Funding will be provided to the Tax Office to assist small businesses experiencing financial distress to remain viable and stay engaged in the tax system.
- Funding for the Textiles, Clothing and Footwear industries will be retargeted, with a new package aimed at innovation and renewal.

Existing programs

- There will be an increase in the Small Business and General Business Tax Break for small businesses that acquire eligible assets by the end of 2009.
- Additional funding will be allocated to the Export Market Development Grants scheme for 2008-09.
- A 12 month extension in Exceptional Circumstances assistance has been announced for primary producers and other farm-dependent small businesses in eligible regions.
- The government will continue to provide funding and assistance to businesses and communities affected by the Victorian bushfires and the Queensland floods and storms.
-  A government funded Paid Parental Leave scheme will come into effect as of 1 January 2011, providing up to 18 weeks of paid leave at the Federal Minimum Wage.
- Fair Work Australia and the Office of the Fair Work Ombudsman will commence on 1 July 2009 to help implement the Government’s new workplace relations arrangements.
- Funding will be provided to Registered Training Organisations to help deliver off-the-job completion of training where an Australian Apprentice cannot complete training with an employer.
- There will be an extension of employer incentives for the commencement, recommencement and completion of apprenticeships, employing out-of-trade and mid-career apprentices, and employing apprentices in skills shortage occupations.

I’ve started to post more detailed information on a few of these new and expanded measures. I’ll continue to do so as time permits. In the meantime, you can find details on budget announcements related to the Innovation, Industry, Science and Research Portfolio by visiting the Innovation website.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

I was excited about the Small Business and General Business Tax Break when it was at 30% so I’m thrilled it’s been increased and extended until the end of the year.

Small businesses will now be able to claim a bonus tax deduction of 50 per cent – up from the previous 30 per cent -  ­ of the cost of eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010.

The increased Tax Break provides small businesses with an even greater incentive to invest in new capital items, such as computer hardware and business vehicles, and to make capital improvements to existing machinery and equipment.

To qualify for the expanded 50 per cent rate you need to meet the definition of a small business entity. Generally this means that the taxpayer is carrying on a business and has an annual turnover of $2 million or less.

Small businesses only need to invest a minimum of $1,000 per asset (exclusive of GST) in order to qualify for the Tax Break. Under enhancements to the Tax Break announced in March 2009, they can also amalgamate their expenditure on batches and sets of assets in order to meet this threshold.

What’s so great about all this (aside from the obvious immediate deduction) is the way the bonus is administered. Surprisingly, the bonus deduction provided by the Tax Break is on top of the usual capital allowance deduction claimable for the asset as part of the taxpayer’s income tax return. The Tax Break has no impact on deductions for an asset’s decline in value claimed under Division 40. This permits a taxpayer to depreciate more than 100% of the value of an asset.

Examples:

The treasury has provided the following examples. Keep in mind that these are indicative only and you should consult your tax advisor about your personal situation before relying on any general information.

Maria runs a retail clothing store and meets the definition of a small business entity. On 7 June 2009 she purchases and installs six new mirrors for her fitting rooms. The mirrors cost $200 each and are substantially identical, so the cost of each mirror can be amalgamated for the purposes of meeting the $1,000 threshold. Maria’s total investment is $1,200 and she will be eligible to claim a $600 bonus deduction (being 50 per cent of $1,200) in her 2008?09 income tax return.

Ben operates a courier service. He also meets the definition of a small business entity. He orders and takes delivery of a new, more fuel-efficient delivery van in June 2009 at a cost of $30,000. Ben will be eligible to claim a bonus tax deduction of $15,000 in his 2008-09 tax return.

The Sunshine Bakery is a small business. On 12 October 2009, the company purchases and installs a new oven at a cost of $5,000. It will be eligible for a bonus deduction of $2,500 which it can claims in its 2009?10 tax return.

From 2010-11, the Government will replace the current R&D Tax Concession with a simplified R&D Tax Credit. I haven’t really looked closely at this one yet but it promises to cut red tape and provide a better incentive for business to invest in research and innovation.

The new Tax Credit provides a 45 per cent refundable credit for firms with an annual turnover of less than $20 million – equivalent to a Tax Concession of 150 per cent. This means that firms will receive a tax refund of 45 per cent of their R&D spending when they file their tax return.

Importantly, the refundable credit will be available to small companies in tax loss, with no limit on the level of R&D expenditure they undertake. This will provide a real boost to start-up companies in areas such as biotechnology and ICT. The Government have said that under the new Tax Credit system, eligibility criteria will be tightened to ensure that only genuine R&D is supported.  A consultation paper will be released in the next few months to consult further on the eligibiltiy criteria in developing legislation for the new Tax Credit.

The complex Premium Concession and International Premium currently available under the R&D Tax Concession will be abolished.

Upper income thresholds for family payments will be paused at current levels for three years until July 2012. 

From 1 July 2009 for a period of three years:

• the Family Tax Benefit Part B primary earner income threshold will remain at $150,000;
• the income threshold for receiving dependency tax offsets will remain at $150,000;
• the Baby Bonus eligibility threshold will remain at $75,000 family income in the six months following the birth or adoption of a child (equivalent to $150,000 a year); and
• the higher income free area of Family Tax Benefit Part A will remain constant. For example this means the income limit for a family with two children under 18 will remain around $112,000 until 2012.   Each family’s FTB Part A income cut out depends on the age and number of children.

Consistent with indexation of other family assistance payment rates, from 1 July 2009, maximum rates of Family Tax Benefit Part A for children under 16 years will be indexed by movements in the CPI only, instead of linked to male total average weekly earnings (MTAWE). This will save $1 billion over the forward estimates. 

What does that mean for you? In 2009-10 the foregone increase will be around $0.35 a week for each child 12 and under; and $0.49 a week for each child aged 13 to 15.

It’s carrots and sticks now when it comes to private health insurance. Higher income earners will receive less Government payments for their private health insurance, but will face an increase in costs should they opt-out of their health cover.

From 1 July 2010, the Government will introduce three new ‘Private Health Insurance Tiers’ :

• Tier 1: for singles earning more than $75,001 (couples $150,001), the Private Health Insurance Rebate will be 20 per cent for those up to 65 years (25 per cent for those over 65, and 30 per cent for those over 70 years). The Surcharge for avoiding private health insurance will remain at one per cent.
• Tier 2: for singles earning more than $90,001 (couples $180,001), the Private Health Insurance Rebate will be 10 per cent, for those up to 65 years (15 per cent for those over 65, and 20 per cent for those over 70 years). The Surcharge for avoiding private health insurance will be increased to 1.25 per cent.
• Tier 3: for singles earning more than $120,001 (couples $240,001), no Private Health Insurance Rebate will be provided. The Surcharge for avoiding private health insurance will be increased to 1.5 per cent.

The Treasury expects that even with the lower rebates, 99.7% of people will remain in private health – if you’re in a higher income bracket, the tax penalty is quite harsh to avoid it!

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government announced it will extend the First Home Owner’s Boost (FHOB) for an extra six months. However, in order to phase out the measure, the FHOB will be reduced by half for the last three months of the extension period.

For eligible first home buyers entering into contracts between 1 July 2009 and 30 September 2009 (inclusive) the FHOB will continue to provide $7,000 for the purchase of established homes and $14,000 for the purchase of new homes.

This means that including the $7,000 First Home Owner’s Grant, until 30 September, purchasers of new homes will continue to be eligible for $21,000 of assistance, and purchasers of existing homes will continue to be eligible for $14,000 of assistance.

Between 1 October 2009 and 31 December 2009 the FHOB grants will be $3,500 for the purchase of established homes and $7,000 for the purchase of new homes.

This means that including the $7,000 First Home Owner’s Grant, from 1 October until 31 December, purchasers of new homes will be eligible for $14,000 of assistance, and purchasers of existing homes will be eligible for $10,500 of assistance.

The FHOB grants are in addition to the existing $7,000 grant under the First Home Owners Scheme.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

From 1 July 2009,the annual cap on concessional superannuation contributions will be reduced from $50,000 to $25,000. The transitional cap (which applies until 30 June 2012 for those aged 50 years and over) will change from $100,000 to $50,000.

Less than 2 per cent of people who make concessional contributions are expected to be affected by this measure. The aim is clearly to reduce benefits received by higher income earners who can afford to make larger concessional contributions.

Other Budget Super Changes include a reduction to the superannuation co-contribution.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

Along with other superannuation reforms, the Government will also temporarily reduce the superannuation co-contribution matching rate.

The generous 150% will be reduced to 100% per cent for contributions made in 2009-10, 2010-11, and 2011-12. A maximum co-contribution of $1,000 will apply (down from $1,500).

The matching rate will rise to 125% cent for contributions made in 2012-13 and 2013-14 (a maximum co-contribution of $1,250 will apply).

To take advantage of the $1.50 co-contribution for each dollar you contribute to super, be sure to make those personal contributions into your fund before the end of the 2008-09 financial year. Keep in mind that co-contributions are income tested with the upper threshold being $60,342. Your maximum co-contribution is currently $1,500. However, you must reduce this by 5c for every dollar you earn over $30,342 up to the $60,342 ceiling.

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

Carer Payment recipients will receive the pension increases announced in the pension reform package, including an additional $32.49 a week for singles on the full rate.

In addition, the Government will introduce a permanent Carer Supplement of $600 per annum for Carer Payment recipients and an additional $600 per annum for Carer Allowance recipients for each eligible person in their care.

This supplement will replace the previous Budget one-off bonuses. The first payment will be made on or before 30 June 2009.

Pensioners who receive the Age Pension, Disability Support Pension, Carer Payment, Veterans’ Service Pension, Income Support Supplement, War Widow/ers Pension, Bereavement Allowance, Wife Pension, and Widow B Pension will receive an increase to pension payments.

The Government will provide an additional $1,689 a year to full rate single pensioners and $527 a year to full rate pensioner couples (combined). This brings the single rate of pension up to two?thirds of the combined couple rate.

Singles

From 20 September 2009 under the new arrangements, full rate single pensioners will receive an additional $32.49 per week through:

- an extra $30.00 per week in the base pension
- an extra $2.49 per week in a new fortnightly Pension Supplement.

Couples

From 20 September 2009, full rate pensioner couples will receive an additional $10.14 per week in the new fortnightly Pension Supplement.

What’s the Pension Supplement?

The Pension Supplement is hoped to simplify payments by incorporating four existing fortnightly and quarterly allowances into a single fortnightly Pension Supplement.

From 20 September 2009, the existing Goods and Services Tax Supplement, Pharmaceutical Allowance, Utilities Allowance, Telephone Allowance (at the higher internet rate), and increased assistance of $2.49 per week for singles and $10.14 per week for couples combined will be included in the new fortnightly Pension Supplement.

To assist pensioners to meet lumpy costs, from 1 July 2010, pensioners will:

- be able to receive around half of the Pension Supplement quarterly
- have greater access to advance pension payments through an increase in the maximum allowable advance and increase in the number of times they can access advances in a year.

From 1 July 2011, the new fortnightly Pension Supplement will be increased further to include the Carbon Pollution Reduction Scheme household assistance.

Along with these increases come some significant pension reforms…. (details on the way).

Proposed changes will not become law until the Budget has been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The 2009-10 Commonwealth Budget will be released at 7.30pm, Tuesday 12 May 2009.

For anyone who’s interested in the ‘just gimme the facts and how it affects me’ version, I’ll be posting Budget Highlights (or Lowlights as the case may be) Tuesday night followed by more detailed posts the next day.   

For the few other crazy people who’ll be joining me in pouring over the budget the second I can get my hands on it, you might like to bookmark a few of these co-host websites incase traffic slows down www.budget.gov.au. Co-hosts for the 2009-10 Commonwealth Budget are:

• www.australia.gov.au
• www.finance.gov.au
• www.ato.gov.au
• www.aph.gov.au

Channel Seven claimed tonight the deficit is leaked to be $58 billion. That would make it the biggest deficit in modern Australian history. With talk of some tax rebates facing the axe, changes to super and the PM predicting ‘howls of protest’, I’m a little nervous. How about you?