New income tax rates

Surprisingly untouched by the May Federal Budget, the previously announced reduction in income tax rates will come into effect on 1 July 2010:

The low income tax offset will increase to $1,500 from 1 July 2010. This will increase the effective tax-free threshold to $16,000 for individuals earnings $30,000 or less.

With the changes to the income tax thresholds and last year’s reduction in the maximum concessional caps for superannuation, it’s worth reviewing salary package arrangements to see if they are still worth the administrative effort.


It’s getting harder to claim excess medical expenses

In the recent Federal Budget, the Government made it harder to claim excess medical expenses. From 1 July 2010, the threshold above which you can claim the net medical expenses tax offset will increase from $1,500 to $2,000. This means that to claim the offset in the new financial year, you need to have spent over $2,000 on your medical expenses – this is post Medicare and health care rebates.

The threshold will increase each subsequent year in line with the CPI. The tax offset itself stays at 20% of net unreimbursed eligible medical expenses above the $2,000 threshold. Please note that this change is still yet to become law and may be subject to change.


Senior Australians can earn more before being taxed

In line with the new income tax rates from 1 July, the calculation of the rebate threshold for the Senior Australians tax offset will also change. This means that eligible senior Australians will be able to earn more before being taxed.


Superannuation co-contributions frozen
Under the co-contribution scheme, the Government matches non-concessional superannuation contributions made by low and middle income earners. In the 2008/2009 year, the Government provided $1.50 for every dollar contributed to super by a taxpayer earning less than $30,342 (and tapering out at $60,342) up to $1,500. From 1 July 2009 until 30 June 2012, this matching rate was reduced to $1 with the maximum Government contribution of $1,000 (tapering at 3.33 cents for every dollar earned above the income threshold).


In the recent Federal Budget, the Government announced that it will permanently freeze the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions at $1,000.

In addition, the Government will freeze for 2010/2011 and 2011/2012 the indexation applied on the income threshold above which the maximum superannuation co-contribution begins to phase down. This measure will freeze these thresholds at $31,920 and $61,920 for two years. Please note that this change is still yet to become law and may be subject to change.


Increase in the Medicare levy thresholds

As announced in the 2010/2011 Budget, the Medicare low-income thresholds will increase to $18,488 for individuals and $31,196 for families, with effect from 1 July 2009. The additional amount of threshold for each dependent child or student will also increase to $2,865.

The Government also plans to increase the Medicare levy threshold for single pensioners below Age Pension age to $27,697, with effect from 1 July 2009. Please note that this change is still yet to become law and may be subject to change.


New rules target shareholder perks

The Government wants to stop shareholders and their families from benefiting from company assets such as real estate, cars or boats where these assets are provided free or cheaply to them (non-arms length).

In the previous Budget (2009/2010), the Government announced that the non-commercial loan rules in Division 7A would be extended to include situations where a company allows shareholders or their associates the right to use assets owned by the company. This change seeks to reduce the scope for private companies to allow their shareholders or associates to use company assets for free, or at less than their arm's length value. Please note that this change is still yet to become law and may be subject to change. 


Have you been working overseas? New foreign employment income tax rules

Under new rules that came into effect on 1 July 2009, foreign employment income earned by Australian resident employees will generally be taxable in Australia. So, if you have been working overseas, it is likely that you will be taxed in Australia on the income you earned (if you paid tax overseas as well you may be entitled to a foreign income tax offset for the foreign tax you paid).

This is a significant change from the previous rules where certain foreign employment income earned by Australians working overseas for a continuous period of 91 days or more was generally exempt from income tax in Australia.

If you have been, or expect to, work overseas it is important to confirm your residency status and the tax treatment of your salary payments and benefits. Please let us know if you would like us to undertake a review of your situation as it may be possible to structure the remuneration packages in a more tax efficient manner. 



 If you have any questions on how the above changes will affect you or your business contact us today.