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Date of article: 13 May 2010
Last updated: 13 May 2010

Federal Budget 2010

The Budget has been framed on a sustained economic recovery and new Resources Super Profits Tax to return the Budget to surplus within 3 years.

The Budget forecast the economy growing at a rate of 2 per cent in fiscal 2010, due in part to the Government’s fiscal stimulus package. The growth is forecast to increase to a 3.25 per cent growth rate in 2011, and to 4 per cent in 2012. This is expected to generate significant tax revenue.

Personal income tax remains the largest revenue item, forecast to increase by 11.6 per cent due to improving economic condition and falling unemployment. Corporate tax is expected to increase sharply by 24.6 per cent.

The new 40% Resource Super Profits Tax on non-renewable resources is expected to collect $12 billion over 2012-12 and 2013-14.

How does it affect you?

Personal taxation

The personal tax rates will change from 1 July 2010. It will be the last of a series of three previously announced tax cuts provided by the Government.

New personal income tax rates

2009-10 taxable income ($) Tax rate
(%)
2010-11 taxable income ($) Tax rate
(%)
0 – 6,000 0 0 – 6,000 0
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
180,001+ 45 180,000+ 45


From 1 July 2010, low income earners and part-time workers will further benefit from the increase of the Low Income Tax Offset from $1,350 to $1,500. Individuals eligible for the full low income tax offset will not pay tax until their income is over $16,000.

Flowing from the increase in the Low Income Tax Offset, the Senior Australian Tax Offset will change. Eligible senior Australians will not pay tax until their income reaches $30,685 for singles and $26,680 for each member of a couple.

Taxation on savings

Although not as sweeping as the 40 per cent discount on the income tax on interest income recommended by the Henry Review, individuals will benefit from a discount to a limit of $1,000 interest income on deposits held with any bank, building society or credit union, bonds, debentures or annuity products at a rate of 50 per cent. The discount will reduce the amount of interest income included in an individual’s taxable income.

A maximum saving of $232.50 for an individual on the top marginal rate receiving $1,000 or more of interest.

Other measures

In line with the recommendation made by the Henry Review on reducing the cost of compliance for most individual taxpayers, the Government will provide standard deduction for work-related expenses and the cost of managing tax affairs. From 1 July 2012, individual taxpayers will have an optional standard deduction of $500 for work-related expenses and the cost of managing their tax affairs. The Amount will increase to $1,000 from 1 July 2013. Taxpayer with higher expenses will be able to continue to claim the expenses.

Some individuals will face additional expenses due to increase in threshold or reduction in rebate:

  • An increase in the threshold for the 20 per cent net medical expenses tax offset from $1,500 to $2,000.
  • Cap of the child care rebate for out-of-pocket childcare costs at 50 per cent of costs up to $7,500. The indexation of the cap will be frozen for 4 years.

Superannuation

There are minimal changes in the superannuation context.

Permanent reduction in co-contribution

In last year’s Budget, the Government announced a temporary reduction in the co-contribution from 150 per cent to 100 per cent. In this year’s Budget, the Government announced that this reduction will be permanent and the maximum government co-contribution on an individual’s eligible personal non-concessional superannuation contributions will be $1,000. In addition, the thresholds will also be frozen for 2 years (maximum co-contribution for individuals with income of up to $31,920).

Henry Review reiterated

The Government confirmed in the Budget a number of previously announced superannuation initiatives:

  • increasing the superannuation guarantee rate from 9 per cent to 12 per cent, introduced progressively over 6 years from 2013.
  • lifting the eligible age for superannuation guarantee from age 70 to 75 from 1 July 2013.
  • allowing workers age over 50 with aggregate superannuation balance below $500,000 concessional contribution of up to $50,000 per year from 1 July 2012.
  • a superannuation contribution up to $500 for low income earners from 1 July 2012.

Capital protected borrowing

From 11 May 2010, the benchmark interest rate on capital protected borrowings is the Reserve Bank indicate rate for standard variable housing loans plus 100 basis point (instead of the Reserve Bank indicate rate for standard variable housing loans). This will apply to capital protected borrowings entered into after 7:30pm AEST 13 May 2008. Transition arrangement will also be available for capital protected borrowings entered into on or before 13 May 2008.

The lifting of the benchmark interest rate will allow borrowers a higher deduction for interest expense and smaller proportion allocated to capital protection, which is not deductible if on a capital account.

More information and contacting us

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