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Australian Federal Budget 2009

Click here to buy - A How To Book of SMSF's by Tony Negline
Tony Negline

Well another budget has come and gone.

Only some of the many rumoured nasties actually found their way into the budget policy announcements.

In truth I had expected there to be many fairly ordinary announcements in the budget. Thankfully they are not in this round but may well appear next year or even the year after assuming the ALP wins the election (which they are expected to do at the moment).

I have not seen any announcements this year on:

* Transition to Retirement pensions

* Gearing by super funds

* Centrelink's assets test taper increasing from the current $1.50 per $1,000 of assets

* SMSF trustee education

In all I have found 26 issues of interest in the budget papers (which do contain hundreds of amendments and policy announcements) from a financial planning perspective. I will not go into these in any great detail:

a. Age Pension changes - five changes worth noting

* The increases in the basic age pension will be well covered by the mainstream media; no real surprises here

* The Income's Test taper will be increased from 40c to 50c

* The minimum age pension age will increase to 67 years over a long period of time; to be honest I'm surprised it has taken Government so long to move on this and I'm equally surprised it's such a light touch increase over many years

* The Pension Bonus Scheme has been scrapped unless you're registered

* The worker bonus with a special non-counting of income for Centrelink's income test is an interesting policy idea and well worth a try to get older workers to continue working

* The ABS has been given funding to produce a "Pensioner & Beneficiary Living Cost Index". A great idea which should have been done years ago

b. Superannuation

* Contribution caps - well the rumours were right; the concessional caps have been squashed in half to $25k and $50k and will apply from 1 July 2009 (for what it's worth, anyone who contributed $50k or $100k before Budget night shouldn't feel too aggrieved; the risks were too great not to take this action)

* Interestingly the non-concessional cap has been left at $150,000 which will necessitate legislation changes

* Minimum pension income - this will apply to the 2008/09 and 2009/10 income years. If pension products were structured properly this measure would not be necessary

* Lost accounts - automatically transferred - this is not a big deal from a financial planning perspective but will have a big impact inside large funds

* Government co-contribution - its reductions and changes will be covered in many other places so I will not provide detail now; this necessitates recalculating the tax effectiveness of salary sacrifice versus the co-contributions for all these changes. Many people have not bothered to do these iterative calculations but they are essential for quality advice

* Closing one super fund and moving to another - will now be able to take all capital transactions from an existing fund into a new fund; this will help consolidation in many small corporate, retail and industry super funds

* The Henry tax review recommended increasing the preservation age to the age pension age; it would appear as if the government have baulked at making this change at this time; surely it's only a matter of time before this is done

c. Small Business Tax Concessions - this is a previously announced measure but the rules are being marginally improved and simplified; legislation is already before Parliament

d. Fringe Benefits Tax - will no longer apply to employee donations to charitable organizations; this is a good policy

e. Employee Share Schemes - the Government has elected to come down hard on these concessions; only small to moderate income earners will now be able to access these concessions. Not sure what is wrong with an employee owning equity in their employer's business but clearly this Government doesn't like it

f. Withholding for Closely Held Unit Trusts - this will impact many discretionary family trusts; more work for public practising accountants (as if they didn't have enough to do)

g. Life office annuity business - the taxation arrangements are being aligned with super funds; this is a good measure. Back when these measures were being introduced in 2000 the Australian Retirement Incomes Streams Association (a now superseded organisation) argued for consistency. It's good to see Minister Sherry hadn't forgotten

h. Managed Investment Schemes - can irrevocably elect to apply internal CGT

i. PAYG reductions for small business - already announced reductions

j. Prescribed Private Funds - a number of changes will apply

k. Transfer of fixed trust assets to another fixed trust - CGT exemption will apply; will apply from 1 November 2008. It will be interesting to see if this will also apply to small legacy managed investment schemes which ideally should be shut down

l. Family Tax Benefit - two changes here:

* The upper thresholds will not be indexed for several years

* The indexation of the lower thresholds will change to be strictly done by a CPI measure

m. Commonwealth Seniors Health Card - changes announced last year to the income test (to include salary sacrifice contributions etc) will apply from 1 July 2009.

n. Private Health Insurance - these measures will be well covered by the mainstream media

o. Aged care - a few changes to take into account the increase in the Age pension; additionally the 28 income test exemption will cease

Finally Mark Edwards made a very good point when we spoke together today. In November 2008 the Australian sharemarket sank itself to levels last seen in 2004. Interestingly the plunge in the Government's financial situation from $20b surplus to $30b plus deficit in 2008/09 roughly reduces Government revenue to that collected in 2004/05.

Perhaps this is a strange coincidence but the market correctly predicted a significant contraction in the economy and Government revenue in much the same way as it correctly predicted a significant boom during the late Howard years and strong government revenue (where Treasury seemed to be always estimating revenue on the low side).

Perhaps these changes in Government revenue aren't really a surprise at all unless you look in the wrong places.

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