2008 Federal Budget

Contrary to the rumor mill leading up to the first Labor budget in 13 years, the super industry cooled their heels for the most part as Treasurer Wayne Swan brought down his maiden Budget on Tuesday 13th May 2008

Tell me...

What about so called ‘soft super compulsion’? No reference made.

Any changes to contributions tax? No reference made.

Tax on superannuation earnings? No reference made.

This aside, the Budget did make several key announcements that may have consequences for UniSuper members.

Low Income Tax Offset (LITO)

From 1 July 2008, the LITO will increase from $750 to $1,200. It will reduce once taxable income exceeds $30,000 and cuts out once taxable income reaches $60,000.

Those eligible for the full LITO will effectively not pay income tax after assessment, if their income is $14,000 or less (up from the current $11,000).

Senior Australian Tax Offset (SATO)

Senior Australians eligible for SATO and LITO currently do not pay tax until income reaches $25,867 for singles and $21,680 for each member of a couple.

From 1 July 2008, these income levels increase to $28,867 for singles and $24,680 for each member of a couple.

Super still tax-free for over 60s

Importantly, the Government re-iterated its policy to preserve the tax-free nature of superannuation payments for over 60s. However, superannuation will be included in the announced review of both the current State and Federal taxation systems, which will look broadly at taxes on savings and investments.

Superannuation clearing house

The Government has provided funding for 3 years ($16m) to set up an optional superannuation clearing house for employer superannuation contributions. This will allow employers to pay contributions to a single location, where they will then be distributed to the relevant funds.

The service will be offered free to businesses with fewer than 20 employees.

Inclusion of non-wage remuneration in Government income tests

Salary sacrifice and co-contributions

The definition of a person’s income will now be expanded to include certain salary sacrificed contributions to superannuation. This will come into effect from 1 July 2009.

This is aimed to address the current imbalance where individuals and families have been able to claim greater Government support payments than would be possible if their salary sacrificed contributions were paid as salary or wage income.

Specifically, this will affect qualification for Government assistance programs such as:

• Government super co-contribution scheme – members who take advantage of the tax benefits of salary sacrifice will potentially need to review their eligibility to the Government co-contribution scheme for years 2009–10 and beyond.
• income support payments for those below the pension age
• child support
• Commonwealth Seniors Health Card – this card provides a range of benefits to people who do not qualify for the Age Pension but currently have an adjusted taxable income of less than $50,000 (for singles) or $80,000 (for couples combined). From 1 July 2009 eligibility will also assess gross income from superannuation income streams paid from a taxed source and income that is salary sacrificed to superannuation.

Fringe benefits tax benefits

The definition of income has also been expanded to include reportable fringe benefits, which will further impact tax programs such as:

• Senior Australian Tax Offset
• Pensioner tax offset
• Medicare levy surcharge
• Dependency tax offsets.

This will also take effect from 1 July 2009.

Tax-free lump sum for persons with a terminal medical condition

The Government will backdate to 1 July 2007 the commencement of the previously announced measure to make superannuation lump sum benefits tax-free for people with a terminal medical condition.

Changes to fringe benefits tax

The Government will tighten the current fringe benefit tax (FBT) exemption for certain work-related items, including laptop computers and personal digital assistants, by ensuring the exemption only applies where these items are used primarily for work purposes. The FBT exemption will generally be limited to one item of each type per employee per year.

The new measure will apply to items purchased after 7.30 pm (AEST) on 13 May 2008 and it will reduce the FBT concession and tax expenditure for work-related items.

First Home Saver Accounts (FHSA)

The proposed first home saver accounts scheme has been amended after its consultation process.

The first home saver account allows individuals to contribute up to $75,000 (indexed annually) towards the purchase of their first home. Earnings in the account will be taxed at 15%. Individuals will be able to withdraw amounts from the account without tax consequences provided that they contribute at least $1,000 in four separate financial years. Individuals who open an account will receive a Government contribution of 17% on the first $5,000 contributed annually.

This is an improvement for those on marginal tax rates up to 30% (ie taxable incomes under $80,000 from 1 July 2008) but a reduction for those on higher marginal tax rates.

Personal contributions will be able to be made into the account until the balance reaches $75,000 (indexed).

Finally, the commencement date of this scheme moves from 1 July 2008 to 1 October 2008. However, individuals will still be able to receive the full benefit co-contributions if they make sufficient contributions in the remainder of the 2008–09 financial year.

Note that it is not expected that UniSuper will establish or offer FHSAs. This is because only trustees holding a registrable superannuation entity licence to operate public-offer superannuation funds are able to do so. (UniSuper is not a public-offer fund.)

Published: 22 May 2008