Budget announcements that affect Chartered Accountants and the profession have been captured, in a high-level budget summary, which has been prepared in partnership with the Institute of Chartered Accountants in Australia and CCH.

Institute of Chartered Accountants and CCH Budget Night Report 2008

Table of contents

Tax highlights
Australia's future tax system
Education tax refund
Child care tax rebate
Increase to Medicare levy surcharge and low-income thresholds
Personal income tax cuts
Tightened eligibility for dependency tax offsets
FBT changes
Means testing of government support expanded
Employee share schemes — election requirements
Employee share schemes — removal of double taxation
Taxation of financial arrangements
Proposed first home saver accounts scheme modified
Family trusts
Entrepreneurs' tax offset income test
Final withholding tax on managed trust distributions
Luxury car tax rate increase
Baby Bonus increased and means tested
Changes to Family Tax Benefit Part B payments
Depreciation of in-house computer software
CGT — shares or units in widely held entities
CGT — scrip for scrip rollover
GST measures
Private ruling valuations
Capital protected loans
Managed funds
PAYG annual instalments
New rules for prescribed private funds
Carer adjustment payment exempted
Senior's health card income test amended
Tax-exempt bonus for older Australians
National Rental Affordability Scheme
Exemption for rent assistance paid to Austudy recipients
Superannuation clearing house facility
Exemption for Queensland early completion bonuses for apprentices
Tax relief for Albatrosses and Petrels Conservation

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2008 Federal Budget

Tax highlights

The Federal Budget handed down at 7.30pm on 13 May 2008 contained a package of tax relief measures designed to help families with education, child care and other living expenses, while means testing a range of benefits. As anticipated, the government's first Budget also initiated a broad review of the tax system.

This special CCH Budget Night Report outlines the tax and superannuation changes announced in the Budget. Here are the highlights.

• The government has announced the terms for reference of the comprehensive review of Australia's tax system.

• A 50 per cent education tax refund will be available for eligible education expenses from 1 July 2008.

• The child care tax rebate for out-of-pocket child care expenses will increase from 30% to 50% from 1 July 2008, with the maximum out-of-pocket expenses claimable increasing from $4,354 to $7,500 per child per year.

• Medicare levy surcharge thresholds and low-income thresholds will be increased.

• Previously announced personal income tax cuts will go ahead.

• From 1 July 2008, an income threshold of $150,000 will apply to dependency tax offsets.

• The government has tightened the rules for a number of fringe benefits provided after 7.30pm on 13 May 2008.

• The definition of “income” will be expanded for the purposes of determining eligibility for government support.

• Changes will be made to the election requirements of the employee share scheme provisions.

• Double taxation that arises in relation to certain employee share schemes that use employee share trusts will be removed.

• The government will proceed with Taxation of Financial Arrangements (TOFA) Stages 3 and 4.

• The proposed first home saver accounts scheme has been modified to allow individuals to contribute up to $75,000 into their first home saver account.

• The scope for family trusts to utilise tax losses to lower income tax will be reduced.

• The entrepreneurs' tax offset will be subject to an income test from 1 July 2008.

• The level of withholding tax on certain distributions from Australian managed investment trusts to foreign resident investors will be reduced.

• From 1 July 2008, the luxury car tax rate will increase from 25% to 33%.

• From 1 July 2008, the Baby Bonus will increase from $4,258 to $5,000 and from 1 January 2009, eligibility for the Baby Bonus will be limited to families with an adjusted taxable income of $150,000.

• Eligibility for Family Tax Benefit Part B will be limited to families whose primary income earner earns $150,000 or less a year.

• In-house computer software to be depreciated over 4 years.

• From the 2006/07 income year, capital gains or losses arising from the cancellation or surrender of shares or units in widely held entities are to be calculated using the actual proceeds received.

• The CGT scrip for scrip rollover provisions will be modified with effect from 7.30pm on 13 May 2008.

• The government announced its plans in relation to several previously announced GST measures.

• Private ruling applicants to pay ATO for valuations.

• The benchmark interest rate applicable for capital protected loans entered into from 7.30pm on 13 May 2008 will be the Reserve Bank of Australia's indicator variable rate for standard housing loans.

• The government will modify the eligible investment business rules for managed funds.

• The government has deferred until 1 July 2009 the measure to align PAYG instalments, GST payment and reporting requirements for taxpayers who are voluntarily registered for GST.

• New rules will be introduced to regulate the operation of prescribed private funds.

• The carer adjustment payment will be tax-exempt from 1 July 2008.

• The Commonwealth senior's health card income test will now apply to certain superannuation stream income and salary sacrificed amounts.

• A tax-exempt one-off bonus payment of $500 will be provided to older Australians.

• An annual incentive of $6,000 will be provided to institutional investors constructing affordable rental properties.

• Rent assistance payable to Austudy recipients from 1 January 2008 will be exempt from income tax.

• The Tax Office will establish a superannuation clearing house to assist businesses with meeting choice of superannuation requirements.

• From 1 July 2008, an income tax exemption of up to $1,000 will apply to apprentices who receive early completion bonuses in skill shortage occupations from the Queensland government.

• Income tax, customs duty, GST and other Australian government tax relief will be provided to the Secretariat for the Agreement on the Conservation of Albatrosses and Petrels and the Secretariat's non-Australian staff.

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Australia's future tax system

The government has announced the terms of reference for the comprehensive review of Australia's tax system. The review will encompass Federal and State taxes, except the GST, as well as interactions with the transfer system. The review will consider:

• • the balance of taxes on work, investment and consumption and the role for environmental taxes
• • further improvements to the tax and transfer system facing individuals, families and retirees
• • the taxation of savings, assets and investments, including the role and structure of company taxation
• • the taxation of consumption and property and other state taxes
• • simplifying the tax system, including the interactions between Federal, State and local government taxes, and
• • interrelationships between the elements of the tax system, as well as the proposed emission trading system.

The tax review panel will be chaired by the Secretary to the Treasury, Dr Ken Henry AC and will also comprise Mr Greg Smith (Australian Catholic University); Dr Jeff Harmer (Secretary of FaHCSIA), Heather Ridout (Australian Industry Group), and Professor John Piggott (University of New South Wales). It will be supported by a working group from within the Treasury, with representation from the Department of Families, Housing, Community Services and Indigenous Affairs, and drawing on other Australian government and State agencies as appropriate. It will also consult the public to allow for community and business input, draw on external expertise and have the co-operation of State governments and relevant COAG working groups.

The review panel will release an initial discussion paper by the end of July 2008 and will provide a final report to the Treasurer by the end of 2009.

The government reiterated its policy not to increase the rate or broaden the base of the GST and to preserve superannuation concessions for the over 60s. It also set a goal of reducing the tax rates to 15%, 30% and 40% within 6 years, with an effective tax-free threshold for those eligible for the low-income tax offset of $20,000 by 2012/13.

Source: Budget Paper No 2, pp 15, 290-291; Treasurer's Press Release No 5, 13 May 2008.

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Education tax refund

Families receiving Family Tax Benefit (Part A) with children undertaking primary or secondary studies or whose school children receive Youth Allowance or another relevant payment will be eligible for an education tax refund. The refundable tax offset will apply to expenses incurred from 1 July 2008 and will be claimed upon lodgement of a 2008/09 income tax return.

Eligible families will be able to claim a 50 per cent refund every year for key education expenses up to:

• • $750 for each child undertaking primary studies (maximum refundable tax offset of $375 per child, per year)
• • $1500 for each child undertaking secondary studies (maximum refundable tax offset of $750 per child, per year).

Eligible families will be able to recoup the cost of purchases including:

• • laptops
• • home computers and associated costs
• • home internet connection
• • printers
• • education software
• • trade tools for use at school
• • school text books, and
• • stationery.

Parents will then be able to claim 50 per cent of these expenses through their tax return at the end of the financial year.

Source: Budget Paper No 2, p 138; Joint Media Release of Treasurer and Deputy Prime Minister No 8, 13 May 2008.

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Child care tax rebate

From 1 July 2008, the child care tax rebate for out-of-pocket child care expenses will increase from 30% to 50%. The maximum out-of-pocket expenses claimable will increase from $4,354 to $7,500 (indexed) per child per year.

From 1 July 2008, the child care tax rebate will be paid quarterly, instead of annually, with families receiving the first quarterly payments from October 2008.

Source: Budget Paper No 2, p 144; Minister for Education, Employment and Workplace Relations Press Release No 16, 13 May 2008.

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Increase to Medicare levy surcharge and low-income thresholds

The government will increase the Medicare levy surcharge threshold for singles from $50,000 to $100,000 and for those who are members of a family from $100,000 to $150,000, with effect from 1 July 2008.

From the 2007/08 income year, the government will also increase the Medicare levy low-income thresholds to $17,309 (from $16,740) for single people, and to $29,207 (from $28,247) for those who are members of a family. The additional amount of threshold for each dependent child or student will also be increased to $2,682 (from $2,594).

The Medicare levy low-income threshold for pensioners below Age Pension age will also increase to $22,922 (from $21,637), with effect from 1 July 2007.

Source: Budget Paper No 2, pp 32-33; Treasurer's Press Release No 7, 13 May 2008.

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Personal income tax cuts

Previously announced personal income tax cuts and increases in the low income tax offset and the thresholds for the senior Australians tax offset (as contained in the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008) will go ahead in full.

Source: Budget Paper No 2, p 14; Treasurer's Press Release No 4, 13 May 2008.

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Tightened eligibility for dependency tax offsets

Eligibility for the dependency tax offsets has been targeted so that those earning more than $150,000 will not be entitled to claim the dependent spouse, housekeeper, child-housekeeper, invalid relative and parent/parent-in-law tax offsets, with effect from 1 July 2008.

From 1 July 2009, the government will align the definition of income for these offsets with that applying to family assistance payments. The new definition of “income” will be used for the claimant and the dependent. The income threshold of $150,000 will also be indexed from 1 July 2009.

Source: Budget Paper No 2, p 34; Treasurer's Press Release No 16, 13 May 2008.

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FBT changes

The government has tightened the rules for the following FBT concessions.

• • The FBT exemption for work-related items (eg laptops, personal digital assistants and tools of trade) purchased after 7.30pm on 13 May 2008 will only be available where the items are used primarily for work purposes and will be limited to one item of each type per employee per year. The terms of the exemption will be updated to reflect changes in technology.
• • For new arrangements from 7.30pm on 13 May 2008, the full value of a benefit that has been provided to both an employee and an associate in relation to a jointly-owned asset (for example, a low interest loan or reimbursement of expenses related to a rental property or shares) will be subject to FBT. Employees who have already entered into salary sacrifice arrangements will be able to rely on such arrangements until 31 March 2009. This measure is intended to overcome the Federal Court’s decision in National Australia Bank Ltd v Federal Commissioner of Taxation 93 ATC 4919.
• • From 7.30pm on 13 May 2008, the FBT exemption for private use of business property on an employer's premises will not apply to meals under salary sacrifice arrangements. Existing balances on meal cards on 13 May 2008 will remain eligible for the FBT exemption, provided they are used by 31 March 2009.

Employees will be denied depreciation deductions for the work-related percentage of FBT exempt items. For items purchased after 7.30 pm on 13 May 2008, this measure will take effect from that time. For items purchased before 7.30 pm on 13 May 2008, employees will be denied depreciation for the 2008/09 and later income years.

Source: Budget Paper No 2, pp 22-24; Treasurer's Press Release No 17, 13 May 2008.

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Means testing of government support expanded

The definition of “income” that is used to determine eligibility for government support programs will be expanded in three areas.

The first affects government support programs such as income support payments for people below Age Pension age, family assistance, child support, superannuation co-contributions and financial and retirement savings assistance delivered through the tax system. The definition of “income” will be expanded to include certain salary sacrificed contributions to superannuation.

The second will expand definitions of “income” to include net financial investment losses, and net rental property losses where appropriate. Currently, net rental property losses are included in adjusted taxable income definitions used for the purposes of family assistance programs, some parental income tests, the Commonwealth Seniors Health Card, child support and loan repayment obligations under the Higher Education Loan Program. This measure will expand the adjusted taxable income definitions to include net financial investment losses. The measure will also expand the definition of income used for particular tax programs such as the senior Australians tax offset, Medicare levy surcharge and dependency tax offsets to include net rental property losses and net financial investment losses.

The third measure will expand the income definitions used for the dependency tax offsets, senior Australians tax offset and pensioner tax offset to include reportable fringe benefits.

These measures will take effect from 1 July 2009.

Source: Budget Paper No 2, pp 29-31; Treasurer's Press Release No 15, 13 May 2008.

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Employee share schemes — election requirements

The employee share scheme rules will be improved to ensure that income from these schemes is correctly reported. The changes will apply to shares and rights acquired from 1 July 2008.

Under the current election requirements, a taxpayer can elect to be assessed on discounts provided on shares or rights in the income year the shares or rights are acquired. If an election is not made, taxation of the discount (which includes gains on shares and rights) is deferred until a later time, such as when restrictions on the shares or rights are lifted.

The election procedures will be changed so that the value of the discount (where it exceeds $1,000) is included in assessable income if a taxpayer elects to be assessed up-front. Where the amount is not included in the taxpayer's tax return, the taxpayer will be taxed under the deferral option. The Commissioner retains the power to allow a taxpayer an extension of time to make the election.

Source: Budget Paper No 2, p 20; Treasurer's Press Release No 13, 13 May 2008.

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Employee share schemes — removal of double taxation

CGT relief will apply to remove double taxation in relation to certain employee share schemes (ESS) that involve the use of employee share trusts. The changes will apply to CGT events that occur from 7.30pm on 13 May 2008.

Currently there is no CGT relief for the trustee (or beneficiary) of an employee share trust on the transfer of shares to an employee because shares acquired by an employee as a result of exercising ESS rights are not ESS shares. Double taxation arises because the capital gains made by the trustee while the shares are held in the trust are also assessable to the employee either under the ESS provisions or later as a capital gain.

Source: Budget Paper No 2, p 21; Treasurer's Press Release No 13, 13 May 2008.

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Taxation of financial arrangements

The government plans to proceed with Taxation of Financial Arrangements (TOFA) Stages 3 and 4. The Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (2007 TOFA Bill), which was introduced into Parliament last year, contained the TOFA Stages 3 and 4 measures. The Bill lapsed when the 2007 Federal election was called.

The legislation will apply for income years commencing on or after 1 July 2009. The elective commencement date of 1 July 2008 contained in the 2007 TOFA Bill will not apply.

The Treasurer also announced plans to proceed with amendments and regulations relating to TOFA Stages 1 and 2.

Regulations will be made to facilitate debt tax treatment for certain Upper Tier 2 and similar capital instruments under Stage 1 (debt/equity tax reform). The government will also extend the debt/equity transitional arrangements under the income tax law to 1 July 2008 to ensure that the law preceding the debt/equity tax rules continues to apply for Upper Tier 2 instruments.

In addition, amendments will be made to the foreign currency provisions of the income tax law to extend the scope of a number of compliance cost saving measures in the law, and to make technical amendments to ensure that the provisions operate as intended.

Source: Joint Media Release of the Treasurer and the Assistant Treasurer No 23, 13 May 2008.

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Proposed first home saver accounts scheme modified

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 4 separate financial years. Individuals who open an account will receive a government contribution of 17% on the first $5,000 contributed annually.

The major changes to the scheme include:

• • replacing the previously announced $10,000 annual contribution cap with an overall contribution cap of $75,000 (indexed annually)
• • removing the requirement for individuals to contribute $1,000 to commence the account
• • clarifying that the four-year rule for tax-free withdrawals applies from the start of the financial year rather than the date that the account was established, and
• • allowing individuals a 14-day cooling off period in which to change their mind about their account.

The commencement date of the scheme has been delayed until 1 October 2008 to enable account providers more time to develop products. The delay does not affect individuals as they are still entitled to a government contribution on the first $5,000 of personal contributions in 2008/09.

Budget Paper No 2, pp 288-289; Treasurer's Press Release No 9, 13 May 2008.

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Family trusts

Two measures were announced to reduce the scope for family trusts to utilise tax losses to lower income tax. These reverse two of the family trust changes introduced by the previous government in the Tax Laws Amendment (2007 Measures No 4) Act 2007.

The first is to change the definition of “family” in the family trust election rules (ITAA 1936 Sch 2F s 272-95) to limit lineal descendants to children or grandchildren of the test individual or of the test individual’s spouse. This change will have effect from 1 July 2008.

The second is to prevent family trusts from making a once off variation to the test individual specified in a family trust election (other than in relation to a marriage breakdown). This change will have effect from the 2007/08 income year.

Other amendments introduced in Tax Laws Amendment (2007 Measures No 4) Act 2007 that were technical improvements to the family trust election system will be retained.

Source: Budget Paper No 2, p 12; Assistant Treasurer's Press Release No 4, 13 May 2008.

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Entrepreneurs' tax offset income test

From 1 July 2008, eligibility for the entrepreneurs' tax offset will be subject to an income test. Currently, small businesses with an annual turnover of less than $75,000 are entitled to a 25 per cent tax offset, which begins to phase out for turnover greater than $50,000. It may be claimed by taxpayers for whom business is not a primary source of income.

The income test will restrict access to the offset for businesses with high alternative sources of household income. It will restrict eligibility for singles from $75,000 and families from $120,000 adjusted taxable income per year.

Source: Budget Paper No 2, p 21; Treasurer's Press Release No 19, 13 May 2008.

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Final withholding tax on managed trust distributions

The level of withholding tax on certain distributions from Australian managed investment trusts (MITs) to foreign resident investors will be reduced. The non-final rate of 30 per cent will be reduced to a final rate of 7.5 per cent.

The new withholding tax regime will apply to fund payments that are distributions of Australian source net income (other than dividends, interest and royalties) of Australian MITs to foreign residents. It will cover distributions made directly from MITs to foreign residents as well as distributions made through other intermediaries (including custodians). Distributions of dividends, interest and royalties will continue to be covered by the existing final withholding tax arrangements.

However, the nature of the new withholding tax regime will vary depending on whether the foreign investor is a resident in a jurisdiction with which Australia has effective exchange of information (EOI) arrangements on tax matters. Residents of such jurisdictions will be subject to:

• • a 22.5 per cent non-final withholding tax for fund payments of the first income year after the enabling legislation receives Royal Assent (intended to be 2008/09)
• • a 15 per cent final withholding tax for fund payments of the second income year (intended to be 2009/10), and
• • a 7.5 per cent final withholding tax for fund payments of the third (intended to be 2010/11) and later income years.

For the first income year, as an interim measure, investors resident in EOI jurisdictions will be eligible to claim a deduction for expenses relating to fund payments. The net amount will be subject to tax at a new rate of 22.5 per cent. The list of jurisdictions with which Australia has effective EOI arrangements will be specified in regulations.

Residents of other jurisdictions will be subject to a 30 per cent final withholding tax, with effect for fund payments of the first income year in which the enabling legislation receives Royal Assent.

Source: Budget Paper No 2, p 13; Assistant Treasurer's Press Release No 2, 13 May 2008.

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Luxury car tax rate increase

The government will increase the luxury car tax rate from 25% to 33%, with effect from 1 July 2008. There are no changes to the luxury car tax threshold (currently $57,123).

Source: Budget Paper No 2, p 26; Treasurer's Press Release No 11, 13 May 2008.

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Baby Bonus increased and means tested

The government will limit eligibility to the Baby Bonus to families with an adjusted taxable income of $75,000 or less in the six months after the birth of a baby (equivalent to an annual income of $150,000) from 1 January 2009. Around 16,000 high income parents are expected to no longer receive the Baby Bonus each year due to the new means test. For all eligible births after 1 January 2009, the Baby Bonus will be paid in 13 fortnightly instalments of around $385, rather than as a lump sum.

The Baby Bonus will increase from $4,258 to $5,000 on 1 July 2008, and payments will be indexed according to the Consumer Price Index each subsequent year on 1 July.

The age restriction on the Baby Bonus for adoptive parents will be lifted, extending to families with newly adopted children aged two years to 16 years, from 1 January 2009.

Source: Budget Paper No 2, p 370; Minister for Families, Housing, Community Services and Indigenous Affairs Press Release No 2, 13 May 2008.

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Changes to Family Tax Benefit Part B payments

The government will limit eligibility for Family Tax Benefit Part B to families where the primary earner has an adjusted taxable income of $150,000 a year or less. The income test will be indexed annually by the consumer price index. Related dependency offsets, including the dependent spouse, housekeeper, child housekeeper, parent/parent-in-law and invalid relative tax offsets, delivered through the tax system will also be targeted to those on $150,000 or less a year.

A 'continuous adjustment' measure will commence from 1 July 2009 to ensure that when families advise during the year that their income estimate has increased, their Family Tax Benefit payments will be adjusted, with the aim of avoiding overpayment.

From 1 July 2009, Family Tax Benefit will only be delivered through Centrelink and Medicare, removing claims from the Tax Office. The choice of payment by fortnightly instalment or annual lump sum will remain through Centrelink and Medicare.

From 1 July 2009, changes will be made to the definitions of income for family assistance purposes to include net financial investment losses and certain salary sacrifice superannuation contributions.

Where Family Tax Benefit recipients in a family have not lodged their tax returns for more than 12 months following the relevant entitlement year and have not responded to Centrelink notices asking them to do so, they will no longer be entitled to receive Family Tax Benefit through fortnightly instalments. Recipients will still be able to receive Family Tax Benefit after lodging their tax return by claiming through Centrelink, Family Assistance Office or Medicare. Lodgement of tax returns is necessary to reconcile a person's Family Tax Benefit entitlement once their final annual income is known. This measure will commence on 1 July 2009.

Source: Budget Paper No 2, p 370-372 and 390; Minister for Families, Housing, Community Services and Indigenous Affairs Press Release No. 2, 13 May 2008.

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Depreciation of in-house computer software

The period over which expenditure on in-house computer software, which is capital in nature, can be depreciated will be increased from 2.5 years to 4 years.

Expenditure on in-house computer software is expenditure by the taxpayer on acquiring, developing or having someone else develop computer software which is mainly used by the taxpayer (ie not for resale). This would include off-the-shelf software acquired for use by a taxpayer. This measure will apply to such expenditure incurred on or after 7.30 pm on 13 May 2008. Expenditure on in-house computer software will continue to be depreciated on a straight line basis. The 4-year depreciation period is the same period as the Commissioner’s safe harbour effective life for computer hardware.

Source: Budget Paper No 2, p 20; Treasurer's Press Release No 18, 13 May 2008.

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CGT — shares or units in widely held entities

From the 2006/07 income year, capital gains or losses arising from the cancellation or surrender of shares or units in widely held entities are to be calculated using the actual proceeds received (rather than the asset's market value).

Source: Budget Paper No 2, p 16.

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CGT — scrip for scrip rollover

The CGT scrip for scrip rollover provisions will be modified, with effect from 7.30pm on 13 May 2008, to ensure that, for corporate restructures, the acquiring entity's cost base of shares in the target entity reflects the tax costs of the target entity's net assets. This cost base will also be used in determining the value of the target entity's assets in consolidation if the target entity subsequently joins the acquiring entity's consolidated group.

Source: Budget Paper No 2, p 18; Assistant Treasurer's Press Release No 3, 13 May 2008.

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GST measures

A package of GST changes for charities and other not-for-profit organisations announced by the previous government will not proceed.

A measure announced in the 2007/08 Budget that ensures certain telecommunications services would remain GST-free from 1 July 2000 will be amended to apply only to mobile telephone global roaming services.

A measure announced in the 2005/06 Budget designed to prevent the interaction of the margin scheme with the GST-free going concern and the GST-free farmland provisions from inappropriately reducing GST revenue will not go ahead. Instead, real property transactions will not be allowed to be structured to reduce GST liability.

The GST provisions dealing with real property are intended to ensure that GST is payable on the value added to land once it enters the GST system. The margin scheme achieves this outcome by applying GST to the “margin”, ie the difference between the purchase price paid by the seller and the price paid by the buyer. This measure provides that, where the margin scheme is used after a GST-free or non-taxable supply, the value added by the registered entity which made that supply is included in determining the GST subsequently payable under the margin scheme. The measure will also strengthen the GST anti-avoidance provisions to ensure that they can apply to contrived arrangements entered into to avoid GST. This measure will have effect from the date of Royal Assent of the enabling legislation.

The GST refund provisions will be amended to ensure that they apply even if the transaction for which the tax was paid is found not to be a supply. This will have effect from 1 July 2008.

The government will also restore the intended four-year time limit on refunds and liabilities for indirect taxes, with effect from 1 July 2008.

Source: Budget Paper No 2, pp 24-26.

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Private ruling valuations

The government will allow the ATO to charge for valuations required in the course of issuing private rulings. Valuation services will be based on an “applicant pays” model where the cost of the valuer making or reviewing a valuation is passed on to the private ruling applicant.

However, the government will not proceed with a previously announced measure that would have allowed taxpayers to seek valuations from members of an approved professional association as part of a private ruling as this would have increased the difficulty of maintaining consistency in valuations. The previous arrangements, whereby only valuations performed by registered and accredited valuers are accepted, will remain in place.

Source: Budget Paper No 2, pp 358-359; Assistant Treasurer's Press Release No 22, 13 May 2008.

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Capital protected loans

The benchmark interest rate applicable for capital protected loans entered into from 7.30pm on 13 May 2008 will be the Reserve Bank of Australia's (RBA) indicator variable rate for standard housing loans. Interest in excess of this level will be treated as the cost of capital protection and not deductible if on capital account. The current law, which applies the RBA indicator variable rate for personal unsecured loans, will continue to apply to existing arrangements for the shorter of five years or the life of the product.

Source: Budget Paper No 2, p 18; Treasurer's Press Release No 20, 13 May 2008.

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Managed funds

Under eligible investment rules, managed funds that limit their activities to certain investments, such as investing in land primarily for rent, retain trust tax treatment (rather than company treatment). The government will clarify the scope and meaning of investment in land for the purpose of deriving rent, introduce a 25% allowance for non-rental income from investment in land (excluding capital gains) and expand the range of financial instruments that a managed fund may invest in or trade. The measure will have effect from the date of Royal Assent of the amending legislation.

Source: Budget Paper No 2, p 28.

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PAYG annual instalments

The government has deferred until 1 July 2009 the measure to align PAYG instalments, GST payment and reporting requirements for taxpayers who are voluntarily registered for GST.

Source: Budget Paper No 2, p 31.

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New rules for prescribed private funds

Prescribed private funds (PPFs) will be subjected to new integrity measures to ensure that they comply with valuation and distribution requirements. PPFs enable businesses, individuals and families to establish charitable trusts which make distributions to deductible gift recipients.

The new guidelines will be legislated and will take effect from 1 July 2008. The amendments will also give greater powers to the Tax Office to investigate the operation of PPFs.

The government has also granted PPF status to 17 new funds.

Budget Paper No 2, p 35; Treasurer's Press Release No 21, 13 May 2008.

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Carer adjustment payment exempted

The carer adjustment payment will be tax-exempt from 1 July 2008. The carer adjustment payment is payable to families with a child aged under 7 years who have suffered a catastrophic event at a time after 1 January 2007.

Budget Paper No 2, p 37; Minister for Families, Housing, Community Services and Indigenous Affairs Press Release No 1, 13 May 2008.

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Senior's health card income test amended

The Commonwealth senior's health card income test will now include gross income from superannuation income streams from a taxed source and income which has been salary sacrificed to superannuation.

Budget Paper No 2, p 381; Minister for Families, Housing, Community Services and Indigenous Affairs Press Release No 18, 13 May 2008.

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Tax-exempt bonus for older Australians

The government will provide a tax-exempt one-off bonus payment of $500 to seniors in receipt of the Age Pension, veterans' pensions, Widow B Pension, Wife Pension, Seniors Concession Allowance, Mature Age Allowance, Widows Allowance or Partner Allowance as at 13 May 2008. The person must be in Australia or temporarily absent from Australia for not more than 13 weeks. Bonus payments will be made automatically before the end of June 2008.

Source: Budget Paper No 2, p 178; Minister for Families, Community Services and Indigenous Affairs Press Release No 3, 13 May 2008.

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National Rental Affordability Scheme

In order to achieve its goal of providing 50,000 affordable rental properties for low and middle-income earners, the government will pay $6,000 per property for up to 10 years by refundable tax offsets to complying institutional investors and grants to not-for-profit housing organisations that are income tax exempt. In addition, State and Territory governments will provide annual support (as cash grants, stamp duty concessions, or the provision of discounted land) of at least $2,000 per annum per property for up to 10 years.

The concessions will be available to investors constructing and renting properties to eligible tenants at 20% below market rent for equivalent properties in the area.

Source: Budget Paper No 2, p 172; Minister for Families, Housing, Community Services and Indigenous Affairs' Press Release, 13 May 2008.

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Exemption for rent assistance paid to Austudy recipients

Rent assistance payable to Austudy recipients from 1 January 2008 will be exempt from income tax.

Source: Budget Paper No 2, p 32.

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Superannuation clearing house facility

The Tax Office will establish a superannuation clearing house to help employers meet their choice of superannuation requirements for their employees.

The superannuation clearing house allows an employer to pay their contributions to a single location. The clearing house will then distribute the contributions to the superannuation funds chosen by each employee.

The clearing house facility will be free to small businesses with less 20 employees. Larger businesses will be able to use the clearing house for a fee.

Budget Paper No 2, p 290; Minister for Superannuation and Corporate Law's Press Release No 1, 13 May 2008.

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Exemption for Queensland early completion bonuses for apprentices

From 1 July 2008, an income tax exemption of up to $1,000 will apply to apprentices who receive early completion bonuses in skill shortage occupations from the Queensland government. Early completion bonuses seek to alleviate skill shortages in industries that are experiencing strong demand growth by providing an incentive for apprentices to complete their apprenticeships early.

Source: Budget Paper No 2, p 33.

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Tax relief for Albatrosses and Petrels Conservation

The government will provide income tax, customs duty, GST and other Australian government tax relief to the Secretariat for the Agreement on the Conservation of Albatrosses and Petrels and the Secretariat's non-Australian staff. This relief is in line with that granted to other international organisations in Australia.

Source: Budget Paper No 2, p 16.

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CCH News

Order the Budget Papers from CCH Parliament

CCH Parliament can provide you with hard copy sets of the Federal Budget Papers (set includes: Budget Papers 1–4, Treasurer’s Speech and Budget Overview) for next day delivery within Australia. Price: $150 per set GST inclusive.

For a complimentary two-week trial of the CCH Political Alert news service, please visit http://www.cch.com.au/politicalalert.

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cpe.tv/cle.tv

Subscribers to cpe.tv/cle.tv should remember to look out for the Budget Special expert panel discussion available from Wednesday 14 May 2008. For the cpe.tv Budget Special expert panel discussion available from Wednesday 14th May, see http://www.cch.com.au/au/cle_cpe/cpetvdemo.htm.

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New editions of CCH “Master” books

All relevant Budget changes will be reflected in CCH's latest tax, superannuation and financial planning titles to be released from early August. These popular titles include the following:

• • Australian Master Tax Guide 2008 — Tax Year End edition (43rd edition) — Australia’s number one tax reference book is designed to help you quickly locate accurate answers to tax questions. This edition will also be available in a Pack which includes the Master Tax Examples 2008/09, and/or the Australian Tax Casebook 9th edition
• • Australian Master Superannuation Guide 2008/09 (12th edition) — Australia’s top superannuation reference book is an indispensable guide that provides clear and detailed explanation of the law relating to superannuation, with practical insights and helpful examples
• • Australian Master Financial Planning Guide 2008/09 (11th edition) — Australia’s most esteemed financial planning book is updated by respected experts in the financial planning industry and covers all the fundamental areas of financial planning with practical examples and case studies.

So keep an eye out for further details on how to order your copies of these new CCH editions.

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