2007 Federal Budget: Tax Highlights

Personal income tax cuts were again the main draw card of the Federal Budget handed down on 8 May 2007. Other significant tax measures in this Budget included changes to accelerated payment of the child care tax offset and further changes to encourage venture capital investment.

• Further personal income tax cuts will apply from 1 July 2007.
• From 1 July 2007, families will receive the child care tax offset as a direct payment shortly after the income year in which the costs have been incurred.
• Individuals who made eligible superannuation contributions in the 2005/06 year will receive double the amount of co-contributions from the government.
• From 1 July 2007, the GST registration turnover threshold will be increased to $75,000.
• Spouses will be able to transfer their entire in specie interest in a small superannuation fund without triggering an immediate CGT event.
• Investors in forestry managed investment schemes will be allowed to trade their interests from 1 July 2007.
• Increased Medicare levy low-income thresholds will apply from 1 July 2006
• The dependent spouse rebate will be increased from 1 July 2007
• The $100m cap on the same business test will be removed, and other improvements will be made to the company loss recoupment rules.

Proposed Further Improvements to the Tax System

Proposed changes introduced by the The Minister for Revenue and Assistant Treasurer, to implement the following improvements to Australia’s taxation system.   

• Distributions to entities connected with private companies and related issues
• Transitional non-concessional contributions cap
• Capital gains of testamentary trusts
• Thin capitalisation
• Repeal of the dividend tainting rules

http://assistant.treasurer.gov.au/pcd/content/pressreleases/2007/056.asp

Window of opportunity with a twist!

Estate Planning and Superannuation Contributions for Children & Grandchildren!

Why would you want to make undeducted superannuation contributions for your children or grandchildren?
There are a number of reasons why you may consider this, including:

• A child may benefit from the Superannuation Co-contribution, which is akin to an investment that guarantees you a 150% return courtesy of the Tax Office
• If you intend to include the child as a beneficiary in your will, contributing at least part of that inheritance to their superannuation now ensures it is not wasted by the impetuousness of youth!
• Most young people are reluctant to contribute additional money into superannuation as they prefer to have the money now rather than later. As a consequence they miss out on the benefits of a very effective tax strategy. You will make the hard decision on their behalf and assist in them avoiding an under-funded retirement!
• Such a strategy will create an emergency reserve for the child in the event of hardship (not restricted by age).

There are some obvious downsides to the strategy, including:

• Except in some extreme circumstances (e.g. severe financial hardship) the funds will not be accessible until the child is at least 60 years old (also an “upside” mentioned above).

This strategy may appear extreme but with our ever increasing lifespans, it may mean the child accessing the funds at a point in time when they still have a third of their lifetime left.

Note that this strategy can be incorporated as part of your estate planning. For example, part of the inheritance can be accessed upon your death with the rest in a tax effective superannuation environment for the child.  This strategy can be tied in with the “$1Million superannuation window of opportunity”, which is due to end 30 June 2007 (if you’re feeling really generous!).

Australia a good place for business opportunity – OECD Report

The OECD’s latest Economic Outlook presents a positive outlook for the Australian economy, with economic growth expected to recover strongly in 2007 and 2008, after being negatively impacted by a severe drought in 2006.  Importantly, it notes that the Government’s 2007/08 Budget measures are likely to enhance the economy’s supply potential in the longer term.

http://www.treasurer.gov.au/tsr/content/pressreleases/2007/044.asp

CGT relief on SMSFs when spouses split

The high rate of divorce in Australia means that many couples with a Self-Managed Superannuation Fund will end their marriage, and may not wish to continue investing together for their separate retirements. The common solution is for one of the spouses to roll-out of the SMSF, either into a new SMSF of their own or into a commercial superannuation fund.

Unfortunately there are CGT consequences which have been addressed in the May 2007 Federal Budget. It is intended that legislation will be passed to allow one of the spouses to rollover assets to another superannuation fund without triggering CGT.

The legislation will take effect from 1 July 2007.

Establishment costs for carbon sink forests deductible

Treasurer Peter Costello announced new tax arrangements applying to the costs of establishing forests for the deducted purpose of reducing greenhouse gas emissions.

http://www.treasurer.gov.au/tsr/content/pressreleases/2007/039.asp