2010 Federal Budget Highlights (PDF 224kB)

On 11 May 2010 Treasurer Wayne Swan delivered his third Federal budget. There are a number of announcements of which customers should be aware. The announcements in this update are proposals unless it is stated otherwise. These alterations need to successfully pass through parliament before becoming law and may be subject to further changes during this process.

Tax - Interest discount 1 July 2011

Taxpayers can claim a new 50% discount up to $1,000 of interest earned, including deposits held with any bank, building society or credit union as well as bonds, debentures or annuity products. The discount is available for interest income earned directly and indirectly, such as via a trust or managed fund.

The discount not only reduces assessable income for tax purposes, it will reduce adjusted taxable income for the purpose of determining eligibility for transfer payments and other concessions, eg Family Tax Benefit and Commonwealth Seniors Health Card.

Note the Henry Tax Review recommended a 40% savings income discount to individuals for non-business related net interest income.

Example

Ethel (67) has $20,000 in a term deposit earning 6%pa. Under current rules, Ethel’s assessable income includes $1,200 (6% x $20,000). Based on the proposed rules, the amount she adds to her assessable income is calculated as $700 ($1,000 x 50% + $200). 

Standard tax deduction 1 July 2012

Taxpayers can claim an optional standard deduction of $500 instead of claiming work-related expenses and the cost of managing tax affairs. The deduction increases to $1,000 from 1 July 2013.

Taxpayers with expenses above the standard deduction can continue to claim those expenses under existing rules. The deduction is expected to reduce adjusted taxable income for the purpose of determining eligibility for transfer payments and other concessions.

Note the Henry Tax Review recommended the standard tax deduction

Net medical expenses tax offset 1 July 2010

The net medical expenses tax offset threshold increases from $1,500 to $2,000 from 1 July 2010. The threshold will be indexed annually to CPI from 1 July 2011. The offset allows taxpayers to receive a tax offset equal to 20% of net medical expenses above the threshold.

First home saver account changes Royal Assent

Currently, a first home saver account holder must keep their savings in the account for 4 financial years before they can use the savings to buy a home. If the holder buys a home before the 4 year period, the account balance must be transferred into super.

The rules are proposed to be amended to allow savings in the account to be paid into an approved mortgage after the end of a minimum qualifying period, rather than requiring the amount to be paid into super. The changes apply for homes purchased after the legislation receives Royal Assent.

Capital protected borrowings 13 May 2008

The benchmark interest rate on capital protected borrowings is the Reserve Bank indicator rate for standard variable housing loans (for borrowings from 13 May 2008). This means interest expense on a capital protected product is tax deductible up to this limit. The Government has proposed a new benchmark interest rate equal to the above rate plus 1% (i.e. 100 basis points) and applies to capital protected borrowings entered into from 7:30 pm 13 May 2008.

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