1. Private health insurance rebate and Medicare levy surcharge
2. Medicare levy thresholds
- High income earners will receive a lower tax rebate for their private health insurance premiums.
- The Medicare levy surcharge will increase for high income earners who opt out of private health insurance.
For the 2008/09 financial year, the Medicare levy low-income threshold will increase to $17,794 (up from $17,309) for singles and to $30,025 (up from $29,207) for couples. For families, the additional amount of threshold for each dependent child or student will also be increased to $2,757 (up from $2,682).
The Medicare levy low-income threshold for pensioners below Age Pension age will be increased to $25,299 (from $22,922). This will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.
3. Non-commercial losses
The Government will remove the ability for high income earners to deduct losses from unprofitable business activities against their own income. In certain circumstances, where expenses exceed income earned from non-commercial business activities (eg hobby farms), salaried employees can reduce their salary income with these excess expenses.
From 1 July 2009, taxpayers with adjusted taxable income of over $250,000 will have excess deductions quarantined to the business activity. Taxpayers will be able to apply to the Taxation Commissioner for relief in special circumstances.
4. Overseas employment income
Currently, Australians working overseas for a continuous period of 91 days or more are eligible for a general exemption which means that they do not pay any Australian income tax on their foreign employment income. This general exemption was provided to ensure that foreign employment income was not double-taxed, first in the country where the income was earned and then again in Australia. However, many foreign countries are lower tax jurisdictions which means some Australians who earn income overseas are paying less tax than if they earned income solely in Australia.
From 1 July 2009, the Government will amend the general exemption to provide an exemption for income earned:
Income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt, as provided for by existing rules.
- as an aid or charitable worker employed by a recognised non-government organisation, or
- as a government aid worker, or
- as a specified government employee, eg defence and police force personnel deployed overseas.
To avoid Australians paying double taxation, a tax offset will be available for any foreign tax paid on foreign employment income.
5. Employee share schemes
Currently, employees who take part in employee share schemes are required to pay tax on any discount on the full value of a share or option they receive from their employer. This is currently the case in relation to both qualifying shares schemes and non-qualifying share schemes.
The legislation currently provides two ways for an employee in a qualifying share scheme to have tax on the discount assessed:
In comparison, if the shares or options are issued under a non-qualifying scheme, the employee is taxed on the discount when he or she acquires the shares or options. This means they do not enjoy the tax benefits associated with qualifying employee share schemes.
- The employee can elect to be assessed in the financial year in which the shares or options are acquired. If so, the employee can access an upfront tax exemption of up to $1,000 on discounts received each year.
- If an election is not made, taxation of the discount is deferred until a later time (such as when the employee disposes of the shares).
Under the new arrangements, all discounts on shares and options provided under an employee share scheme — either qualifying or non-qualifying — will be assessed in the financial year in which they are acquired. That is, employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time.
The Government will also limit access to the $1,000 upfront concession to those employees with a taxable income of less than $60,000 per annum after adjustment for fringe benefits, salary sacrifice and negative gearing losses.
These measures will apply to shares and options acquired after 7.30pm on 12 May 2009.
6. Rollover relief for fixed trusts
Typically, the transfer of assets from one trust to another is a capital gains tax (CGT) event. However, the Government will provide limited CGT roll-over relief for assets transferred between trusts that have the same beneficiaries with the same entitlements and no material discretionary elements (typically referred to as fixed trusts), with effect from 1 November 2008.
As a result of this measure, trustees of eligible trusts will be able to defer the CGT consequences of the asset transfer until the receiving trust subsequently deals with the asset. This will allow eligible trusts to restructure without immediate CGT consequences.
7. Managed investment trusts — capital gains tax election
The Government will allow Australian managed investment trusts (MITs), except those that are taxed like companies, to make an irrevocable election to apply the CGT regime as the primary code for taxing certain disposals of assets, with effect from the 2008/09 financial year.
This measure will ensure that the taxation treatment of disposals of assets (primarily shares in a company, units in a unit trust and real property investments) by MITs is consistent with the taxation treatment of disposals of similar investments by complying superannuation funds.