FEDERAL GOVERNMENT STIMULUS PACKAGE - $42 BILLION!

In a measure designed to stimulate the domestic economy in response to the global financial crisis, the federal government has just announced its second economic stimulus package. In an exciting development for business, the government has proposed the reintroduction of the investment allowance, which will provide significant deductions for investment in depreciating assets. On a personal front, the package includes bonus payments to workers, those with school-aged children, farmers and people undertaking training or learning. As well as significant infrastructure spending, the package also includes a suite of energy efficient measures for homeowners and landlords alike.

In this special feature article, we detail these measures, outline the eligibility criteria, and inform you of what, if anything, you need to do to receive this assistance.

Investment Allowance for Business

The Treasurer has stated that the Government will introduce an investment tax break for all Australian businesses, which it is calling the 'Small Business and General Business Tax Break'.

Small businesses

Small businesses can claim an additional 30% tax deduction for eligible assets costing $1,000 or more that they acquire from 13 December 2008 to 30 June 2009, and install by 30 June 2010.

For eligible assets costing $1,000 or more that they acquire from 1 July 2009 to 31 December 2009, they can claim a 10% deduction where they are installed by 31 December 2010.

This deduction is on top of the usual capital allowance deduction (i.e., depreciation) claimable for the asset in the taxpayer's income tax return.

To benefit from this tax break a small business must have a turnover of $2 million a year or less.

Other businesses

Other businesses can receive the same deductions for eligible assets greater than $10,000.

Which assets are eligible?

Assets eligible for the allowance are most new tangible depreciating assets and new expenditure on existing assets used in carrying on a business.

Land and trading stock are excluded from the definition of depreciating assets, and will not qualify for the deduction.

Example

A small business that buys and installs a $2,000 computer before the end of June 2009 can claim an additional $600 deduction (i.e., 30%) in its 2008/09 tax return.

TAX BONUSES

The Government will be providing five one-off payments in March and April 2009 for low and middle-income households and individuals as part of its $42 billion 'Nation Building and Jobs Plan'.

The payments will not be taxable and will not be counted as income for social security purposes.

1. Tax Bonus for Working Australians

This bonus payment will be available to Australian resident taxpayers who paid tax in the 2007/08 financial year (after taking into account available tax offsets and credits).

The payment is subject to an income threshold test which determines that a:

  • $900 bonus will be paid to eligible taxpayers with a 2008 taxable income of up to $80,000;
  • $600 bonus will paid to eligible taxpayers with taxable incomes exceeding $80,000 and up to $90,000; and
  • $250 bonus will be paid to eligible taxpayers with incomes exceeding $90,000 up to and including $100,000.

Your eligibility for these payments will be based on the taxable income recorded in your 2007/2008 tax return. To be eligible for the payment, you must lodge your 2007/2008 tax return by 30 June 2009. For those who have already lodged, payments will begin to be made from early April 2009. Be aware that you do not need to apply for the payment. Rather the Tax Office will make the payment automatically to you either electronically or by cheque.

2. Single Income Family Bonus

Families who rely on one main income earner will also receive assistance. Families who are eligible for FTB - Part B will receive a $900 bonus, irrespective of the number of children. This payment will be made in the fortnight commencing 11 March 2009 for families who receive their family assistance fortnightly. For those families who receive their family payments as a lump sum at the end of the financial year, the bonus will be paid with the rest of your FTB - Part B payment. The timing will depend on when you claim.

3. Farmer's Hardship Bonus

Farmers experiencing hardship are also in line for a $950 bonus. You will be eligible for assistance if you are in receipt of the following payments:

  •  Exceptional circumstances relief payment for farmers;
  •  Interim income support for farmers;
  •  Exceptional circumstances relief payment for small business;
  •  Transitional income support; and
  •  Farm help income support.

If eligible, the bonus payment will be automatically paid by Centrelink commencing 24 March 2009.

4. Back to School Bonus

To assist with the costs of education, the government will pay parents a back to school bonus.

Families with school age children who are eligible for Family Tax Benefit (FTB) - Part A will receive a $900 back to school bonus for each eligible school aged child (aged 4 to 18 on 3 February 2009). Therefore, if you have two eligible children, your payment will be $1,800. If you are eligible and you receive FTB - Part A fortnightly, you will receive your payment from the fortnight beginning 11 March 2009. For those who receive their FTB - Part A payment as a lump sum, their payment will coincide with the processing of your 2008/2009 tax assessment. Therefore, payment will not be before 1 July 2009. You do not need to apply for this payment. Centrelink will work out your eligibility and pay the amount automatically.

5. Training and Learning Bonus

Eligible students also benefit through a one-off $950 bonus. If you were a student undertaking approved courses such as:

  •  Secondary education courses;
  •  Undergraduate courses;
  •  Some postgraduate courses;
  •  Associate diplomas and some other diplomas; and
  •  TAFE courses

You may be eligible for either a category 1 or category 2 bonus. Category 1 bonuses of $950 will be paid to recipients of Youth Allowance, AUSTUDY, ABSTUDY and other student and related payments such as Sickness Allowance. Note that if a student attracts the government's back to school bonus (see earlier) they are not eligible for the training and learning bonus. Centrelink will pay Category 1 bonuses to eligible recipients in the fortnight beginning 24 March 2009. Category 2 bonuses of $950 will be paid as a temporary supplement to the Education Entry Payment. This is in addition to the existing Education Entry Payment of $208. Those eligible for this bonus will receive it when you receive your Education Entry Payment or, if you have already received the Entry Payment, from 24 March 2009.

Tips for claiming donations to emergency relief funds

The Tax Office has announced a practical approach to ensure those donating to help the victims of the Victorian bushfires and Northern Queensland floods can do so with minimum fuss.

People who give to ‘bucket donations’ can claim a tax deduction equal to their contribution up to $10 in their 2008/09 tax return without the usual need to keep a receipt.

If people use the web or phone to make a donation over $10, their web receipt or credit card statement will be enough. Others should be provided with a receipt for their contributions.

This also will apply to donations collected through third parties such as banks and retail outlets.

Taxpayers should remember that only donations to organisations that have been endorsed can be claimed as a tax deduction – these are listed as ‘deductible gift recipients’ at www.ato.gov.au.

Energy Efficient Housing

The other main strand to the economic stimulus package is a multi-billion dollar investment in making homes more energy efficient.

This measure has three aspects:

1. Eligible Australian owner-occupiers will be able to access $1 600 worth of free installation and supply of ceiling insulation in their residences. This measure applies from 1 July 2009 to 31 December 2011. If you organise insulation between the date of the announcement and 30 June 2009, you will be eligible for reimbursement to the value of $1 600. It is estimated this initiative will save recipients up to $200 per year on energy bills.

2. To assist tenants in rental accommodation, landlords will be able to access a rebate of up to $1 000 to install insulation in their rental properties.

3. Households will be offered up to $1 600 non-means-tested assistance to install solar and heat pump hot water systems to replace electric hot water systems

Reminder about the Education Tax Refund

The Treasurer has called on parents to make sure they keep their receipts to make the most of the new Education Tax Refund.

Eligible families will be able to claim a 50% refund every year (through their tax return at the end of the financial year) for key education expenses up to:

  •  $750 for each child undertaking primary studies (maximum refund of $375 per child, per year); and
  •  $1,500 for each child undertaking secondary studies (maximum refund of $750 per child, per year).

The Education Tax Refund will apply to some of the most common back-to-school items, including:

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

Who is eligible?

Parents entitled to FTB Part A for children in primary or secondary school for the relevant financial year are eligible for the Education Tax Refund, as well as parents who would be eligible, but for the fact that the child receives certain payments or allowances, such as Youth Allowance, Disability Support Pension, and ABSTUDY Living Allowance.

Time to review SMSF investment strategies

In these troubled financial times, the ATO has issued a timely reminder to trustees of SMSFs that they should regularly review their fund’s investment strategy, so that they can make the best possible investment choices.

Trustees need to prepare and implement an investment strategy for their fund, and the investment strategy should be unique to the requirements of that SMSF and its members.

It should be reviewed regularly and updated as required, and allow the trustees to be able to measure investment performance against their retirement income goals.

An investment strategy must reflect the purpose and circumstances of the fund and consider:

  •  investing in such a way as to maximise member returns, taking into account the risk associated with the investment;
  •  appropriate diversification and the benefits of investing across a number of asset classes (for example, shares, property, fixed deposit) in a long-term investment strategy;
  •  the ability of the SMSF to pay benefits as members retire and pay other costs incurred by the fund; and
  •  the needs of members (for example, age, income level, employment pattern and retirement needs).

All investment decisions must be made in accordance with the investment strategy.

If you would like more information about this, please contact our office.

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