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2007 Budget

Personal Income Tax Cuts

Income tax cuts will be phased in over the 2007/08 and the 2008/09 years.  As follows:

Medicare Levy – Low income thresholds

The 2006/07 Medicare Levy low-income thresholds will be as follows:

Individuals        $16,740           (previously $16,284)

Families           $28,247           (previously $27,478)

The additional amount of threshold for each dependent child student will also be increased to $2,594 (previously $2,523). 

SATO

As a result of the proposed tax cuts, Senior Australians eligible for the senior Australians tax offset in 2007/08 will pay no tax on an annual income of up to $25,867 for singles and $43,360 for couples. 

Low Income Tax Offset (LITO)

From 1 July 2007, the Low Income Tax Offset (LITO) will increase from $600 to $750, and will begin to phase out from a taxable income of $30,000 (i.e., the LITO will be reduced by 4 cents for every $1 of taxable income above $30,000, and will completely phase out at $48,750).

Taxpayers eligible for the full LITO will not pay tax until their annual income exceeds $11,000 (up from $10,000).  Furthermore, minors will not be taxed until annual income exceeds $1,667 (up from $1,333).  

Dependent Spouse Rebate

From 1 July 2007, the dependent spouse rebate will be increased to $2,100 (up from $1,655).  The rebate is phased-out when separate net income reaches $8,682.

Child care tax offset is now a direct payment

From 1 July 2007, families will receive the existing child care tax offset (i.e., a 30% rebate on out-of-pocket approved child care costs, up to a maximum of $4,000 per child, plus indexation) as a direct payment administered through Centrelink, soon after the financial year in which they incur child care costs.

Families will still receive the tax offset for out-of-pocket costs incurred in 2005/06, under the existing tax system arrangements (i.e., through the lodgment of the 2007 income tax return).

This means that families with out-of-pocket child care costs for both 2005/06 and 2006/07 will receive two rebates in 2007/08 (i.e., one through the tax system under the existing rules, and one as a direct payment under the new rules). 

Superannuation – ‘one-off’ additional Government Co-contribution

The Government will pay a one-off additional co-contribution into the superannuation accounts of those persons who made eligible contributions in the 2005/06 income year. This payment will double the co-contribution paid in respect of that year.

For example, if a person had made an undeducted contribution of $1,000 in 2005/06 and was eligible for a co-contribution of $1,500 in respect of that year, they will now receive an extra co-contribution of $1,500, so that the total co-contribution payments in respect of that year would be $3,000.

Small Business Initiatives

1. From 1 July 2007, a business with annual turnover of less than $75,000 ($150,000 for non-profit bodies) will no longer be required to register for GST.  As a result, more small businesses and non-profit bodies can choose whether to register for GST.  If they do register, they will have the option of remitting GST only once a year (rather than quarterly).
2. Effective from 1 July 2008, the Government will allow these taxpayers (i.e., who voluntarily register for GST) to pay their PAYG instalments on an annual basis.
3. From 1 July 2007, any small business that makes mixed (taxable and GST-free) supplies or mixed purchases will be able to approach the ATO to discuss the development of a simplified accounting method for their use.
4. From 1 July 2007, purchases by businesses valued at $75 or less (excluding GST) will no longer require a valid tax invoice to claim an input tax credit. 
   
   This measure will also carry over to the “no-ABN withholding” arrangements, increasing the threshold for “no-ABN” withholding from $50 to $75. 

CGT – extending small superannuation fund roll-over on marriage

From 1 July 2007, spouses in a marriage breakdown will be able to make an ‘in-specie’ transfer of their entire interest in a small superannuation fund to another complying superannuation fund, without there being an immediate capital gains tax (CGT) taxing point.

Making it easier to complete tax returns for individuals with simple affairs

From the 2007/08 year, the ATO will pre-fill electronic individual tax returns for around nine million individual taxpayers who use e-tax or lodge their returns through tax agents. 

The Tax Office will automatically include the following information in returns:

• salary, wages and allowances, where the employer has electronically lodged the employee’s payment summary with the ATO;
• dividend and interest income and distributions from managed funds;
• payments from Centrelink, the Department of Education, Science and Training and the Department of Veterans’ Affairs;
• Medicare out-of-pocket expenses and private health insurance information; and
• Higher Education Contribution Scheme and Higher Education Loan Programme details.

The ATO will progressively pre-fill this information as it is received. Most information is expected to be received by mid-August.  This information will also be available to tax agents to help them complete returns on behalf of their clients.

In addition, for taxpayers who made a small total deduction claim in the previous year, the ATO will enter the deduction amounts from the previous year.

Taxpayers with other sources of income, such as rental income, capital gains or foreign-source income, will need to add this information to their pre-filled return, as will taxpayers whose employer has not lodged their payment summary electronically with the ATO. Similarly, if taxpayers have additional information to provide, or offsets or deductions they wish to claim, these can be added to their return.

Investments in Forestry

1. From 1 July 2007, carbon sink forest operators will be allowed to depreciate the costs of establishing a qualifying carbon sink forest over 14 years under the horticultural plant provisions.
2. From 1 July 2007, costs incurred in establishing a qualifying carbon sink forest* during a five-year period commencing 1 July 2007 (i.e., from 2007/08 to 2011/12).  The immediate deduction will take precedence over the general horticultural provisions during this period. Deductions under this measure will not be available to carbon sink forests established through managed investment schemes.
3. From 1 July 2007, the Government will allow trading of both existing and future interests in forestry managed investment schemes (MISs), subject to a minimum four year holding period for initial investors.

Note:(*) Businesses establishing carbon sink forests will need to participate in the Government’s Greenhouse Challenge Plus program, a government/industry partnership that encourages industry actions to reduce greenhouse gases. Carbon sink forest operators must also demonstrate that their projects comply with environmental and natural resource management guidelines applicable to their geographic location.