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Tax update for 2008

Already, 2008 has many proposed tax law changes scheduled. This article summarises the highlights. Julian Smith and Amber Chew

Here is a summary of proposed tax changes due to go before the Senate. You can see the name of the relevant Bill in the footnotes.

  • Contributions to political parties — deduction to be removed

    Donations to political parties, or to their members and candidates, will not be deductible if made on or after 1 July 2008. [*]

  • Lump sum super payments to terminally ill — to become deductible

    A superannuation lump sum paid to a terminally ill person on or after 1 July 2007 will be tax-free. The definition of "terminal medical condition" will be released in regulations. [*]

  • Carbon sink forests — capital costs deductible

    Capital expenditure on establishing trees in carbon sink forests will be tax deductible. Expenditure will be immediately deductible for financial years 2007-08 to 2011-12 (inclusive). From financial year 2012-2013 onwards, the expenditure will be deductible under a write-off rate of 7% a year. [*]

  • Equine worker supplement for Equine Influenza — eligibility extended

    More people are now eligible to claim the beneficiary tax offset, the Equine Workers Hardship Wage Supplement Payment, under the Equine Influenza assistance package announced on 9 September 2007. [*]

  • Tobacco — grants to cease production

    A tobacco grower who agrees to exit all agricultural enterprises for at least 5 years will receive tax-free grants under the Tobacco Growers Adjustment Assistance Programme 2006. [*] The scheme was originally introduced into Parliament on 13 September 2007 [1] but lapsed when the federal election was called.

Personal tax rate changes

On 14 February, a bill to implement the tax cuts promised by the Rudd Labor Government was introduced into the House of Representatives. The bill is the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008.

The tax cuts apply in 3 stages over three years as shown in the table.

Stage 1 Stage 2 Stage 3
Current Change From 1 July 2008 From 1 July 2009 From 1 July 2010
Threshold for the 30% marginal tax rate of $30,000 increases to $34,000 $35,000 $37,000
Maximum low income tax offset (LITO) of $750 increases to $1,200 $1,350 $1,500
Income level at which the LITO phases out completely $48,750 increases to $60,000 $63,750 $67,500
Marginal tax rate of 40% reduces to (no change) 38% 37%

Seniors — Medicare levy eases for some

The Bill contains an increase to the income threshold at which the Medicare levy becomes payable for taxpayers eligible for the senior Australians tax offset. The changes to the Medicare Levy Act 1986 (Cth) are in the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008.

Seniors — maximum "low income tax offset" (LITO) applies to more seniors

The Bill also provides that senior Australians eligible for the LITO will not have to pay income tax or the Medicare levy until their income exceeds the amount shown in the table:

Stage 1 Stage 2 Stage 3
Current Change From 1 July 2008 From 1 July 2009 From 1 July 2010
Singles' tax free income $25,867 increases to $28,867 $29,867 $30,685
Each member of a couple?s tax free income $21,680 increases to $24,680 $25,680 $26,680

Scholarship — more are tax free and more are fee free

On 14 February, a Bill dealing with scholarships was restored in the Senate, having been originally introduced on 21 June 2005. The Bill is the Taxation Laws Amendment (Scholarships) Bill 2005.

The Bill proposes to:

  • abolish the distinction between full-time and part- time scholarships
  • make all scholarships which satisfy certain criteria tax-free; and
  • extend the exemption for fee- waiver, fee-pay and Commonwealth Learning Scholarships from the social security personal income test to University Equity Scholarships.

More information

For more information, please contact Maddocks on 03 9288 0555 or 02 8223 4100 and ask for a member of the Maddocks Tax & Revenue Team.

[*] Tax Laws Amendment (2008 Measures No. 1) Bill 2008 passed by the House of Representatives without amendment on 21 February.
[1] Tax Laws Amendment (2007 Measures No. 6) Bill 2007.


Lawyer in Profile

Jack Coventry
Jack Coventry
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Qualifications: BA (Philosophy), Monash University, JD (Juris Doctor), University of Melbourne

Jack is a member of Maddocks Commercial team. He advises a range of corporate and private clients on:

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Jack acts for clients on both buy-side and sell-side and specialises in founder-owned businesses and Australian subsidiaries of multi-national companies. He works across a number of sectors including information technology, professional services, and property development and management including land lease.

Jack’s structuring work includes assisting multinationals to structure Australian operations, listed companies to achieve regulatory compliance / optimisation and providing general tax structuring. He has also represented clients in tax controversies including before the General Anti-Avoidance Review Panel (GAAR Panel) and the Federal Court of Australia.

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