News

Making sense of the stimulus package

Tue, 3 Mar 2009

The Rudd Government’s $42 billion economic stimulus package today passed its final Parliamentary hurdle after a deal was brokered with Independent Senator Nick Xenophon.

The deal brokered will see $900 million in funding provided to Murray Darling and other water based projects. The stimulus package includes:

Cash payments of up to $900 for certain individuals
An increase in the investment allowance for small business
Free ceiling insulation for homes
Upgrades to all Australian schools
Building of social and defence homes
Funding for local community infrastructure and road projects

Cash payments for working Australians

The “tax bonus for working Australians” has received a lot of attention. In order to qualify for the cash payment, you need to be an Australian resident for tax purposes, have an income tax liability for the 2008 year greater than zero, have taxable income of not more than $100,000, and have lodged your 2008 tax return before 20 June 2009. So, if you want the cash payment, you will need to make sure your tax returns are up to date.

The cash payments will be made by the Tax Office from April 2009:
•    $900 for those with taxable income up to and including $80,000.
•    $600 for those with taxable income over $80,000 but not more than $90,000.
•    $250 for those with taxable income over $90,000 but not more than $100,000.

A series of other cash bonuses are also included in the stimulus package including:
•    The single income family bonus (families must be eligible for the Family Tax Benefit Part B on 3 February to qualify)
•    The Farmer’s hardship bonus for farmers and rural-dependent small business owners receiving exceptional circumstances related income support
•    The back to school bonus paid to families eligible for Family Tax Benefit Part A on 3 February 2009 for each eligible child of school age (aged 4 to 18 on 3 February 2009)
•    The training and learning bonus for other students.
Investment allowance

Of interest to many business operators is the 30% investment allowance.

Under this allowance, business operators will be able to claim an additional 30% tax deduction for eligible assets. To be eligible, small businesses only need to spend $1,000 to obtain the bonus deduction (other businesses must spend $10,000 or more). A small business is one with a turnover below $2 million. This new allowance seems to replace the investment allowance announced last year.
The allowance provides:

Date asset acquired Installation date Rate of allowance

Between 13 December 2008 and 30 June 2009     Must be installed by 30 June 2010 30% of asset’s first and/or second elements of cost

Between 1 July 2009 and 31 December 2009 Must be installed by 31 December 2010    10% of asset’s first and/or second elements of cost

The allowance will be claimed as an additional deduction in the tax return for the year in which the asset is installed.

If cash flow permits (and for many it won’t) the investment allowance may have the effect of bringing forward investments that the business was already going to make. Just remember that there is a period of time between making the investment and receiving the allowance that you need to factor into any spending decisions.