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As expected, the Government has created expenditure savings by restricting access to certain welfare payments for higher income earners. Access to the baby bonus and Family Tax Benefit Part B will be restricted by applying means testing for people earning more than $150,000 per year. The child care benefit is no longer available for families earning more than $110,000 per year.

There is a lift in the child care tax rebate from 30 per cent to 50 per cent. The cap on the amount that can be paid will be lifted from $4,354 to $7,500 per child.

The news for lower income earners is positive, with income tax cuts from 1 July 2008 via changes in thresholds for the 30 per cent income tax rate (from $30,001 to $34,001), and an increase in the low income tax offset from $750 to $1,200. Taxpayers eligible for the full low income tax offset will not pay income tax until their annual income exceeds $14,000 (up from $11,000).

Additional tax cuts apply from 1 July 2009, with further reductions from 1 July 2010.

Interestingly, salary sacrifice contributions will be included in the assessment of a range of government benefits such as family tax benefits, age pension and the super co-contribution, hence eliminating some existing strategies from 1 July 2009.

Further tightening of eligibility for certain welfare payments will apply from 1 July 2009. Reportable fringe benefits, investment losses, and salary sacrifice contributions will be included in the definition of income to determine eligibility.

The introduction of an education tax refund will allow, from 1 July 2008, eligible parents to claim a 50 per cent refund on eligible education expenses (but not school fees) for children undertaking primary or secondary school studies. The refund will be a maximum of $375 for a primary school child and up to $750 for a secondary school child each year. About 1.3 million families (with 2.7 million students) will be eligible for the education tax refund.

The pre-publicised increases in Medicare levy surcharge thresholds from $50,000 to $100,000 a year for singles and from $100,000 to $150,000 a year for members of a family apply from 1 July 2008.

A tightening of the extent of interest deductions on protected structured products effective from 7.30 pm AEST on 13th May 2008 was also announced. Interest rates on capital protected borrowings above a rate of circa 9.5 per cent will not be deductible and will be considered capital, reducing the attractiveness of these products.

Further tax reform is likely, however the Government has re-confirmed its commitment to the tax free status of superannuation benefits for those aged 60 and over.

Please note that the changes outlined in this summary are proposals only at this stage, and will not take effect until the passage of relevant legislation.

For a more detailed look at the some of the budget changes, please click on the link below:

- 2008 Federal Budget Report

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person.

Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

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