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20. Deductible Superannuation Contributions and The Family Tax Assistance Rules (up to 30 June 2009)

Over the last few years we have observed many clients become eligible for increased Family Tax Assistance (“FTA”) payments, as large deductible superannuation contributions (and other tax planning techniques) push income down for FTA purposes, resulting in the clients becoming eligible for tax free FTA payments falls into the eligibility zones.

The FTA rules are set out in detail at www.familyassist.gov.au and in summary, comprise a federal government funded family support system, that integrates with the tax collection system, to in effect reduce tax paid by eligible families. It is based on family income, not individual income, and is a deliberate attempt to compensate parents for the increased cost of raising a family, something not generally achieved by the traditional income tax system.

The payments are tax free and are surprisingly large: up to $5,818 per child.

The family tax assistance payment system are often used as a base for other government initiatives, such as the 2008 Christmas $1000 bonus per child.

We regard FTA payments as being negative tax payments, which in some cases have led to clients experiencing negative tax rates, since the FTA payments are greater than their tax liabilities. This is an amazing result, and one we have often had to cajole clients into accepting: it is actually government policy, and all our clients are doing is taking full advantage of this actual government policy.

Superannuation contributions will be included in family income for FTA purposes from 1 July 2009, so the year ending 30 June 2009 is the last year we expect most of our clients to be eligible for FTA payments.