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Australia's Rudd government has unveiled its 2009/10 Budget, announcing important new measures to improve the integrity of the tax system and protect the Commonwealth revenues needed to support jobs and invest in nation-building in the face of the global recession.

The new measures will save around AUD880m (USD674m) in extra revenue over the forward estimates and will help ensure everyone pays their fair share of tax.

Firstly, the Rudd government will "close a tax loophole that allows a relatively small number -around 11,000 - of mostly high wealth individuals to exploit parts of the tax system to unfairly minimize or avoid their tax obligations".

Specifically, the government will remove the ability for high income individuals to deduct losses from unprofitable business activities against their own income.

The government will do this by tightening the rules in the income tax law applying to the use of non-commercial losses.

In certain circumstances, where expenses exceed income earned from non-commercial business activities, salaried employees can reduce their salary income with these excess expenses. According to the budget release "many of these activities do not have a commercial purpose or character and are no more than hobbies or lifestyle choices".

"This can mean that unfair personal income tax deductions can be claimed against salary, wage and other income for activities like running hobby farms that don't have a commercial purpose and may not ever make a profit."

To address this, from July 1, 2009, taxpayers with adjusted taxable incomes of over AUD250,000 (AUD191,700) will only be able to deduct those expenses against the income from the non-commercial business activity.

The government will also tighten the rules relating to the taxation of benefits provided by a private company to its shareholders or their associates. The measure removes the scope for private companies to allow company assets – such as real estate, cars and boats – to be used for free, or at less than their arm's length value without paying tax.

By contrast, the same use of the asset by an employee – rather than a shareholder – would attract fringe benefits tax.

However from July 1, 2009, the government will remove this inconsistent treatment, helping to "ensure that shareholders pay their fair share of tax". Both of these measures will apply from the beginning of the 2009-10 income year.

The government will also take steps to prevent taxpayers from avoiding paying tax on distributions from closely-held trusts – which are trusts that generally have fewer than 20 beneficiaries.

From July 1, 2010, closely-held trusts will need to withhold amounts from trust distributions at the top marginal tax rate where taxpayers have not provided a tax file number to the trustee. Such arrangements are already widely applied elsewhere in the tax law, including to bank accounts and other trust distributions.

This will ensure that taxable distributions to a beneficiary of a closely-held trust, including a family trust, are included in the beneficiary's tax return.

Further to this, the Rudd government has also announced that it "will provide another major boost to its highly successful Small Business and General Business Tax Break, providing vital stimulus to support jobs and help small businesses doing it tough in the global recession".

Small businesses will now be able to claim a bonus tax deduction of 50% – up from 30% previously - of the cost of eligible assets acquired between December 13, 2008, and December 31, 2009, and installed by December 31, 2010.

Announcing the measure, the country's Treasurer Wayne Swan explained:

"Small businesses are the backbone of our economy, employing millions of Australians, but many have faced some tough times during this global recession."

"That's why the Rudd government has been so determined to help small businesses invest with confidence and take advantage of the opportunities that will come with economic recovery."

"The increased tax break provides small businesses with an even greater incentive to invest in new capital items, such as computer hardware and business vehicles, and to make capital improvements to existing machinery and equipment."

"This major boost will support jobs and businesses all over the country. It accompanies the steps previously taken by the government to stimulate the economy so that small businesses have customers walking through their doors."

The expanded tax break will be available to small businesses with a turnover of less than AUD2m (USD1.5m).

All other businesses can continue to access the tax break at 30% for eligible assets contracted for prior to June 30, 2009, and 10% for eligible assets that they commit to investing in between July 1, 2009, and December 31, 2009.

Small businesses only need to invest a minimum of AUD1,000 (USD765) per asset in order to qualify for the tax break. Under enhancements to the tax break announced in March 2009, they can also amalgamate their expenditure on batches and sets of assets in order to meet this threshold.

The government will move amendments to the legislation currently before the Parliament to implement the expansion for small business.

The expansion will have an estimated cost to revenue of AUD141m (USD107.9m), bringing the total cost to revenue of the tax break to AUD3.7bn (USD2.8bn) over the forward estimates period.