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Major Budget changes for individuals

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17 / May / 2011

Personal Tax and the Flood Levy

As expected, the Government did not make any changes to tax rates, despite calls for a reduction in personal tax rates.  The Government has declined to change to the three rates of 15%, 30% and 40%, which it has previously supported.  Instead, the budget has kept tax rates the same for this and subsequent years, with one exception.  For the 2011-12 financial year individual taxpayers – both resident and non-resident – who have a taxable income over $50,000 will have to pay the flood levy, varying from 0.5% to 1% depending on the income threshold.  Exemptions may apply to those personally affected by the disasters.

Low Income Tax Offset Charges

From 1 July 2011, the proportion of the low income tax offset (LITO) that is delivered through week-to-week pay packets will be increased by the Government from 50% to 70%.  What this means is that instead of getting a refund after putting in a tax return at the end of the year, lower income earners will be taxed less during the year.  The remaining 30% of the tax offset will be paid as a lump sump upon income tax return assessment. The Government has not implemented the Henry Review recommendation which was to remove the offset and incorporate it into personal income tax rates.

Families – Cuts and Increases

Minors will no longer be entitled to low income tax offsets on unearned income.  The reasoning behind this, says the Government, is to discourage income splitting between adults and children.  In other words, taxpayers will not be able to reduce their tax by allocating some of their income to their children. With respect to the Medicare levy, from the 2010-11 income year the low-income thresholds will be increased for singles to $18,839 and for members of a family up to $31,789.  The Government has also announced that it will phase out the tax offset for dependent spouses below 40 years of age from this July, with the stated aim of encouraging more Australians into paid employment.  In other family news, the Family Tax Benefit for 16-19 year olds will be increased with a new maximum rate of $214.06 per fortnight (up from $52.64) to a total of around $4200 per year.  For 18-19 year olds in school this rate will be $3,741.  Maximum age of eligibility for the FTB Part A will be lowered to 21 years of age.  Families will also be able to advance a maximum of 7.5% of their FTB payment from July.

HECS

The Government has said that it will reduce the discounts students receive on paying particular up-front and voluntary payments towards their student contribution and/or HECS debt from 1 July 2012.  Originally, students who elected to pay up-front received a 20% discount on their contribution. However, the budget has reduced this discount to 10%.  Voluntary payments of $500 or more to the tax office to repay a HECS debt will now only receive a 5% bonus instead of the previous 10%.

Superannuation Excess Contribution and the Over 50s

The Government has announced that individuals aged 50 and over with total superannuation balances below $500,000, will be able to contribute an extra $25,000 above the general concessional cap.  This means that those eligible over 50 years of age will be able to make up to $50,000 in total concessional contributions per annum from July next year.  Unfortunately, the Government did not heed calls for contribution caps to be restored to their previous levels, so while some older Australians will benefit from this measure, many others with low superannuation levels (for example, mothers who have taken time away from the workplace to raise children) may end up with insufficient retirement savings.

Source: Institute of Public Accountants – A Worry Free Federal Budget Summary!

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