PJT Accountants
How the Budget affects you as an Individual
12 May 10The Government has announced that from 1 July 2011, a 50% tax discount on up to $1,000 p.a. of interest earned by individuals. The 50% tax discount will be available for interest income earned directly by an individual as well as indirectly, such as via a trust or managed investment scheme.
$500 standard deduction for work related expenses and the cost of managing tax affairs
The Government has announced that from 1 July 2012, it will provide individual taxpayers with an optional standard deduction of $500 for work‐related expenses and the cost of managing their tax affairs. The Government also announced that this will increase to $1,000 from 1 July 2013.
Those taxpayers with deductible expenses greater than the standard deduction amount will still be able to claim their higher expenses, in lieu of claiming the standard deduction amount. According to the Government, this measure is an important step towards a “tick and flick” system of pre-filled tax returns that will make life easier for taxpayers at tax time. A standard tax deduction was recommended by the Henry Tax Report:
Personal Income Tax Remains Unchanged
Whilst the Government made out there were changes to personal income tax, the changes to personal income tax applying from 1 July 2010 remain unchanged to those announced in last year’s budget. The changes applying from 1 July 2010 can be seen below:
Personal marginal income tax thresholds and rates from 1 July 2010
Non-Resident Personal Marginal Income Tax thresholds and rates from 1 July 2010
The Government also maintained that the maximum Low Income Tax Offset (LITO) will be increased from the current $1,350 to $1,500 from 1 July 2010, however the rate at which LITO phases out will continue to be 4 cents for every dollar of income over $30,000. The changes to LITO over the next three years can be summarised below:
Medicare Levy low income threshold increases
The Government has announced that it will increase the Medicare low‐income thresholds to $18,488 for individuals and $31,196 for families from 1 July 2009. The additional amount of threshold for each dependent child or student will also increase to $2,865. The Government will also increase the Medicare levy threshold for single pensioners below Age Pension age to $27,697, with effect from 1 July 2009. This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.
Amendment to Senior Australian Tax Offset (SATO) calculation
From 1 July 2010, the SATO Calculation will be amended. Currently, the formula specified in the regulations for calculating the rebate threshold fails to reflect the fact that the low income tax offset (LITO) is reduced when taxable income exceeds $30,000. This measure will ensure that in situations where the rebate threshold exceeds $30,000, the calculation of the rebate threshold incorporates the reduction in the LITO.
Medical expenses rebate threshold raised
Taxpayers presently receive a rebate equal to 20% of net unreimbursed eligible medical expenses above $1,500. This $1,500 threshold will increase to $2,000 from 1 July 2010. In addition, from 1 July 2011, the threshold will be indexed annually to the Consumer Price Index.
PJT says "Therefore, if you meet your medical threshold this financial year, and you will have some more medical expenses in the short term, it may be worth considering incurring those costs in this financial year."
FHSA changes
The Government is proposing changes to the First Home Savers Account (FHSA) scheme.
The current rules require that FHSA holders keep their savings in an FHSA for 4 financial years before they are able to use those savings to buy a home. However, if an account holder buys a home before the end of that 4-year period, the balance of their FHSA must be transferred to their superannuation (the logic here is that it thus remains in a concessional tax environment).
The Government proposes that savings in an FHSA can be paid into an approved mortgage after the end of a minimum qualifying period, rather than requiring it to be paid to a superannuation account.
The Government will release draft amendments for consultation over the coming months. The changes will apply for houses purchased after assent of the legislation that will give effect to this measure.
Reduction in Child Care Rebate
The Government has announced that it will cap the annual Child Care Rebate to the 2008-09 level of $7,500 per child from the current annual cap of $7,778 per child. However, the Government states that the reduction in the Rebate will not alter the percentage of out-of-pocket expenses reimbursed by the Commonwealth. The Government has also announced that it will pause the indexation of the cap for 4 years.