29 June 2006

Australians Set For More Tax Cuts and Benefits From 1 July 2006

All Australian taxpayers will be better off from this Saturday 1 July as the new raft of tax cuts, announced in this year’s Federal Budget, come into effect.

The new tax cuts, worth $36.7billion over the next four years, will benefit the lowest income earners to the highest income earners:

  • Low-income earners will not pay tax until their annual income exceeds $10,000;
  • Those on the lowest tax rate of 15 per cent will not go into a higher tax bracket until their taxable income goes past $25,000;
  • Those on the 30 per cent tax rate will not pay a higher marginal tax until their taxable income goes past $75,000; and
  • For those on the two top tax rates, both the rate is cut and the threshold is increased. This means those on incomes between $75,000 and $150,000 will see the rate decrease from a 42 cent rate to a 40 cent rate, while those on the top rate have a reduced top rate of 45 cents in the dollar which applies only to each dollar of income over $150,000.

The changes mean from 1 July 2006, 80 per cent of Australian taxpayers will face a top marginal tax rate of 30 per cent or less.

This latest round of tax cuts follow on from tax cuts delivered in 2000 through The New Tax System and the 2003, 2004 and 2005 Budgets.

Under the tax scales in the 2006 Budget, a person on average weekly earnings will pay $1,209 less than they would have under a 1995-96 scale indexed to inflation.

These tax cuts could only have been delivered through the continued strong economic management of the Coalition Government.

A range of measures to make life easier for families will also come into effect from 1 July. These changes will see:

  • An increase in the maternity payment (Baby Bonus) – from $3,166 to $4000;
  • More generous Family Tax Benefits to support Australian families in their job of raising children. The maximum payment per child (under Part A) has increased from about $2,400 in 1996 to more than $4,200 a year. Also, the maximum FTB Part A benefit will now be available to families with an income up to $40,000;
  • The Large Family Supplement will now include families with three or more children, which will provide assistance to nearly 350,000 additional Australian families with a payment of an extra $248 a year; and
  • The limit on subsidised outside school-hours child care and family day care places abolished – which is expected to increase the number of childcare places to more than 700,000 by 2009, up from 307,000 in 1996.

The new fuel tax credit system also comes into effect from 1 July, reducing the effective level of fuel tax paid by a significant number of businesses and households and replacing the existing complex system of tax concessions delivered through the Energy Grants (Credits) Scheme and the excise and customs system. The changes expand the range of activities and fuels that qualify for a credit.

Australians are already benefiting from other recent measures, including a one-off payment to older Australians and an extension of the Utilities Allowance and one-off payment to recipients of Mature Age Allowance, Partner Allowance and Widow Allowance. A bonus payment has also been made to recipients of the Carer Payment and Carer Allowance.

Australian business will benefit from a reduction in incorporation fees from $800 to $400 and enhanced depreciation deductions for new plant and equipment acquired after Budget night.

Note: A detailed outline of changes commencing 1 July 2006 is attached.

 

Details of changes commencing 1 July 2006

Tax

  • In addition to benefiting all Australian taxpayers, personal income tax cuts enhance incentives for participation and improve Australia’s international competitiveness.
    • The 30 percent threshold will be raised from $21,601 to $25,001.
    • The 42 per cent marginal tax rate will be cut to 40 per cent and the threshold will be raised from $63,001 to $75,001.
    • The 47 per cent marginal tax rate will be cut to 45 per cent and the threshold will be raised from $95,001 to $150,001.
    • The Low Income Tax Offset will be increased from $235 to $600 per year and will phase out from $25,000, up from $21,600. This means low-income earners will not pay tax until their annual income exceeds $10,000.
    • As a result, senior Australians who are eligible for the Senior Australians Tax Offset will now pay no tax on their annual income up to $24,867 for singles and up to $41,360 for couples.
    • Reduction of the Medicare phase-in from 20 per cent to 10 per cent.
  • The fringe benefits tax rate will be cut to 46.5 per cent (retrospectively effective from 1April2006).

Family benefits

  • More families will receive the maximum rate of Family Tax Benefit Part A, as they will now be able to earn $40,000 a year (up from $33,361 in 2005-06) without having their entitlements reduced. This measure will provide increases in FTB Part A of up to $9.62 a week for about half a million families annually, delivering over $993million in additional payments over four years.
  • The Government will extend eligibility for the Large Family Supplement of $248 a year to families with three children with effect from 1July2006. This will cost $497million over four years.
  • The Maternity Payment will increase from $3,166 per child to $4,000.
  • A family will be eligible for up to 24 hours of Child Care Benefit a week without meeting the work/study/training test (up from 20 hours).
  • To improve the supply of child care, the Government is removing the cap on the number of outside school hours care and family day care places, at a cost of $60million over four years. It is estimated that an additional 25,000 places will be created by this initiative. Overall, childcare places are expected to increase to more than 700,000 by 2009, compared to 307,000 in 1996.

Other

  • The new fuel tax credits arrangements announced in the Energy White Paper on 15June 2004 are to be progressively implemented over a six-year period commencing on 1July2006 and with final changes implemented on 1July2012. These new expanded arrangements will replace the current complex system of administering fuel tax concessions with a single system of fuel tax credits claimable via the BAS. When fully implemented, the Australian TaxOffice estimates that up to 1.2 million businesses may be eligible for fuel tax credits, which represents a significant increase to the claimant population of 185,000 under the existing Energy Grants Credits Scheme.
  • A number of changes to the petroleum resource rent tax (PRRT) are being made to reduce compliance costs, improve administration and remove inconsistencies in the PRRT regime. The changes are consistent with the Government’s overall approach to taxation reform directed at simplifying Australia’s taxation system and making the Australian taxation system internationally competitive.
  • The part-year tax free threshold for students ceasing full-time education for the first time will be removed. This will extend the full tax free threshold of $6,000 to all resident taxpayers that cease full-time education for the first time. This will reduce compliance costs for taxpayers who have finished full-time education for the first time by removing the requirement for these taxpayers to calculate a part-year tax free threshold, and will end the requirement for taxpayers to isolate income (and any deductions) attributable to the period during which a taxpayer was engaged in full-time study.
  • The Government will enhance the wine equalisation tax (WET) producer rebate scheme, with effect from 1 July 2006. Currently, the WET producer rebate scheme provides a WET rebate of up to $290,000 to each wine producer (or group of producers) each financial year. From 1 July 2006, each wine producer (or group of producers) will be able to claim an increased maximum rebateable amount of $500,000 each financial year.

Measures already in place

  • To assist with the cost of household bills, the Government has provided a one-off payment of $102.80 to each household with a person of Age or Service Pension age eligible for Utilities Allowance and to each self-funded retiree eligible for Seniors Concession Allowance. These were paid by 30June2006 at an estimated cost of $193million.
  • The Government is also extending eligibility for the Utilities Allowance to recipients of Mature Age Allowance, Partner Allowance and Widow Allowance. By 30June2006 they each received the same one-off payment as those currently eligible for Utilities Allowance. They will then receive Utilities Allowance every six months from September 2006, at a cost of $36million.
  • The Government also recognises the special contribution of those who look after people with a disability, and provided a $1,000 bonus payment to recipients of the Carer Payment and a $600 bonus payment to recipients of Carer Allowance, by 30June2006, at a cost of $358million. The $1,000 payment was also made to people who receive both Carer Allowance and either the Wife Pension or the Veterans’ Affairs Partner Service Pension.
  • The Government has increased the diminishing value rate for determining depreciation deductions, from 150per cent to 200per cent, for all eligible assets acquired on or after 10May 2006. This will more accurately align depreciation deductions for tax purposes with the actual decline in the economic value of assets. It will increase the incentives for Australian businesses to undertake the investment in plant and equipment necessary for them to keep up with new technology and to remain competitive. This measure is expected to benefit Australian businesses by around $3.7billion over four years.