On 10 July 2011, the Australian Government announced changes to the personal income tax system as part of the plan for a clean energy future. The tax changes will reform the structure of the personal tax system, making it simpler and more transparent.
From 1 July 2012, the Government will deliver tax cuts to low and middle-income individuals by increasing the tax-free threshold and adjusting the first two marginal tax rates over two phases.
Phase 1 tax cuts
From 1 July 2012, the tax-free threshold will rise from $6,000 to $18,200, and the maximum value of the Low-income tax offset (LITO) will be reduced from $1,500 to $445.
The first marginal tax rate will be increased from 15 per cent to 19 per cent, and will apply to that part of taxable income that exceeds $18,200 but does not exceed $37,000.
The second marginal tax rate will be increased from 30 per cent to 32.5 per cent, and will apply to that part of taxable income that exceeds $37,000 but does not exceed $80,000.
Phase 2 tax cuts
From 1 July 2015, the tax-free threshold will rise from $18,200 to $19,400, and the LITO will be reduced from $445 to $300. The second marginal tax rate will increase from 32.5 per cent to 33 per cent and will apply to that part of taxable income that exceeds $37,000 but does not exceed $80,000.
Tax rates 2012-13
The following rates for 2012-13 apply from 1 July 2012:
| Taxable income | Tax on this income |
| 0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
Tax rates 2015-16
The following rates for 2015-16 apply from 1 July 2015:
| Taxable income | Tax on this income |
| 0 – $19,400 | Nil |
| $19,401 – $37,000 | 19c for each $1 over $19,400 |
| $37,001 – $80,000 | $3,344 plus 33c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,534 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,534 plus 45c for each $1 over $180,000 |
Low income tax offset changes
From 1 July 2012, the low income tax offset (LITO) threshold will increase from $30,000 to $37,000, with individuals entitled to receive the offset if their taxable income is below $66,667. The maximum value of $445 will begin to be phased out at the reduced rate of 1.5 cents for every dollar of taxable income over $37,000.
From 2015-16, individuals will be entitled to receive the LITO if their taxable income exceeds $37,000 but does not exceed $67,000. The maximum value of the LITO will be reduced to $300 and will begin to be phased out at the rate of 1 cent for every dollar of taxable income over $37,000.
Low income tax offset: summary table
| 2011-12 | 2012-13 | 2015-16 | |
| Amount | $1,500 | $445 | $300 |
| LITO begins to be reduced at | $30,000 | $37,000 | $37,000 |
| You are no longer eligible for LITO at | $67,000 | $66,667 | $67,000 |
| Withdrawal rate | 4.0% | 1.5% | 1.0% |
Pensioner and senior Australians tax offsets
From 1 July 2012, the pensioner tax offset (PTO) will no longer be available. Individuals previously eligible for the PTO will be eligible for the senior Australians tax offset (SATO). To reflect this merger, SATO will be known under the new name of senior and pensioner tax offset (SAPTO)
Medicare levy low-income threshold and Medicare levy surcharge
From 1 July 2012, the amendments raise the low-income threshold amounts and phase-in limits to ensure individuals do not have a Medicare levy liability where they face no income tax liability.
Specific threshold categories are as follows:
Senior and pensioner tax offset (SAPTO)
The low-income threshold for individuals entitled to the new SAPTO will be $32,279. The phase-in limit for recipients will increase from $36,100 to $37,975.
The same threshold of $32,279 will apply for calculations regarding PTO and SATO recipients who will now be under the new SAPTO.
Persons entitled to both the SAPTO and the Beneficiary tax offset (BTO) will only be able to claim one of the offsets, whichever is the greatest in value.
Other individuals
The low-income threshold amount for a single individual with no dependants will increase from $18,839 to $20,542. The phase-in threshold limit for recipients will increase from $22,163 to $24,167.
Family thresholds
The family threshold for individuals with a spouse and/or dependants who are entitled to a SATO offset will increase from $44,500 to $46,000, with both seniors and pensioners entitled to the new SAPTO. The phase-in threshold limit for recipients will increase from $52,352 to $54,117.
The family threshold for other families (known as non-SATO families) has not increased. The lower threshold limit remains at $31,789. The phase-in threshold limit remains at $37,398, with the up-lift factor for each additional child remaining at $2,919.
For further information, please don’t hesitate to contact the team at Barker & Jennings.