Say goodbye to 2015/2016 income tax cuts

Due to a budget blowout caused by “an over-hang from the global financial crisis and strong Australian dollar”, the federal government has informally announced (drip fed via a series of casual comments in various interviews) that the income tax cuts, that were to take effect from 1 July 2015, are no longer going to happen. I recall one minister claiming that the tax cuts were only deferred for a later date, but when this government says ‘deferred’, it generally means ‘never going to happen’. I explain what these tax cuts were going to be later in this article, including what tax rates will now apply for future years.

In a separate informal announcement (via another series of casual comments in interviews), the government has cancelled the proposed increase in Family Tax Benefit payments. The increase in Family Tax Benefit Part A payments was to come into effect on 1 July 2013, and would have delivered up to $300 a year for single-child families and up to $600 a year for multiple-child families. The cancellation of this increase to the FTB payments is due to the lower-than-expected tax collection from the Mineral Resource Rent Tax.

Note: On Federal Budget night (14 May 2013), the Treasurer Wayne Swan announced that the baby bonus would be abolished from 1 March 2014, but would be replaced with new family payments for newborns involving adjustments to the Family Tax Benefits Part A. The increased FTB-A payments will be $2,000 for the first child, and an additional $1,000 for each child after the first. Another key difference between the 2 schemes is that it is harder to get the FTB-A ( threshold is about $112,000), than the baby bonus (threshold is about $150,000).

No more 2015/2016 tax cuts

The income tax cuts that were to take place from 1 July 2015 will no longer happen: the 2015/2016 tax cuts would have raised the tax-free threshold from $18,200 to $19,400, while also increasing the tax rate for those earning over $37,000 (but under $80,000) by 0.5%. I believe the small increase in the tax rate for this income group was designed to partially offset the increase in the tax-free threshold (see Table 1 below).

Note: The tax cuts that took effect from the 2012/2013 financial year will remain in place, which includes a tax-free threshold of $18,200 (see Table 2 below). Under the current income tax rules you can earn up $20,542 (when taking into account the Low Income Tax Offset) before income tax is payable. Note that prior to 1 July 2012, the tax-free threshold was only $6,000, although you could earn up to $16,000 before income tax was payable due to LITO.

Table 1: Current income tax rates and proposed

 

Current

Proposed (now cancelled)

Tax scales

2012/2013 year onwards  

From 2015/2016 year

Threshold $ Marginal rate Threshold $ Marginal rate
1st rate 18,201 19% 19,401 19%
2nd rate 37,001 32.5% 37,001 33%
3rd rate 80,001 37% 80,001 37%
4th rate 180,001 45% 180,001 45%
LITO Up to $445 1.5% withdrawal rate on income over $37,000 Up to $300 1% withdrawal rate on income over $37,000
Effective tax-free threshold* 20,542 20,979

Source: Adapted from the Office of the Deputy Prime Minister and Treasurer 2011, Joint media release with Prime Minister (No .081) 10 July 2011, ‘Combining tax cuts with significant tax reform’, *Includes the effect of the tax-free threshold and the low income tax offset (LITO)

Table 2: Income tax rates for 2012/2013 financial year (and future years)

Income Marginal tax rate Tax payable
$0-$18,200 0% Nil
$18,201- $37,000 19% 19 cents for each $1 over $18,200
$37,001-$80,000 32.5% $3,572 plus 32.5 cents for each dollar over $37,000
$80,001-$180,000 37% $17,547 plus 37 cents for each dollar over $80,000
$180,001 and above 45% $54,547 plus 45 cents for each dollar over $180,000

Source: Adapted from information on the ATO website (www.ato.gov.au). Note that Medicare Levy of 1.5% is also payable by most taxpayers. 

For more information on income tax rates see SuperGuide article Australian income tax rates for the 2012/2013 and 2013/2014 years (this article also contains the tax rates for the 2011/2012 year).

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

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