Clean energy personal tax changes
17 April 2012
The Gillard Government’s Clean Energy Future plan is expected to result in an increased cost of living for most Australians.
Government modelling suggests the overall increase in the cost of living for average Australian households due to carbon pricing is expected to be modest – an increase of 0.7 per cent in the consumer price index (CPI) in 2012-13. On average, food is expected to go up by less than $1 per week, the average household electricity bill is expected to go up by $3.30 per week and the average gas bill is expected to go up by $1.50 per week.
In response, 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 CHANGES
With effect from 1 July 2012, the tax-free threshold will rise from $6,000 to $18,200. The first marginal tax rate will be increased from 15% to 19%, and will apply to taxable income that exceeds $18,200 up to $37,000.
The second marginal tax rate will be increased from 30% to 32.5% and will apply to taxable income that exceeds $37,000 up to $80,000.
Despite the increased marginal tax rates, taxpayers with incomes below $80,000 will receive a tax cut due to the increased tax-free threshold. Tax cuts by income are shown in the table below.
PHASE 2 TAX CHANGES
Further tax cuts will be delivered in 2015 by increasing the tax free threshold to $19,400. This will mean people with incomes below $80,000 will get further tax cuts, with most receiving at least $386 per year from the two rounds of tax cuts combined.
Tax Cuts by Income
|TAXABLE INCOME|| FROM 1 JULY 2012
TAX CUTS PER ANNUM
| FROM 1 JULY 2015
TAX CUTS PER ANNUM
|$30,000 to $65,000||$303||$83||$386|
|$80,000 and above||$3||$13||$16|
LOW INCOME TAX OFFSET (LITO)
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 the LITO will be reduced from $1,500 to $445 and will begin to be phased out at the reduced rate of 1.5 cents for every dollar of taxable income above $37,000.
From 1 July 2015 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 above $37,000.
The New Tax Scales
* Includes the effect of the tax free threshold and the low income tax offset (LITO).
The income threshold for the Medicare levy and Medicare levy surcharge and phase-in limits will be raised from 1 July 2012 to ensure individuals do not have a Medicare levy liability where they face no income tax liability.
If you would like further information, please contact your Boyce Accountant.