Personal tax

There were no fundamental tax changes and no further tax cuts.

Deductions against Government assistance payments to be disallowed

As speculated, the tax law will be amended to prevent deductions being claimed against all Government assistance payments, in response to the 2010 High Court decision in Commissioner of Taxation v Anstis [2010] HCA 40. These amendments will have effect from 1 July 2011. This measure is intended to provide certainty as to the scope of eligible deductions. Commencing the measure from 1 July 2011 will allow individuals who receive Youth Allowance (Student) to claim a deduction for expenses incurred in gaining their payment for the 2010-11 income year. This is to ensure individuals who have maintained records of their expenditure, following the High Court decision, are not precluded from claiming a deduction. For each of the 2006-07 to 2009-10 income years, the Commissioner of Taxation has determined that he will administer the law to allow eligible taxpayers to receive an automatic deduction of $550 or make potentially higher claims if expenses can be substantiated.

Changes to the low income tax offset

From 1 July 2011, the low income tax offset that is delivered to low and middle income earners through their regular pay during the year will increase from 50 per cent to 70 per cent of their total entitlements. The remaining 30 per cent of their low income tax offset benefit will still be paid as a lump sum on assessment of their income tax returns. An individual's total low income tax offset entitlement, for any one tax year, will remain unchanged. This change means instead of being compensated after the individual lodges their tax return, lower income earners are taxed less during the year.

Changes to the low income tax offset for non-work income of minors

From 1 July 2011, minors will no longer be able to use the low income tax offset to reduce income tax payable on their non-work income, such as dividends, interest, rent or royalties and other income from property. This measure is intended to discourage income splitting between adults and children. Minors will continue to be able to use the low income tax offset to reduce income tax due on their work income. This means that children under 18 will face the same tax rates on their income from work as those over 18 years. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors, will not be affected by this measure. This measure will have a wide impact across many family businesses and the small to medium enterprise sector.

Medicare levy low income thresholds increase

From the 2010-11 income year, the Medicare levy low-income threshold will increase to $31,789 (from $31,196) for couples, and to $18,839 (from $18,488) for singles. The additional amount of threshold for each dependent child or student will also be increased to $2,919 (from $2,865). The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased. From 1 July 2010, the threshold will rise to $30,439 (from $27,697). 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.

Phase out of dependent spouse tax offset

To encourage younger dependent spouses without children to seek paid employment, the tax offset for dependent spouses will be phased out. From 1 July 2011 taxpayers with a dependent spouse born on or after 1 July 1971 (i.e. a dependent spouse less than 40 years old) will no longer be eligible for the dependent spouse tax offset. Taxpayers whose dependent spouse is a carer, who is an invalid or permanently unable to work and taxpayers eligible for the zone, overseas forces or overseas civilian tax offsets will not be affected by this change. Dependent spouses with children are not affected by this measure because they are eligible for Family Tax Benefit Part B rather than the dependent spouse tax offset.

Family tax benefit

Family Tax Benefit Part A payments for families with teenagers will be increased by up to $4,208 per year to support families to keep their teenagers in school or vocational training.

Special Disability Trust (SDT) – reform of CGT main residence exemption

Since 2006, families have been able to establish an SDT to provide for the current and future care and accommodation needs of a family member with a severe disability (the "principal beneficiary"). SDTs attract social security means test concessions for the eligible contributors and the principal beneficiary. Until now however, a number of income tax barriers have discouraged the creation of SDTs. In a welcome move, the Government has announced that it will retrospectively change the tax law to:
  • provide a capital gains tax (CGT) exemption for assets transferred into an SDT for no consideration
  • backdate the application of the 2009-10 budget measure that provides a CGT main residence exemption for SDTs to 2006-07
  • provide a CGT exemption for the recipient of the principal beneficiary's main residence, if disposed of within two years of the principal beneficiary's death, and
  • ensure equivalent taxation treatment amongst SDTs established under the Veterans' Entitlements Act 1986 (current rules limit the definition of SDTs in the tax law to SDTs established under the Social Security Act 1991).
These changes will apply from the 2006-07 income year, to align with when SDTs were first able to be established. The changes will initially be released in exposure draft form for community consultation.

Personal income tax rates

There has been no change to the individual income tax rates*. The current legislated tax rates, applicable for the 2011-12 income year, are set out in the table below.

Tax threshold Income range ($) 2011-12 (%)
0 - 6,000 0
6,001 - 37,000 15
37,001 - 80,000 30
80,001 - 180,000 37
180,000+ 45

* Rates shown relate to resident adult individual taxpayers. Excludes Medicare levy, Flood and Cyclone Reconstruction levy and any tax offset entitlements.

Personal income tax comparison chart*

Taxable Income ($) 2011-12 ($)
50,000 8,550
75,000 16,050
100,000 24,950
150,000 43,450
200,000 63,550
300,000 108,550
400,000 153,550
500,000 198,550

* Amounts shown relate to resident adult individual taxpayers. Excludes Medicare levy, Flood and Cyclone Reconstruction levy and any tax offset entitlements.

Flood and cyclone reconstruction levy

A Flood and Cyclone Reconstruction levy has been introduced to raise funds to assist those affected by the recent natural disasters. The levy of 0.5 per cent will be applied on taxable income between $50,001 and $100,000 and a levy of one per cent will be applied on taxable income above $100,000. Individuals earning under $50,000 of taxable income or those affected by the specified natural disasters will not be liable to pay the levy. This levy will only apply to the 2011-12 tax year.

Minimal impact for individuals

There were again minimal changes in the personal tax context. The paucity of personal tax changes may well reflect the fact personal tax bands are sufficiently well spread to ensure most Australians do not suffer an excessive tax burden. The targeting of the dependent spouse tax offset for phasing out in respect of spouses born on or after 1 July 1971 may seem insignificant but by the same token is consistent with the thinking behind the abolition of the entrepreneurs' tax offset in favour of the more widely targeted small business tax breaks.

Superannuation contributions continue to be capped at $25,000 per year, albeit the Government is continuing its consultation process over the extension of the $50,000 cap for persons aged 50 years and over beyond 2011-12 (and subject to superannuation balances below $500,000). The "penalty tax regime" on excess contributions is proposed to be relaxed from 1 July 2011 on a once only basis for excess concessional contributions up to $10,000. While this proposal is welcomed, it does not really address the issue of inadvertent breaches of the cap and is not retrospective.