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Individuals

In his pre-Budget address to the Australian Chamber of Commerce and Industry, the Prime Minister promised that one of the centrepieces of this year's Federal Budget would be a package to support families. In line with this promise, as expected, this Budget has a focus on childcare support for working parents with the aim of enticing more people to enter or stay in the workforce.

Individual taxpayers have been spared any direct tax increases, but some are likely to be impacted by a range of other measures announced as part of this Budget, including the childcare package and changes to pension asset thresholds.

Income tax rates

There have been no changes announced to the personal income tax rates for Australian tax residents or non-residents. However, the Government previously announced its intention to repeal already enacted personal income tax cuts due to commence on 1 July 2015. Accordingly, the personal income tax rates for the 2015-16 year should remain at their 2014-15 levels.

As the Government's recent tax reform discussion paper indicates, as the average income of Australians increases with wage inflation, without a corresponding change in income tax thresholds, an increasing number of taxpayers find themselves in higher marginal tax brackets – otherwise known as 'bracket creep'. Without any changes to personal tax rates this long-standing issue remains for another year. It is becoming inevitable that any comprehensive reform of the tax system will need to address this issue, with the Treasurer having previously acknowledged that "over time, unchecked bracket creep could potentially reduce workplace participation and dampen the benefits afforded to the community by higher participation rates".

The proposed tax rates for the 2015-16 income year ahead are contained within the tables below:

Taxable income threshold range ($) Resident individual 2015-16 marginal income tax rate (%) * Non-resident individual 2015-16 marginal income tax rate (%) *
0 - 18,200 0 32.5
18,201 – 37,000 19 32.5
37,001 – 80,000 32.5 32.5
80,001 - 180,000 37 37
180,001 + 45 45

There was also no change to the temporary budget repair levy which continues to apply until 30 June 2017. The levy applies at a rate of 2 per cent on that part of an individual's taxable income exceeding $180,000.

The following table sets out the amount of income tax and temporary budget repair levy payable on a range of taxable income amounts of a resident individual, ignoring the Medicare levy and surcharge, the low income tax offset and any other tax offset entitlements.

Taxable income ($) 2015-16 tax payable ($) * Temporary Budget Repair Levy ($) Total ($)
37,000 3,572 0 3,572
75,000 15,922 0 15,922
100,000 24,947 0 24,947
150,000 43,447 0 43,447
180,000 54,547 0 54,547
200,000 63,547 400 63,947
300,000 108,547 2,400 110,947
400,000 153,547 4,400 157,947

* Note: Pending enactment of changes contained in Labor 2013-14 Budget Savings (Measures No. 1) Bill 2014

Medicare

No new changes were announced in relation to the Medicare levy rate, which is set at 2 per cent of taxable income (since 1 July 2014).

For the 2014-15 year, the Medicare levy low-income thresholds have been increased for singles, families, and single seniors and pensioners. The movements aim to offset growth in the Consumer Price Index (CPI) to ensure that low-income taxpayers are exempt from paying the Medicare levy. The increased thresholds are:

  • Individuals $20,896 (increased from $20,542)
  • Families $35,261 (increased from $34,367), with an additional $3,238 for each dependent child or student
  • Single seniors and pensioners $33,044 (increased from $32,279)

Private health insurance and Medicare levy surcharge

The private health insurance rebate percentage is indexed annually at 1 April. Indexation of the Medicare levy surcharge income thresholds has been paused until 1 July 2018 in accordance with the Government's announcement in last year’s Federal Budget.

Accordingly, the current rebate entitlements and surcharge applicable to those individuals who do not have the appropriate health insurance hospital cover, from 1 April 2015 to 31 March 2016 are as follows:

  Full entitlement Tier 1 Tier 2 Tier 3
Taxable income
Singles $90,000 or less $90,001 - $105,000 $105,001 - $140,000 > $140,000
Families $180,000 or less $180,001 - $210,000 $210,001 - $280,000 > $280,000
Rebate
Aged under 65 years 27.820% 18.550% 9.270% 0%
Aged 65 - 69 years 32.460% 23.180% 13.910% 0%
Aged 70 or over 37.090% 27.820% 18.550% 0%
Medicare Levy surcharge
All ages 0.0% 1.0% 1.25% 1.5%

Note: For families with children, the thresholds are increased by $1,500 for each child after the first.

Changes to the income tax deduction rules for car expenses

The Government has announced the following changes in relation to the available income tax deduction methods for car expenses applicable from 1 July 2015:

  • Removal of two calculation methods for work-related deductions for car expenses; and
  • The introduction of a flat rate when applying the 'cents per kilometre method'.

The measures remove the availability of the '12 per cent of original value method' and the 'one-third of actual expenses method' for calculating deductions, leaving the 'logbook method' and 'cents per kilometre method' as the only available options.

In addition, the 'cents per kilometre method' will be amended to a flat 66 cents per kilometre rate for all cars, regardless of engine size. The Commissioner of Taxation will be responsible for updating this rate in future years.

The stated intent of these changes is to streamline the process of calculating deductions, reduce compliance cost, and bring the car expense deductions more in line with the average cost of operating a car.

Superannuation

No significant superannuation changes have been announced in this year's Budget. This is not surprising as we are in the midst of a tax reform process so it is unlikely that the Government will make any major changes to the superannuation system until the consultation process has been finalised.

As previously announced, the Government has relaxed the criteria for release of superannuation benefits for those members under preservation age with a terminal medical condition. Currently a member is required to have two medical practitioners (including a specialist) certify that they are likely to die within one year in order to access their superannuation benefits. From 1 July 2015, the period will be extended to two years, to give members in this position earlier access to their benefits.

A new measure announced in the Budget will remove existing red-tape to make it easier for individuals to find lost and unclaimed superannuation from 1 July 2016.

Childcare package

The Government has delivered on its promise to allocate funding in this year's Federal Budget to support childcare for working parents, with the announcement of a 'Jobs for Families' childcare package. According to the Government's research, the measures are estimated to encourage 240,000 families to increase their involvement in paid employment.

Following the Productivity Commission inquiry into childcare and early childhood learning which released its findings earlier this year, the Government announced prior to the Federal Budget a new Child Care Subsidy model that comprises a single means-tested subsidy paid directly to approved childcare centres, with the rate varying based on family income and subject to a work activity test. It is proposed that families earning less than $60,000 receive a subsidy of 85 per cent of the actual fee paid, up to an hourly fee cap. This rate will then taper to a subsidy of 50 per cent of out-of-pocket expenses for families earning $165,000 or more. For families on incomes of $180,000 or more, the subsidy will be capped at $10,000 per child per year. The new subsidy is set to apply from 1 July 2017.

Other aspects of the package include:

  • a scheme to provide funding for families to access home care services provided by nannies; and
  • targeted support to disadvantaged or vulnerable families to address barriers to access childcare.

Other personal tax measures

  • Family Tax Benefit (FTB) Part A large family supplement will cease from 1 July 2016. However families will continue to receive a per child rate FTB Part A for each eligible child in their family. Additionally the amount of time that FTB Part A will be paid to recipients who are outside of Australia will be reduced.
  • From 2016-17, Higher Education Loan Program (HELP) debtors residing overseas for six months or more will be required to make repayments of their debt, where their worldwide income exceeds the same minimum repayment threshold which applies to debtors in Australia (currently $53,000).
  • From 1 July 2015, 'fly-in, fly-out' and 'drive-in, drive-out' workers will be excluded from accessing the Zone Tax Offset if their normal place of residence is not within a 'zone'. Only those taxpayers who have taken up 'genuine' residence in a remote area will be able to access the offset going forward.
  • From 1 July 2016, most working holiday makers to Australia will be considered non-residents for tax purposes, regardless of the length of time of their working holiday. As a result they will be subject to non-resident tax rates from their first dollar of income.
  • From 1 July 2016, the income tax exemption is removed for government employees earning income when delivering delivering Official Development Assistance overseas for more than 90 continuous days.

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Naree Brooks

Partner, Private Clients, PwC Australia

Tel: +61 (3) 8603 1200

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