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Personal Tax

Individual taxpayers have been spared any direct tax increases, but some high-income earners are likely to be impacted by a range of other measures announced as part of this Budget, including the reforms to superannuation. Some middle-income earners have been afforded modest tax relief with a slight change to the threshold from which the second-highest marginal tax bracket applies.

Income tax rates

It is well known that 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'. It is becoming inevitable that any comprehensive reform of the tax system will ultimately need to address this issue, since bracket creep if left unchecked has the potential to reduce workplace participation. For broader analysis on this issue please refer to the recent PwC Australia publication 'Bracket creep: Do we treat the symptoms or cure the disease?'

We see in this Federal Budget a modest attempt to address the current bracket creep via the announced proposal to increase the threshold at which the second-highest marginal tax bracket of 37 per cent begins to apply, from $80,001 to $87,001. According to the Government’s modelling, this will prevent approximately 500,000 taxpayers from entering this tax bracket until the 2019-20 income year.

The proposed tax rates for the coming 2016-17 income year are contained within the tables below:

Taxable income threshold range ($) Resident individual 2016-17 marginal income tax rate (%) Non-resident individual 2016-17 marginal income tax rate (%)
0 - 18,200 0 32.5
18,201 – 37,000 19 32.5
37,001 – 87,000 32.5 32.5
87,001 - 180,000 37 37
180,001 + 45 45

The Government has not proposed any extension to the Temporary Budget Repair levy which will apply until 30 June 2017, after which it will be abolished. The levy applies at a rate of 2 per cent on that part of an individual's taxable income exceeding $180,000.

The Government has also not proposed any changes to the rules for allowing tax deductions for work related expenses.

The following table sets out a comparative of the amount of income tax and Temporary Budget Repair levy payable on a range of taxable income amounts of a resident individual for the current tax year and for the year commencing 1 July 2016, ignoring the Medicare levy and surcharge, the low income tax offset and any other tax offset entitlements.

Taxable income ($) 2015-16 tax payable ($) 2016-17 tax payable ($) Temporary Budget Repair levy ($) - remains same for both tax years 2015-16 total payable ($) 2016-17 total payable ($)
37,000 3,572
3,572 0 3,572 3,572
75,000 15,922 15,922 0 15,922 15,922
100,000 24,947 24,632 0 24,947 24,632
150,000 43,447 43,132 0 43,447 43,132
180,000 54,547 54,232 0 54,547 54,232
200,000 63,547 63,232 400 63,947 63,632
300,000 108,547 108,232 2,400 110,947 110,632
400,000 153,547 153,232 4,400 157,947 157,632

Medicare

The Medicare levy rate remains at 2 per cent of taxable income.

However, for the 2016-17 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 $21,335 (increased from $20,896)
  • Families $36,001 (increased from $35,261), with an additional $3,306 for each dependent child or student (increased from $3,238)
  • Single seniors and pensioners $33,738 (increased from $33,044), senior and pensioner couples $46,966 (increased from $46,000)

Private health insurance and Medicare levy surcharge

The private health insurance rebate percentage is indexed annually at 1 April. Note that the pause on indexation of the Medicare levy surcharge income thresholds is proposed to be extended until 30 June 2021.

Accordingly, the current rebate entitlements and surcharge applicable to those individuals who do not have the appropriate health insurance hospital cover, from 1 April 2016 to 31 March 2017 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 26.791% 17.861% 8.930% 0%
Aged 65 - 69 years 31.256% 22.326% 13.395% 0%
Aged 70 or over 35.722% 26.791% 17.861% 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.

Other

As expected, the Government did not announce any changes to remove or limit ‘negative gearing’ for rental property investment.

The Government also made no announcement in regards to the so-called ‘backpacker tax’ measures which were announced in the 2015-16 Budget. The original proposal, which was scheduled to apply from 1 July 2016 to treat most working holiday makers to Australia as non-residents for tax purposes, regardless of the length of time of their working holiday, has most recently been subject to further consideration.

Contact us

Norah Seddon

Australia and Asia Pacific People & Organisation Tax Leader, PwC Australia

Tel: +61 2 8266 5864

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