Tax Offsets

Low-income tax offset

The Low income tax offset reduces the tax payable by low income earners. You are not eligible for the LITO if your income is over $66,667.

Changes are:

The maximum value of the LITO reduces from $1,500 to $445.
The LITO of $445 will be reduced by 1.5 cents for each dollar of taxable income over $37,000.

The combined effect of the increased tax-free threshold and the reduced LITO is that individuals with taxable incomes up to $20,542 will not pay income tax. Individuals with a taxable income of less than $80,000 will receive a tax cut.

Most will receive a tax cut of around $300 a year which equates to six dollars per week to compensate for the impact of the carbon tax and of course CPI.

Schoolkids Bonus to Replace Education Tax Offset

The Government will make a new ‘no-strings attached’ cash payment (The Schoolkids Bonus) to certain families with children at school.

$410 for each child in primary school;
$820 for each child in high school.

The Schoolkids Bonus is not a taxable payment and will be available to families receiving Family Tax Benefit Part A plus young people in school receiving Youth Allowance and some other income support.

As part of the transition to the new Schoolkids Bonus, the Education Tax Refund for 2011/12 has been paid out in full to all eligible families as a lump sum payment in June 2012. It will then be paid in January and July each year. This means families will receive their full Education Tax Refund entitlement ahead of tax time so no claim will be made on the 2012 tax return. Unfortunately for taxpayers who had excess expenses carried forward from the prior years will not be able to claim these.

Medical Expense Offset is Now Means Tested

From 1 July 2012 the tax offset for medical expenses will be means tested.

For taxpayers with an adjusted taxable income (ie after adding back salary sacrifice, fringe benefits, rental property losses, less child support you had paid) above the Medicare levy surcharge thresholds , ($84,000 for singles and $168,000 for couples or families in 2012/13), the threshold above which a taxpayer may claim the medical expenses offset will be increased to from $2,000 to $5,000 (indexed annually thereafter).

Not only that, the rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses incurred. People with income below the surcharge thresholds will be unaffected. The medical expenses tax offset or rebate for those people will be 20% of the excess out of pocket expenses over $2,060 for the 2011/12 year. This threshold is indexed annually to the CPI.

Mature age worker tax offset

The mature age worker tax offset will be abolished from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the mature age worker tax offset will be maintained for taxpayers who are 55 or older in 2011-12. The maximum offset of $500 is currently available for mature age workers with net income from working between $10,000 and $53,000

Senior Australian & Pensioner Tax offsets

From 1 July 2012, the pensioner tax offset will no longer be available and all individuals previously eligible for the pensioner tax offset will be eligible for the SATO, which will be known as the seniors and pensioners tax offset (SAPTO).

Currently, the maximum amounts of SATO are $2,230 for a single, $1,602 for a member of a couple not separated by illness and $2,040 for a member of a couple separated by illness. In the 2011 year this allowed a single person to earn up to $30,685 and a couple combined income of $53,350 and not pay any income tax.

Dependent Offsets to be Consolidated

For the year ended June 2012, the dependent spouse offset can only be claimed for spouses born on or after 1 July 1971. This offset will then be abolished for the tax year commencing 1 July 2012.

From 1 July 2012, the eight dependency tax offsets will be consolidated into a single, non-refundable offset. The new offset will only be available to taxpayers who maintain a dependant who is genuinely unable to work due to carer obligation or disability.

Entrepreneur’s tax offset

This was a tax concession for micro businesses with turnover less than $70,000, and has been abolished from 1 July 2012.

Limit on ETP Offset for ‘Golden Handshakes’

The Government will limit the availability of the employment termination payment (ETP) tax offset. Presently, the ETP tax offset ensures that ETPs are taxed at a maximum rate of 15% for those over preservation age and 30% for those under preservation age, up to an indexed cap ($165,000 in 2011/12 and $175,000 in 2012/13).

From 1 July 2012, only that part of an affected ETP, such as a “golden handshake”, that takes a persons total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset. Amounts above this whole of income cap will be taxed at marginal rates.
Existing arrangements will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment related dispute and death.

Living away from Home Allowance

There are changes to the Living away from home allowance which is going to have a significant effect on employees such as those working away in the mining industry.

Under the existing rules, a living away from home allowance could only be taxed through the FBT rules. It is not included in an employees’ assessable income, and was not reported on the employee’s payment summary, but was taken care of by the employer.

However from July 1 2012, The living away from home allowances will be paid to an employee as assessable income and reported on their PAYG payment summary. Employers will be required to withhold tax, and it is up to the employee to claim a deduction against this allowance in their tax return. The employee must substantiate their claims by providing substantiation for their actual accommodation expenses, otherwise no deduction will be allowed.

A statutory food amount will be allowed up to a reasonable food component, yet to be published by the ATO. However, full substantiation must be provided if food is in excess of this statutory amount.

Cuts & Deferrals

Standard Deductions Axed – The Government announced that it would not proceed with the 2010/11 Budget announcement to provide a standard tax deduction amount for work-related expenses and the cost of managing tax affairs. This was due to commence on 1 July 2013.
Company Tax Cut Not Proceeding – The Treasurer has announced that the proposed reduction in the Company tax rate from 30% to 29% will not proceed. The Treasurer’s explanation was that it had become clear that the proposed rate cut would not be approved by Parliament.
Discount for Interest Income Scrapped – The Government will not proceed with the 2010/11 Budget announcement for a 50% discount for interest income which was due to commence on 1 July 2013.