Taxation Personal income tax


Budget Review 2009-10 Index

Budget 2009 10: Taxation

Personal income tax

Les Nielson

There were several major developments in respect to personal income tax in the 2009–2010 budget:

  • the previously legislated reductions in marginal personal income tax rates and the Low Income Tax Offset remained un-changed
  • the tax rebate in respect to personal health insurance was reduced
  • significant alterations in the tax treatment of employee share schemes were set up, and
  • changes occurred to the tax treatment of income earned overseas.

Personal income tax rates

The following table illustrates the personal income tax rates for the 2009–2010 tax year.

Marginal personal income tax rates 2009-2010

Taxable Income
$ p.a.

Tax on Income
$ p.a.

Tax on excess
(marginal rate) %

Nil to 6000

0

15

35 000

4350

30

80 000

17 850

38

180 000

55 850

45

Source: CCH, Australian Master Tax Guide, 2009

In the 2010–2011 tax year the personal marginal tax rates will again reduce. The following table illustrates these rates at that time.

Marginal personal income tax rates 2010-2011

Taxable Income
 $ p.a.

Tax on Income
 $ p.a.

Tax on excess
(marginal rate) %

Nil to 6000

0

15

37 000

4650

30

80 000

17 550

37

180 000

54 550

45

Source: CCH, Australian Master Tax Guide, 2009

The major changes are the increase in the second marginal tax threshold from $35 000 to $37 000 and a reduction in the marginal tax rate beginning at the $80 000 threshold from 38 to 37 per cent.

Low Income Tax Offset

These changes will be accompanied by further reductions in the Low Income Tax Offset, including:

  • for the 2009-2010 tax year the maximum offset will be $1350. The effect of this offset is that no tax is payable on incomes up to $15 000 in 2009–2010. This offset finally cuts out once a taxpayer’s assessable income reaches $63 750 in this tax year, and
  • for the 2010–2011 year the maximum offset will be $1500. The effect of this increase is that no tax is payable on income up to $16 000 in 2010–2011. The Low Income Tax Offset is no longer available once the taxpayer’s income reaches $67 500 in this tax year.

The Low Income Tax Offset does not reduce a person’s liability for the Medicare Levy.

Personal health insurance tax rebate

Currently, a tax rebate (or offset) of 30 per cent of the annual premium paid is available to persons who take out complying health insurance. Those with taxable income (including reportable fringe benefits) over $70 000 p.a. in 2008–2009 who do not take out health insurance are subject to the Medicare Levy Surcharge of 1 per cent of taxable income.

From 1 July 2010 the Budget proposes to introduce a three tier scheme, where the rebate varies according to assessable income for Medicare Levy purposes. The following table, from Budget Paper No. 2: 2009–10, illustrates the current and proposed changes.

Projected and Proposed Private Health Insurance Rebates

 

Current surcharge
thresholds
(projected 2010–11)

Tier 1

Tier 2

Tier 3

Singles

$0 - $75,000

$75,001 - $90,000

$90,001 - $120,000

$120,001+

Families

$0 - $150,000

$150,001 - $180,000

$180,001 - $240,000

$240,001+

Medicare levy surcharge

nil

1.00%

1.25%

1.50%

Private health insurance rebate

       

        Less than 65 years

30%

20%

10%

nil

        65 to 69 years

35%

25%

15%

nil

        70 years or over

40%

30%

20%

nil

Source: ‘Part 2: Expense measures’, Budget Measures: Budget Paper No. 2: 2009–10, p. 311.

These changes represent substantial cuts. For example, the current 30 per cent rebate is available to all high income earners. The proposed changes deny this rebate once a person’s or family’s income for Medicare Levy purposes goes above the thresholds.

In his speech in reply the Leader of the Opposition, Malcolm Turnbull, has proposed a substantial increase in tobacco excise in the place of the above proposed reduction in the private health insurance rebate.[1]

Additional measures

From 1 July 2009 the Government also proposes to tighten

  • the rules governing the use of non-commercial losses arising from unprofitable business to generate tax deductions
  • eligibility to concession in employee share schemes
  • tax exemption for income from foreign employment.

For further information see the section on ‘Fairness and Integrity Measures’ in this Budget Review.



[1].    M. Turnbull, ‘Second reading speech: Appropriation Bill (No. 1) 2009–2010’, House of Representatives, Debates, 14 May, 2009, pp. 81–85.


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