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Newsletter May 2007

Tax Highlights

Personal Tax Cuts
Further cuts to personal income tax are proposed to take effect in two stages: from 1 July 2007 and from 1 July 2008.

From 1 July 2007:

• the 30% threshold will increase from $25,001 to $30,001, and
• the low income tax offset will increase from $600 to $750 and will begin to phase out from $30,000. Taxpayers eligible for the full low income tax offset will not pay tax until their annual income exceeds $11,000.

 From 1 July 2008:

• the 40% threshold will increase from $75,001 to $80,001, and
• the 45% threshold will increase from $150,001 to $180,001.

Senior Australians
The effect of the tax cuts is that, from 1 July 2007, senior Australians eligible for the senior Australians tax offset will be able to earn more income without paying tax. Singles will be able to have taxable income up to $25,867 (up from $24,867) and couples up to $43,360 (up from $41,360).

Child Care Tax Offset
From 1 July 2007, the government will bring forward the payment of the 30% child care tax offset so that families will receive the offset as a direct payment shortly after the year in which the child care costs have been incurred. The maximum payment will be $4,096 per child for 2005/06 and $4,211 per child for 2006/07.

Small Business Changes
From 1 July 2007, businesses with annual turnover of less than $75,000 will no longer be required to register for GST. Also, the GST registration threshold for non-profit bodies will be increased to $150,000.

Further, effective from 1 July 2008, these taxpayers will be able to pay their PAYG instalments on an annual basis.

Medicare Low Income Thresholds
From 1 July 2006, the Medicare levy low-income threshold will increase to $16,740 (from $16,284) for individuals and $28,247 (from $27,478) for families.

The Medicare levy low-income threshold for pensioners below age pension age will also be increased. From 1 July 2006, the threshold will rise to $21,637 (from $19,583).

Dependent Spouse Rebate Increased
The dependent spouse rebate will be increased to $2,100 (up from $1,655) for the 2007/08 and later income years. This increase will benefit taxpayers with a dependent spouse, who do not have a dependent child.

This change will also allow the dependent spouse to earn more income before the rebate is completely phased out. The dependent spouse rebate will be completely phased out when the spouse has separate net income of $8,681 (up from $6,901 currently).  

Until recently, capital gains tax (CGT) rollover relief on the breakdown of a marriage was available only for assets transferred to a former spouse because of a court order or consent order, which is often a costly court process. The recent changes have also meant that assets transferred because of a binding financial agreement or arbitral award also qualify for rollover relief.

CGT rollover relief on marriage breakdown means capital gains tax is not payable on the transfer of assets to a former spouse but is deferred so that the former spouse pays any CGT when they later sell or dispose of those assets.

The recent changes to the superannuation laws will mean that from 1 July 2007;

• where an existing member has not quoted a TFN to a fund, all before tax contributions above the $1,000 threshold will be taxed at the top marginal tax rate plus Medicare levy,
• for accounts that begin after 1 July 2007 all before tax contributions will be taxed at the highest marginal tax rate plus Medicare levy when the TFN is not quoted.

Under the proposed changes, most people have up until 30 June 2008 to give their TFN to their superannuation fund before the higher tax rate need apply.

The government has also announced its intention that superannuation funds will only be able to accept after-tax contributions to a member’s fund, if they have a TFN for that member.