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Issue 149, 11 May, 2007
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On Tuesday, 8 May 2007, the Federal Treasurer, the Hon Peter
Costello MP, handed down the 2007/08 Federal Budget, his 12th
Budget. From a taxation point of view, this Budget, like the last
two, is a significant one. The pre-Budget speculation, as usual,
predicted many things, but the Budget itself delivered a range of
taxation and related changes that will be of importance to many.
The taxation centrepiece of the Budget relates to personal
taxation measures. Further significant tax cuts were announced. The
tax cuts provide for: increasing the 30% threshold to $30,000 from 1
July 2007, increasing the 40% threshold to $80,000 and,
surprisingly, increasing the top rate threshold to $180,000, both
with effect from 1 July 2008.
Also, there is to be a one-off doubling of the superannuation
co-contribution for those persons who made eligible contributions in
the 2005/06 year. The Child Care Benefit will increase by 10% from 1
July 2007, and will be available as a direct payment shortly after
the end of the year. In addition, tax-free bonus payments will be
made to older Australians and carers.
Revenue measures announced
In summary, the many revenue measures announced
in the 2007 Federal Budget include:
- personal tax cuts: as noted
above, from 1 July 2007, the 30% threshold will increase to
$30,000, and, from 1 July 2008, the 40% threshold will increase
to $80,000 and the top rate threshold will increase to $180,000;
- offsets and thresholds
increased: the low income offset will increase to $750; the
Senior Australians Tax Offset (SATO) income thresholds will be
increased; the dependent spouse rebate and the Medicare levy low
income thresholds will be increased;
- Child Care Benefit: the
rate of Child Care Benefit will be increased by 10% and the
Child Care Rebate will be converted to a direct payment;
- tax returns: the Tax Office
will get more funding to help with pre-filling of tax returns
with information;
- small business: the GST
registration threshold will be increased to $75,000, the
threshold for an approved tax invoice will increase to $75, and
availability of simplified accounting methods for GST will be
extended;
- company losses: the $100
million cap on the same business test will be abolished, with
effect from 1 July 2005;
- consolidation: a number of
changes e.g. re-authorised deposit-taking institutions;
- superannuation: the
Government will provide a one-off doubling of the superannuation
co-contribution;
- venture capital:
eligibility requirements will be relaxed;
- MIS: trading of interests
in forestry managed investment schemes (MISs) will be allowed;
and
- films: new tax incentives
for film production are provided.
More information on the tax-related announcements is also
contained in a number of press releases - see the Treasurer's
Website and the Assistant
Treasurer's Website.
As has been the case for at least the last several years, many
pre-Budget submissions called for further tax reforms,
simplification changes and measures to reduce tax compliance costs.
Notable were calls for further reform of the personal tax rate
scales and/or thresholds, and for a sliding or stepped scale to be
applied to CGT. The Australian Chamber of Commerce and Industry, for
example, proposed the introduction of a stepped rate of CGT, where
the rate of tax on capital gains would reduce to zero over time,
i.e. after 10 years, capital gains would no longer be taxed. While
the Budget did not take up this proposal, it did nonetheless contain
a surprisingly wide range of tax measures (see summary above).
Budget economic snap-shot
In the lead-up to the Budget, the Prime Minister promised a 'strong surplus' and an economically responsible Budget. The
Treasurer announced a forecast underlying cash surplus in 2007/08 of
$10.6 billion, the 10th surplus in 11 years. Mr Costello said that,
overall, GDP growth is forecast to be 3.75% in 2007/08, with
inflation forecast to be 2.5% in that year.
Full details of purchase options are on the Budget
Website.
On the Web
The Budget Papers are also available at any of
the following four Websites:
This article appeared in ATP's daily Latest
Tax News (Tuesday, 8 May). With tax fast-moving and ever
changing - EVERY DAY, practitioners rely on Thomson ATP's daily
Latest Tax News for quick, accurate, comprehensive information - no compromises. When you need to know what's new in tax and
related news every day, there's only one place to look - LTN. To
find out more, click
here.
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In the 2007 Federal Budget, the Treasurer announced that:
- from 1 July
2007:
- the 30% personal tax rate
threshold will increase from $25,001 to $30,001; and
- the low income tax offset (LITO)
will increase from $600 to $750 and will begin to phase
out from $30,000. Taxpayers eligible for the full LITO
will not pay tax until their annual income exceeds $11,000
(up from $10,000);
-
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.
The Treasurer said the 2007/08 Budget tax cuts mean that over
80% of taxpayers face a top marginal tax rate of 30% or less. A
taxpayer will need to earn $134,000 to pay an average tax rate of
30% in 2008/09, Mr Costello said. Taxpayers will not reach the top
marginal tax rate until they earn more than 3 1/2 times average
weekly earnings in 2008/09, he said.
Resident rates
The current tax rate scales for residents (excluding Medicare
levy) applicable from 1 July 2006 to 30 June 2007, are:
|
RESIDENT
TAX RATES: 1 JULY 2006 - 30 JUNE 2007
|
| Taxable
income ($) |
Tax
payable ($) |
| 0
- 6,000 |
Nil |
| 6,001
- 25,000 |
Nil
+ 15% of excess over 6,000 |
| 25,001
- 75,000 |
2,850 + 30% of excess over 25,000 |
| 75,001
- 150,000 |
17,850 + 40% of excess over 75,000 |
| 150,001+ |
47,850 + 45% of excess over 150,000 |
The resident tax rates as proposed by the 2007/08 Budget are as
follows:
PROPOSED
RESIDENT RATES: 1 JULY 2007 - 30 JUNE 2008
|
| Taxable
income ($) |
Tax
payable ($) |
| 0
- 6,000 |
Nil |
| 6,001
- 30,000 |
Nil
+ 15% of excess over 6,000 |
| 30,001
- 75,000 |
3,600
+ 30% of excess over 30,000 |
| 75,001
- 150,000 |
17,100
+ 40% of excess over 75,000 |
| 150,000+ |
47,100
+ 45% of excess over 150,000 |
PROPOSED
RESIDENT RATES: 1 JULY 2008 ONWARDS
|
| Taxable
income ($) |
Tax payable ($) |
| 0
- 6,000 |
Nil |
| 6,001
- 30,000 |
Nil
+ 15% of excess over 6,000 |
| 30,001
- 80,000 |
3,600
+ 30% of excess over 30,000 |
| 80,001
- 180,000 |
18,600
+ 40% of excess over 80,000 |
| 180,001+ |
58,600
+ 45% of excess over 180,000 |
As a result of the proposed threshold changes, the Government
calculates that annual tax savings will be, for example:
-
$150 for
those earning up to $25,000pa in 2007/08 and 2008/09;
-
$1,100 for
those earning $30,000-$40,000 in 2007/08 and 2008/09; and
-
$750 for
those earning $50,000-$75,000 in 2007/08 and 2008/09.
Non-resident tax rates
The current tax rate scales for non-residents
applicable from 1 July 2006 to 30 June 2007 are:
NON-RESIDENT
TAX RATES: 1 JULY 2006 - 30 JUNE 2007
|
| Taxable
income ($) |
Tax
payable ($) |
| 0
- 25,000 |
Nil
+ 29% |
| 25,001
- 75,000 |
7,250
+ 30% of excess over 25,000 |
| 75,001
- 150,000 |
22,250
+ 40% of excess over 75,000 |
| 150,001+ |
52,250
+ 45% of excess over 150,000 |
PROPOSED
NON-RESIDENT TAX RATES: 1 JULY 2007 - 30 JUNE 2008
|
| Taxable
income ($) |
Tax
payable ($) |
| 0
- 30,000 |
29% |
| 30,001
- 75,000 |
8,700
+ 30% of excess over 30,000 |
| 75,001
- 150,000 |
22,200
+ 40% of excess over 75,000 |
| 150,000+ |
52,200
+ 45% of excess over 150,000 |
PROPOSED
NON-RESIDENT TAX RATES: 1 JULY 2008 ONWARDS
|
| Taxable
income ($) |
Tax
payable ($) |
| 0
- 30,000 |
29% |
| 30,001
- 80,000 |
8,700
+ 30% of excess over 30,000 |
| 80,001
- 180,000 |
23,700
+ 40% of excess over 80,000 |
| 180,001+ |
63,700
+ 45% of excess over 180,000 |
An interesting comparison over last few years
As a result of the threshold changes announced in
the 2007/08 Budget, it is now interesting to compare the resident
individual tax rates that have applied from the 2004/05 income
year. They are set out in the following tables:
RESIDENT
TAX RATE SCALES 2004/05 TO 2006/07
|
Thresholds
2004/05 ($) |
Tax
rate |
Thresholds
2005/06 ($) |
Tax
rate |
Thresholds
2006/07 ($) |
Tax
rate |
| 0
- 6,000 |
Nil |
0
- 6,000 |
Nil |
0
- 6,000 |
Nil |
| 6,001
- 21,600 |
17% |
6,001
- 21,600 |
15% |
6,001 - 25,000 |
15% |
| 21,601
- 58,000 |
30% |
21,601 - 63,000 |
30% |
25,001
- 75,000 |
30% |
| 58,001
- 70,000 |
42% |
63,001
- 95,000 |
42% |
75,001
- 150,000 |
40% |
| 70,001+ |
47% |
95,001+ |
47% |
150,001+ |
45% |
PROPOSED
RESIDENT TAX RATE SCALES 2007 ONWARDS
|
Proposed
thresholds
2007/08 ($) |
Tax
rate
% |
Proposed
thresholds
2008 and after ($) |
Tax
rate
% |
| 0
- 6,000 |
Nil |
0
- 6,000 |
Nil |
| 6,001 - 30,000 |
15% |
6,001
- 30,000 |
15% |
| 30,001
- 75,000 |
30% |
30,001
- 80,000 |
30% |
| 75,001
- 150,000 |
40% |
80,001
- 180,000 |
40% |
| 150,000+ |
45% |
180,001+ |
45% |
The thresholds and rates in bold indicate a threshold or rate
that changed in that year.
A comprehensive tax payable ready reckoner (for resident
individuals) will be reproduced in Australia's leading tax rates
service, Thomson's Tax Rates & Tables. The service also
contains over 150 other annual tax data tables.
More information can be found in Budget
Paper No. 2: Budget Measures 2007/08 and in the Treasurer's press
releases dated 8 May 2007.
This article appeared in ATP's daily Latest
Tax News (Tuesday, 8 May). With tax fast-moving and ever
changing - EVERY DAY, practitioners rely on Thomson ATP's
daily Latest Tax News for quick, accurate, comprehensive
information - no compromises. When you need to know what's new
in tax and related news every day, there's only one place to
look - LTN. To find out more, click
here.
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