Budget Report 2010
By Arthur Kassos, CPA
The 2010/2011 federal budget released last month focussed little on personal tax changes this time around. Following is an outline of the budget implications for personal tax.
1.The medical expenses rebate threshold of $1,500 will be increased to $2,000 from 1st July 2010.
2.From the current financial year the medical levy low income threshold will increase to $18,488 (from $17,794) for single people and to $31,196 (from $30,025) for couples.
3.Personal income tax cuts previously legislated will apply for the 2010 11 years and with an increase in the low income offset to $1,500 means that people earning up to about $16,000 are entitled to all the available tax offsets will pay no tax.
Other tax cuts are as per the table set out below:
|Tax Threshold Income Range ($)||2009 10 (%)||2010 11 (%)|
4.From the 2012 13 years the much-talked-about option of a standard deduction of $500 instead of any employment deductions and tax agent fees, increasing to $1,000 in the 2013 14 income year, will come into effect. What most people don't realise is that the deduction of say $500 doesn't give you a refund of $500. Your refund will be $500 x your marginal tax rate.
a) If you earn under $35,000 your refund on a $500 deduction is:
= 500 x (15% tax + 1.5 M/C Levy)
= 500 x 16.5%
b) and if you are an average tax payer and pay 31.5% tax then your refund will be
= $500 x 31.5%
A lot of people are under the impression that it is a $500 refund but this is definitely not the case.
5.Interest earned from 1st July 2010 on deposits held in banks, building societies and credit unions, on bonds, debentures and annuity products will have a 50% discount on the tax payable, but only on the first $1,000 of interest earned. This will be an incentive for people to save money and increase their financial security.
The budget had no surprises and was a budget prepared to take into account the shaky economic climate that has engulfed the world's economies. The caution taken by the government should be a good lesson for households to do the same thing. THINK BEFORE YOU SPEND.