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How the changes to the tax system in 2013 will impact tax payers

By Edited Nov 13, 2013 1 2

Introduction

Below I have made a comparison of how the changes that have been made to the Australian tax system will impact tax payers in the 2012-2013 financial year. I will start by covering how the tax tables have changed and the show several scenarios and comparisons between the two financial years, these comparisons includes the impact of the change in the tax free threshold, Changes to the HECS/Fee-Help thresholds and other changes

Income Tax

 

The current tax-free threshold is $18,200 which has increased from $6,000 in 2011-2012, and the highest marginal rate for individuals is 45%.  As with many other countries, income tax is withheld from wages and salaries in Australia, often resulting in refunds payable to taxpayers.  The most recent tax tables are presented below:

 

Lower Threshold
Upper Threshold
Tax on this income
$0.00
$18,200
$0
$18,201
$37,000
19c for each $1 over $18,200
$37,001
$80,000
$3,572 plus 32.5cents for each $1 over $37,000
$80,001
$180,000
$17,547 plus 37cents for each $1 over $80,000
$180,001
Over $180,001
$54,547 plus 45c for each $1 over $180,000

 

 

Flood Levy

The Flood levy was introduced at the beginning of the 2012 financial year due to the recent natural disasters that affected several states across Australia. Its purpose is to help affected communities to essential infrastructures such as bridges and schools. The Flood levy was only charged for the 2012 financial year and as of 1st of July 2012 tax payers are no longer required to pay the levy.

Low Income Tax Offset (LITO)

The Low Income Tax Offset also known as the LITO is a tax offset that is designed to assist low income earners by reducing their tax payable amount, for example a tax payer who has a tax payable amount of $1200 and a Low Income Tax Offset amount of $500 they individual is only required to pay $700 in tax ($1200-$500=$700). Going into the 2013 financial year there has been three main changes from the 2012 year, the first is the increase of the lower threshold from $30,000 to $37,000, this means that an individual with a taxable income of less than $37,500 has access to the full tax offset. The second change is the value that the offset decreases once an individual goes over the threshold, in 2012 to offset amount decreased by 4 cents for every dollar over the minimum threshold, 2013 saw this amount drop to 1.5 cents for every dollar. The final change that has affected the LITO is the value of the full Low Income Tax Offset, in 2012 the full offset was $1500 and in 2013 the amount was decreased to $445.  The below table reflects the changes to the LITO;

 

2011-2012

2012-2013

Full LITO

$1500

$445

Lower Threshold

$30,000

$37,000

Amount the offset decreases by

4cents / $1

1.5cents / $1

HECS/Fee-Help

HECS-HELP and Fee-Help is a provided to students attending tertiary education, the loan is funded by the government and is repaid through the tax system. Once an individual reaches a certain threshold they must start making repayments, as their wage increases repayment amount increase also, below is a table which presents the change in rates from 2012-2013 financial years:

2011-2012

2012-2013

 

Lower Threshold

Lower Threshold

Rate

$0

$0

0.0%

$47,196

$49,096

4.0%

$52,573

$54,689

4.5%

$57,948

$60,280

5.0%

$60,994

$63,449

5.5%

$65,564

$68,203

6.0%

$71,007

$73,865

6.5%

$74,744

$77,752

7.0%

$82,254

$85,565

7.5%

$87,650

$91,178

8.0%

 

 

Scenarios

Below are five scenarios which show the effect of the new tax rates, I have calculated this myself and although the income and scenarios may match your situation you should seek advice on your personal tax situation.

Scenario 1 ($50,000 per year)

 

2011 – 2012

2012 - 2013

Variance

HECS/FEE-Help

$0

$0

$0

Medicare Levy

$750

$750

$0

Flood Levy

$0

$0

$0

Low Income Tax Offset (LITO)

$700

$250

-$450

Income Tax

$8550

$7797

-$753

Net Income

$41,400

$41,703

$303

 

Scenario 2 ($72,000 per year with HECS Debt)

 

2011 – 2012

2012 - 2013

Variance

HECS/FEE-Help

$5,493.60

$4,708.80

$-784.5

Medicare Levy

$1,080

$1,080

$0

Flood Levy

$110

$0

$110

Low Income Tax Offset (LITO)

$0

$0

$0

Income Tax

$15,150

$14,947

-$203

Net Income

$50,166.40

$51,264.20

$1097.8

 

Scenario 3 ($32,500 per year)

 

2011 – 2012

2012 - 2013

Variance

HECS/FEE-Help

$0

$0

$0

Medicare Levy

$487.50

$487.50

$0

Flood Levy

$0

$0

$0

Low Income Tax Offset (LITO)

$1,400

$445

-$450

Income Tax

$3,975

$2,715

-$1,260

Net Income

$29,437.50

$29,740.50

$303

 

Scenario 4 ($59,000 per year with HECS debt)

 

2011 – 2012

2012 - 2013

Variance

HECS/FEE-Help

$3,537.05

$2,893.95

-$643.10

Medicare Levy

$885

$885

$0

Flood Levy

$45

$0

$45

Low Income Tax Offset (LITO)

$340

$115

-$225

Income Tax

$11,250

$10,722

-$528

Net Income

$43,622.95

$44,614.05

$991.10

 

Scenario 5 ($92,000 per year)

 

2011 – 2012

2012 - 2013

Variance

HECS/FEE-Help

$0

$0

$0

Medicare Levy

$1800

$1800

$0

Flood Levy

$450

$0

$0

Low Income Tax Offset (LITO)

$0

$0

$0

Income Tax

$32,350

$32,347

-$3

Net Income

$85,400

$85,853

$453

Overall Comparison

It can be seen that overall the amount of tax payable decreases slightly, in all the scenarios the taxpayer was better off by a minimum of $303 and a maximum of $991.10. Although the Low income tax offset threshold has been increased from $30,000 to $37,000 it does not have a great impact on taxpayers due to the offset being cut from $1500 to $445.

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Comments

Aug 1, 2012 8:03am
kmancloquet
Very cool article. This was very helpful to me. I loved how you broke down the income tax, so it was easy to understand.
Aug 1, 2012 4:15pm
ajsbooks
Thanks, I am currently in the process of building a website which should explain the process in more detail and it also covers multiple years. www.aussietaxrates.com.au
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