Federal Budget 2011-12 and Tax Changes

On the surface, the 2011-12 budget didn't make significant changes. However, as usual, the fine print revealed some nasties.

Phasing out of dependent spouse offset

The first nasty is the phasing out of the Dependent Spouse Tax Offset for taxpayers with a dependent spouse born on or after 1 July 1971. This could reduce a refund by up to $2300. This measure is set to eliminate one of the barriers to workforce participation by gradually removing the tax concession for taxpayers with a non‑working spouse and no children.

Taxpayers with an invalid or permanently disabled spouse, supporting a carer, or people who are eligible for the zone, overseas forces and overseas civilian tax offsets will not be affected by this change.

Removing minors' eligibility for low income tax offset on unearned income

The second nasty is the Government will remove access to the Low Income Tax Offset (LITO) for unearned income of minors, effective from 1 July 2011.

The measure will discourage high income earners allocating their income to children under 18 years of age. The removal of this access to LITO will only impact unearned income such as dividends, interest, rent, royalties, income from property and trust distribution to minors.

Children under 18 will continue to be able to use the LITO to reduce income tax on their employment income. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors, will not be affected by this measure.

This measure will have a significant impact on tax outcomes for affected taxpayers, adding around $1000 tax for each dependent child eligible for distributions from trusts etc.

Other than this the budget was fairly bland.

Tax Rates for 2011-12

For example, the tax rate remains the same as 2010-11:

Taxable income Tax on this income
0 - $6,000 Nil
$6,001 - $37,000 15c for each $1 over $6,000
$37,001 - $80,000 $4,650 plus 30c for each $1 over $37,000
$80,001 - $180,000 $17,550 plus 37c for each $1 over $80,000
$180,001 and over $54,550 plus 45c for each $1 over $180,000


Increasing the Medicare levy low-income thresholds

With retrospective effect from 1 July 2010, the Medicare levy low-income thresholds will increase to $18,839 for individuals and $31,789 for families.

The additional amount of threshold for each dependent child or student will also increase to $2,919.
Also effective from 1 July 2010, the Medicare levy threshold for single pensioners below Age Pension age will increase to $30,439.

Medicare levy surcharge thresholds for 2011/12

For the 2011/12 income tax year, the income tax thresholds for Medicare Levy Surcharge will be:
  • $80,000 single surcharge threshold

  • $160,000 family surcharge threshold (increases by $1,500 for each dependant child after the first)
Note ==> private hospital cover will negate this surcharge.


Additional expenses eligible for Education Tax Refund

The Education Tax Refund entitles eligible parents, carers, legal guardians and independent students to a tax refund upon incurring certain expenses. Currently, these expenses include computers, educational software, textbooks and other items. The Government is proposing to extend the definition of eligible expenses to include school uniforms. This measure will apply from 1 July 2011.

Copyright 2014. My Tax Zone.