Hot Topic, Individuals, Tax

Federal Budget 2016 – Proposed Changes to Individual Taxation

counting_money_piggy_bank_600x250Whilst other proposals have been announced, such as changes to the Medicare Levy for low income thresholds and an increase to the tobacco excise, in this article we focus on tax cuts for employees and the Higher Education Loan Program (HELP) reforms.

1.  Tax Cuts for Employees

Effective 1 July 2016, the 32.5% personal income tax bracket for the average wage will increase from $37,001 – $80,000 to $37,001 – $87,000. As a result of this change, it is anticipated that around half a million average wage earners will not move into the second top tax bracket until 2019-20.

The Treasurer also indicated that the 2% debt levy on individuals earning more than $180,000 per annum will not be extended and so will cease at the end of the 2016-17 financial year.

The current and proposed personal tax rates are shown in the following table. This includes the 2% temporary budget deficit levy but excludes the 2% Medicare levy.

2015-16 2016-17
  Threshold Rate Threshold Rate
1st rate $0-$18,200 0% $0-$18,200 0%
2nd rate $18,201-$37,000 19.0% $18,201-$37,000 19.0%
3rd rate $37,001-$80,000 32.5% $37,001-$87,000 32.5%
4th rate $80,001-$180,000 37.0% $87,001-$180,000 37.0%
5th rate $180,000 + 47.0% $180,000 + 47.0%

The top marginal tax rate with the Medicare levy included is 49% from 1 July 2014 to 30 June 2017.

Non-Resident Tax Rates

For non-resident tax rates, the current and proposed personal tax rates are outlined in the following table:

2015-16 2016-17
  Threshold Rate Threshold Rate
1st rate $0-$80,000 32.5% $0-$87,000 32.5%
2nd rate $80,001-$180,000 37.0% $87,001-$180,000 37.0%
3rd rate $180,000 + 47.0% $180,000 + 47.0%

Foreign residents that hold a Special Program Visa (subclass 416) and are employed by an approved employer under the Seasonal Labour Mobility Program will be taxed at a flat rate of 15%.

2.  Higher Education Loan Program (HELP)

In the 2015 Budget, the Government introduced changes to the HELP repayment framework in order to recover repayments of debts owed by overseas residents who live, or intend to live, overseas for more than six months in any given 12 month period.

From 1 January 2016, individuals were required to update their contact details with the ATO within seven days of leaving Australia. Where an individual already resides overseas, this date extends to 1 July 2017.

From 1 July 2017, individuals will be required to provide details to the ATO of their worldwide income for the financial year ended by 31 October each year. If the income exceeds the minimum repayment threshold then compulsory payments, at the same repayment rates as taxpayers who are Australian residents, will be required to be made.

If you are not sure how any of the proposed changes may affect you, please give us a call.