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Joint tax returns will provide effective tax cut for families, says Tax Institute

Publication date: 09 Mar 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia (TIA) has recommended the introduction of a system of voluntary joint tax returns for families and a reduction in the top marginal rate for personal income tax to 36% to equate to the company tax rate as part of an overall tax reform package in its submission on Tax Reform in Australia prepared for the Gibson Committee.

"The introduction of voluntary joint tax returns would result in effective tax cuts for married couples without the need for any changes to current rates and if the Government were to desire a greater degree of tax cuts, the rates scale could also be amended," said Taxation Institute of Australia Tax Technical Director, Ms Annamaria Carey.

"Such a measure would be very popular with taxpayers because it is fairer than the present system. It would also be popular with the Government and the ATO because it would indirectly create an environment where setting up complicated minimisation strategies would no longer be attractive for most families," she said.

Similar systems are in place in other jurisdictions such as France, Germany and the USA. An example of how the system would work is detailed in the attached table.

In addition to this, the TIA recommend a reduction in the top marginal rate for personal income tax to 36% to provide further assistance to families.

"High marginal tax rates for individuals serve as a double-edged sword. They act as a positive discouragement to individuals to work harder and therefore earn more and they act as a disincentive to saving as returns on investments are also subject to high rates of tax," Ms Carey said.

"As more taxpayers find themselves in this top tax bracket (20% of taxpayers in 1998 compared to 1% of taxpayers in 1970) an increasing number of individuals are entering into salary sacrifice arrangements and income splitting through companies and trusts in an attempt to minimise their tax. However, not all taxpayers have the capacity to enter into such minimisation arrangements, nor should they need to," she said.

Another recommendation in the Tax Reform in Australia submission is to index tax brackets to average weekly earnings to resolve the problem of 'bracket creep'.

"Bracket creep also acts as an incentive to minimise tax through salary sacrifice arrangements," Ms Carey said.

"By linking average weekly earnings (AWE) to tax brackets, with the highest marginal rate applying at 1.5 times AWE (currently $45,520) bracket creep is effectively eliminated.

"By introducing these measures the Government will reduce Australias' belief that they are paying too much tax," she said.