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09 May 06 Personal tax cuts

From 1 July 2006, Australian taxpayers will share in tax cuts worth $36.7 billion over the next 4 years. This is in addition to the $21.7 billion tax cuts provided in the 2005 06 Budget.

Changes to the personal tax rates and thresholds from 1 July 2006 are as follows:

- the 30% threshold will rise from $21,601 to $25,001;
- the 42% marginal tax rate will be cut to 40% and the threshold will rise from $63,001 to $75,001; and
- the top marginal tax rate will be cut from 47% to 45% and the threshold will rise from $95,001 (the threshold for the 2005-06 year) to $150,001 (rather than $125,001, as announced in last year's Budget).

In addition, the Low Income Tax Offset (LITO) will increase from $235 to $600 and will begin to phase out from $25,000. As a result of both of these changes, the income limit up to which some offset can be claimed will increase from $27,475 to $40,000. Taxpayers with annual incomes between $21,600 and $40,000 will benefit from both the increase in the 30% threshold to $25,001 and the increase in the Low Income Tax Offset. Taxpayers eligible for the full LITO will not pay tax until their annual income exceeds $10,000 (up from $7,567). The Medicare levy phase in for low income earners will also be reduced from 20% to 10%.

As a result of the change to the top marginal rate, the FBT rate will also be reduced from 48.5% to 46.5%, effective from 1 April 2006.

The top marginal tax rate is the rate is also applicable in a number of cases in different parts of the tax law. For example, it is applied to contributions and earnings of non complying superannuation funds, the unearned income of minors and the net income of a trust estate to which no beneficiary is presently entitled.  Generally, rates of tax that reflect the top marginal rate will also be reduced to 45%.

The Treasurer,  Peter Costello,said that the Budget tax cuts ensure that over 80% of taxpayers face a top marginal tax rate of 30% or less.  A taxpayer will need to earn $121,500 to pay an average tax rate of 30%.

For a copy of the Treasurer's press release No 43, 9 May 2006, go here

 

Current tax thresholds
Tax rate
New tax thresholds from 1 July 2006
Tax rate
Income range ($)
%
Income range ($)
%
0 - 6,000
0
0 - 6,000
0
6,001 - 21,600
15
6,001 - 25,000
15
21,601 - 63,000
30
25,001 - 75,000
30
63,001 - 95,000
42
75,001 - 150,000
40
95,000 +
47
150,001 +
45

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